Unemployment Benefits Extensions
Why Were They Extended?
Definition: Unemployment benefits extensions are federal programs that occurred from 2009 - 2013 that extended unemployment benefits beyond 26 weeks.
Unemployment benefits are available to anyone who was laid off and is actively looking for work. Those who were fired or resigned aren't eligible. Benefits are administered by the each state. They average $292 a week for 26 weeks. They are funded by the federal government from payroll taxes.
Unemployment benefits were originally created by the Social Security Act of 1935 to allow the millions who had lost jobs due to the Great Depression of 1929 to buy food, clothing and shelter.
March 2009: President Obama extended unemployment benefits by 33 weeks as part of the American Recovery and Reinvestment Act. This was to help the 13.1 million people suffering from the 8.5 percent unemployment rate.
November 2009: As the unemployment rate climbed to 10 percent, unemployment benefits were extended for another 14 weeks with the Unemployment Compensation Extension Act of 2009. By that time, the economy had suffered 19 months of job losses. There were 15.2 million people unemployed, down just 400,000 from the all-time high of 15.6 million the previous month. States with unemployment rates at 8.5 percent or higher received an additional six weeks of benefits. That totaled 46 weeks.
July 2010: Unemployment rates were stuck at 9.5 percent, and 14.6 million people were unemployed. Congress reluctantly passed the Emergency Unemployment Compensation Act. Despite the severity of the unemployment situation, there were legislators who opposed adding $34 billion to the national debt.
The most vocal was Representative Paul Ryan (R. WI) who said, "The American people are fed up with Washington's push to spend money we don't have, add to our crushing burden of debt, and evade accountability for the dismal results." Fortunately for the long-term unemployed, the benefits were extended.
The Act extended benefits for up to 99 weeks. Not everyone qualified for the full extension. The benefits were arranged according to four tiers. The first tier gave 20 weeks of benefits. Tier 2 allowed another 14 weeks. Tier 3 applied to states where the unemployment rate was 6 percent or higher. The unemployed there received another 13 weeks. States where the unemployment rate was 8.5 percent or higher received Tier 4 benefits of 6 additional weeks.
December 2010: Congress allowed the extended benefits to expire, directly impacting 800,000 unemployed workers who relied on the extension to tide them over. Why? Because Republicans said the extension added $30 billion to the budget deficit. They also refused to extend the Bush tax cuts for families making under $250,000 unless the cuts are also extended for higher-income families. That would add $80 billion to the deficit over the next 2 years.
September 2011: President Obama submitted the America's Jobs Act to Congress, following an August Employment Report that showed exactly zero jobs were created. It seemed the economy was at a standstill, with the unemployment rate stuck at 9.1 percent. There were 13.97 million people unemployed. The Jobs Act allocated $64 billion to keep the 99-week benefits extension, which was due to expire at the end of 2011. Members of Congress were opposed to continuing the extension of unemployment benefits for the same reason.
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Congress kept the extension until the end of the calendar year. It was part of the negotiations that kept the economy from falling off the Fiscal Cliff.
The downside of unemployment benefits is that it can, like any other government spending, increase budget deficits, and add to the government debt. How can this hurt the economy? As debt approaches 100 percent of total output for the year, investors become worried that the government can't pay back its debt. Demand falls for U.S. Treasury bonds, which are used to finance government spending. This makes interest rates rise, increasing the cost of borrowing for everyone. That's because most loans peg their interest rates to the yield on Treasurys.
However, benefits have a similar, but even more direct, effect as lower interest rates. It gives the unemployed more money to spend, increasing demand. In fact, every $1 of unemployment benefits puts $1.47 into the economy.
Most government spending usually takes the form of jobs programs, where the government hires workers and businesses directly to build things or provide services. Benefits eliminate the middle man, sending money directly into the pockets of those who will spend them right away. For more, see Why Are Unemployment Benefits the Best Way to Boost the Economy?