Extension of Unemployment Benefits = Economic Stimulus

Posted on by Karina

Senate Republicans have repeatedly obstructed job creation legislation that extended critical unemployment insurance benefits to help Americans who have lost their jobs through no fault of their own make ends meet as they look for their next job opportunity. The Republican obstruction is unprecedented–since 1959, Congress has never let extended unemployment benefits expire when unemployment is over 7.2%. Last week, the House once again passed urgently-needed legislation to extend unemployment benefits for millions of American families–nearly 80% of House Republicans voted against the bill.

When asked about the bill at her weekly press conference last week, Speaker Pelosi explained that extending unemployment benefits is not only the right thing to do, but it is also a boost to our economy:

When the economy turns down, there is a compact that we have that there is unemployment insurance for those who, through no fault of their own, lose their job, and we owe them that. It is a safety net, not just for those individuals but for our whole system, our whole system.

Now, let me say about unemployment insurance, we talk about it as a safety net and the rest. This is one of the biggest stimuli to our economy. Economists will tell you this money is spent quickly. It injects demand into the economy, and it is job creating. It creates jobs faster than almost any other initiative you can name because, again, it is money that is needed for families to survive, and it is spent. So it has a double benefit. It helps those who have lost their jobs, but it also is a job creator.

Analysis from the nonpartisan Congressional Budget Office (CBO) finds that extending unemployment benefits is one of the most cost-effective and fast-acting ways to stimulate the economy. Moreover, economists agree that extending these benefits will create jobs and decrease the chances of slipping back into a double dip recession.

Congressional Budget Office:

Policies that could be implemented relatively quickly or targeted toward people whose consumption tends to be restricted by their income, such as reducing payroll taxes for firms that increase payroll or increasing aid to the unemployed, would have the largest effects on output and employment per dollar of budgetary cost in 2010 and 2011.

Mark Zandi, Chief Economist, Moody’s Analytics:

No form of the fiscal stimulus has proved more effective during the past two years than emergency UI benefits, providing a bang for the buck of 1.61–that is, for every $1 in UI benefits, GDP one year later is increased by an estimated $1.61…

Paul Krugman, Nobel Prize-Winning Economist, New York Times:

…One main reason there aren’t enough jobs right now is weak consumer demand. Helping the unemployed, by putting money in the pockets of people who badly need it, helps support consumer spending. That’s why the Congressional Budget Office rates aid to the unemployed as a highly cost-effective form of economic stimulus. And unlike, say, large infrastructure projects, aid to the unemployed creates jobs quickly – while allowing that aid to lapse, which is what is happening right now, is a recipe for even weaker job growth, not in the distant future but over the next few months…

Alan Blinder, Former Vice Chairman of the Federal Reserve:

Blinder also supports the effort to extend expiring unemployment benefits, which has stalled in Congress.

“Extending unemployment benefits is one of the best forms of stimulus we know,” he says.

Heather Boushey, Senior Economist, Center for American Progress, Christine Riordan, Policy Analyst, National Employment Law Project, Luke Reidenbach, American Progress:

Unemployment benefits prevent sharp declines in consumption, and by putting money directly into the hands of those most likely to spend it, unemployment benefits help turn around the weak consumer demand that is plaguing the private sector today, keeping Americans in their jobs and creating demand for new jobs for the currently unemployed.

Ralph Martire, Executive Director, Center for Tax and Budget Accountability:

… the amount of private sector economic activity stimulated by unemployment benefits is greater than any other fiscal action government can take. In fact, dollar-for-dollar, it's five times more stimulative than the Bush tax cuts.

… Short-term, deficit spending — particularly on things like unemployment insurance, food stamps, housing assistance and the like — is creating jobs and saving the U.S. economy from disaster…

Center on Budget and Policy Priorities:

Temporary increases in unemployment insurance benefits score high in “bang-for-the-buck” calculations of their economic impact as stimulus. The money gets spent fast and its effects spread through the economy. As a result of such policies, local businesses are less apt to lay off workers and cut back on orders from their suppliers during a downturn; and in the early stages of a recovery, they are more apt to hire additional workers and step up their orders.

William Black, Economics Professor, University of Missouri-Kansas City:

[William] Black said the Senate needs to pass an unemployment benefits extension despite the cost to the nation’s debt.

“If you put the country into a deeper recession, tax revenues will fall and you’ll have an even deeper debt,” he said.

Diane Lim Rogers, Chief Economist, Concord Coalition:

Hey, let's get real: extended unemployment benefits are an effective form of stimulus spending, and although they do add to the short-term deficit, they are not part of the longer-term deficit problem…

Let's face it: those who use their “worry” about our longer-term fiscal outlook as a reason to oppose extended unemployment benefits don't want to reduce the deficit as much as they want to get rid of unemployment benefits.

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