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Jobless aid cutoff tied to slower growth

Yvette Ward, who has been unemployed for two years, displays a sign during a recent vigil for the unemployed at the Arch Street Methodist Church in Philadelphia. Unemployed people, the Philadelphia Unemployment Project and other organizations gathered to draw attention to federal unemployment benefits that are scheduled to expire. (AP Photo by Matt Rourke)

Yvette Ward, who has been unemployed for two years, displays a sign during a recent vigil for the unemployed at the Arch Street Methodist Church in Philadelphia. Unemployed people, the Philadelphia Unemployment Project and other organizations gathered to draw attention to federal unemployment benefits that are scheduled to expire. (AP Photo by Matt Rourke)

By Paul Wiseman
AP Economics Writer

Washington — If Congress lets unemployment benefits expire this week, the jobless won’t be the only ones to feel the pain. The overall economy would suffer, too.

Unemployment benefits help drive the economy because the jobless tend to spend every dollar they get, pumping cash into businesses. A cutoff of aid for millions of people jobless for more than six months could squeeze a fragile economy, analysts said. Among the consequences they envision over the next year:

• Annual economic growth could fall by one half to nearly 1 percentage point.
• Up to 1 million more people could lose their jobs.
• Hundreds of thousands would fall into poverty.

“Look for homelessness to rise and food lines to get longer as we approach Christmas if the situation can’t be resolved,” said Diane Swonk, chief economist at Mesirow Financial.

The issue is expected to be taken up in the lame-duck session of Congress that resumed Monday.

The average weekly payment for the roughly 8.5 million people receiving unemployment benefits is $302.90. But it ranges widely: from a low of $118.82 in Puerto Rico to a high of $419.53 in Hawaii. Each state sets the amount through a formula meant to replace a portion of a jobless person’s old income.

That money ripples through the economy, into supermarkets, gasoline stations, utilities, convenience stores. That allows those businesses to hire more people, who, in turn, spend more money.

Every $1 spent on unemployment benefits generates up to $1.90 in economic growth, according to the Congressional Budget Office. The program is the most effective government policy for generating growth among 11 options the CBO has analyzed.

Mark Zandi, chief economist at Moody’s Analytics, puts the bang-for-a-buck figure at $1.61, and a recent Labor Department study estimates it at $2.

Analyst Mark Miller of William Blair & Co. figures that, in particular, discount retailers such as Dollar General and Family Dollar will see their revenue pinched by a couple of percentage points next year if extended jobless benefits expire.

“If you’ve been unemployed for six months, you’ve gone through your savings,” said Heidi Shierholz, economist at the Economic Policy Institute. “You have no choice but to spend (jobless benefits) immediately.”

By contrast, money given to higher-income families — say, through tax cuts — tends to deliver less economic benefit because those taxpayers typically save a big chunk of their windfall.

In July 2008, Congress extended jobless benefits to up to 99 weeks: 26 weeks of regular benefits from the states, plus up to 73 weeks in federal aid in states with high unemployment rates. The extended federal benefits will start phasing out on Wednesday if Congress doesn’t act.

Republican lawmakers oppose an extension of the jobless aid if it would enlarge the government’s $1.3 trillion budget deficit. They insist that the cost — around $5 billion a month — be offset with budget cuts elsewhere. Those cuts would reduce the economic impact of extending the jobless benefits. Some in Congress want to pair an extension of unemployment aid with a deal to also extend the Bush-era tax cuts.

Copyright 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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