Despite calls from President Obama to extend unemployment benefits before the emergency federal program ended Saturday, there has yet to be any decisive action to delay what will affect upwards of 1.3 million long-term unemployed individuals. According to The Washington Post, an end to the program is also expected to have a far-reaching impact on the economy, with job growth estimated to lose about 300,000 positions next year while hundreds of thousands of households dip below the poverty line.
Beginning in 2008, the federal program has provided up to 47 weeks of supplemental unemployment insurance payments to those seeking work. But an extension failed to make it into the two-year budget deal passed by Congress before winter recess and only one in four unemployed Americans will receive unemployment benefits now that the deal has expired.
Late last week, Obama contacted Senator Jack Reed (D-RI) and Senator Dean Heller (R-NV) to lend his support to their proposal of extending the emergency unemployment benefits for three months, but bipartisan issues regarding the tenuous fiscal environment are likely to complicate the matter. Although Republicans have indicated that they are willing to extend unemployment benefits, Democrats would have to make cuts in other areas to make a bipartisan deal possible.
The loss of unemployment benefits is expected to act as a huge drag on the economy moving into 2014, with billions of dollars in consumer spending lost on the year just as it begins. Of course, extending the program isn’t necessarily cheap; according to The Post, a one-year extension would cost an estimated $25 billion dollars.
However, economists explain that because money from unemployment benefits are most often used immediately, it can have a hugely powerful effect on the economy. Without it, the United States’ annual growth rate is estimated to drop by about 0.4 percentage points in the first quarter of 2014, according to Michael Feroli, the chief United States economist at JPMorgan Chase.
On the other hand, some economists tell The Post that the loss of emergency unemployment benefits would actually cut the U.S. unemployment rate by as much as 0.5 percentage points. One reason is because the loss of benefits will likely spur individuals to search for jobs more vigorously or take a job he or she may have passed on while having a small financial cushion to search for something else. But long-term unemployed are also just as likely to give-up entirely, no longer falling under the category of unemployed and leading to a distorted drop in unemployment.