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Why Congress Needs to Extend Emergency Unemployment Benefits

Today’s employment report did not impress a lot of people, but it provided at least some reassurance that economic recovery continues. As expected, total U.S. payrolls fell in June because 225,000 temporary Census workers left their jobs. But, private hiring—an essential ingredient to a sustainable recovery—picked up a bit after a lull in May. The private sector added about 80,000 jobs in June, bringing the total increase this year to close to 600,000.

While the labor market seems to be moving in the right direction, it is still very weak. The unemployment rate, at 9½ percent, is still nearly double its level when the recession began, and the job gains this year are small relative to the 8 million-plus jobs lost over the previous two years (not to mention the jobs that would have been created for our growing population had the economy not entered a downturn). And, the broader economic recovery remains fragile. Although the majority of analysts believe the most likely outcome is continued moderate economic growth, the recovery could falter if private demand does not gain enough momentum to offset the expected waning of fiscal stimulus in coming quarters, or if we see further fallout in U.S. financial markets from the sovereign debt and financial problems in Europe.

Under these circumstances, it is unfortunate, in my view, that Congress has not extended the emergency unemployment benefits that expired on June 1st. More than a million unemployed workers have already seen their benefits lapse and 200,000 people are expected to lose their benefits with each passing week that Congress does not act. Reinstating those benefits would reduce the painful cutbacks in consumption that many households that have lost jobs would otherwise have to make. Reinstating the benefits would also help the broader public by contributing to overall demand in goods and services and thereby mitigating the risks of a double dip in the economy.

To be sure, providing unemployment insurance benefits for longer periods of joblessness has downsides. Some workers receiving benefits will not look as hard for new jobs or will be less willing to accept jobs that they don’t like. If emergency unemployment benefits were still in force when the labor market recovered, this phenomenon could contribute to persistently high unemployment. But, right now, there is no shortage of workers to take jobs that people don’t want.

In addition, of course, extending emergency unemployment insurance benefits would add to the already mounting government debt. No policy change costing tens of billions of dollars should be shrugged off. But, we need to be willing to incur additional debt now for a program that is likely to yield important benefits to our fragile economy. And, doing so is not inconsistent with a desire to reduce debt over time—as long as we pay for the borrowing in better economic times.


Karen Dynan

Former Brookings Expert

Professor of the Practice of Economics - Harvard University

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