Unemployment Benefits

Posted Feb. 24, 2010, at 6:30 p.m.

The U.S. Senate took an important step toward boosting employment this week by approving a jobs bill. Extending unemployment insurance is still needed, however, to ease the immediate consequences — to families and to the economy — of job losses caused by the recession.

Without congressional action, extended unemployment benefits will expire at the end of this month. Those who are searching for work still will get basic benefits, which run for up to 26 weeks. Under the extended provisions, unemployed workers in states with high unemployment could receive up to an additional 20 weeks of unemployment benefits. The benefits also were increased by $25 a week. According to the Center on Budget and Policy Priorities, the increased benefits added $126 million to the pockets of Maine workers through January.

The unemployment provisions, as well as tax cuts, were removed from the jobs bill, which was moved forward with support from five Republicans, including Maine Sen. Olympia Snowe and newcomer Sen. Scott Brown of Massachusetts and approved Wednesday on a strong bipartisan vote.

Economists have ranked extended unemployment benefits among the most effective of many stimulus measures.

Mark Zandi, chief economist for economy.com, has consistently found that extending unemployment benefits is one of the most effective economic stimulants. In an analysis he presented to the House Committee on Small Business in July 2008, Mr. Zandi found that extending unemployment insurance generated $1.64 for every $1 of cost.

The only more effective stimulus was a temporary increase in food stamps, which returned $1.73 for every dollar invested. State fiscal relief, such as increased federal funding for Medicaid, also is helpful, returning $1.36 for each $1 of cost.

Tax-rate reductions returned only 59 cents, costing more than they generated, largely because lowering tax rates results in the largest financial benefits to those with the highest incomes who are likely to invest or save that money rather than spend it.

Extending unemployment benefits works so well because it allows those who are out of work to nearly maintain their spending. Research by Jonathan Gruber, an MIT economics professor, found that the amount a family spends on food falls by 7 percent, on average, when the head of a household becomes unemployed but would decline by 22 percent in the absence of unemployment benefits.

Additional unemployment benefits could begin to be sent out as quickly as 30 days after a bill is passed.

Concern over paying for such assistance is valid, although analysis by the Congressional Research Service shows that such investments pay for themselves over time.

With the economy still lagging, extending unemployment insurance is a wise investment.

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