Large-Scale Loss of Unemployment Benefits and State Funds Ensue as Extension Bill Moves Forward in Senate

Unemployment Congress’ hurry to get home from the holidays has had some far reaching consequences not just on the 1.3 million unemployed Americans whose long term unemployment benefits were allowed to expire, but also Uncle Sam in general.

As many as 1.3 million unemployed citizens lost their unemployment insurance on December 28 last year. The US Senate has voted, earlier today, to debate the extension bill later this week. The vote to move the bill forward, barely overcame a Republican filibuster, by 60-to-37. It is not clear, if the bill passes the Senate, whether the Republican-held House of Representatives will allow the President to sign the extension bill into law.

The emergency aid program

The federal unemployment insurance program was first devised in 1935 and provides unemployed citizens monetary aid for a fixed period in an attempt to help them search for a new job. Back in 2008 when inflation hit the US economy hard, the insurance was extended accordingly.

What used to be a portion of the now unemployed worker’s previous salary, given to him for up to 26 weeks in normal times was extended in 2008 to provide “extended benefits” to the unemployed for an additional 13 to 20 weeks. A fraction of the extended benefits would be funded by the federal government while states would make up for the rest. In 2008, when unemployment rates became particularly high, Congress expanded the program further.

It agreed to cover for the entire cost of “extended benefits” and also created the Emergency Unemployment Compensation program to help citizens when their states ran out of benefit funds. With the program expiring on December 28, most states will drop down the duration of their aids to the previous fixed period of 26 weeks, maximum.

Implications of the expiry

A person who was on, say, his 29th week of unemployment benefits will suddenly get cut off. Currently, there exist close to 1.3 million Americans who have been receiving benefits for longer than their state’s fixed period (26 weeks or less) and these Americans will lose the those benefits immediately. Also, more and more people will lose their benefits as they hit their state’s fixed periods.

The expiry will also have a larger impact on the US economy. States have already lost close to 400 million USD in the week following the expiration. The larger the state – the bigger the damage. California, for instance lost 65 million USD alone in the said week.

The fate of the Emergency Unemployment Compensation program remains shrouded in uncertainties. Many Republicans are against the idea of “extended benefits”. Republican Rand Paul from Kentucky, for example, said benefits beyond 26 weeks sapped the motivation of unemployed workers to seek employment. Congress’ decision remains to be seen.

 

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