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Congress Votes to Extend Joblessness
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Yesterday the members of the Senate, with a 98-0 vote, joined their House colleagues in extending unemployment benefits. This time around, the Congress has extended benefits by 14 weeks in all states and 20 weeks in any state where the unemployment is over 8.5%.
Of course, as with previous extensions of unemployment benefits, this one will also lead to an extension of high unemployment rates. That is because having additional unemployment insurance creates a disincentive for out-of-work persons to seek employment.
As reported by the Heritage Foundation back in September, extending unemployment benefits by 13 weeks increases the average amount of time that workers remain unemployed by 2 weeks. So what Congress has just done is increase higher unemployment for another 2+ to 3 weeks given that is offering 14 to 20 more weeks of unemployment insurance.
Later today the Bureau of Labor Statistics will be publishing new jobs data for the month of October. There is no expectation that employers have added jobs overall (despite the 650,000 to 1 million jobs that have supposedly been created or saved by the stimulus package). In fact, the trend may get even worse given news yesterday that productivity was on the rise, meaning that employers were learning that they could get by with fewer employees and less apt to hire new ones.
Therefore, this latest step by Congress really could not come at a worse time for the nation’s economy. Unemployment rates are already at 9.8% nationwide. By creating an incentive for more people to remain unemployed could easily push the rate over 10%. The new unemployment rate will also be announced later today by the BLS.
On top of that, yesterday a treasury report showed that federal revenues were over $50 billion less in September 2009 versus September 2008. For October, federal revenues in 2009 are expected to come in about $32 billion less than those in October 2008. Clearly one of the reasons why revenues are down is due to the loss of jobs and, therefore, the loss of income tax revenues.
Given the issues of the unemployment rate and the decreases of revenues, Congress should be doing everything it can to create incentives to get people back to work. Instead, it is doing just the opposite and creating more of an incentive for unemployed people to put off seeking jobs. Not that it will happen, but President Barack Obama should veto this plan in order to help encourage unemployed person to increase the intensity of their job searches. As noted by the Heritage Foundation, the more time people have to collect unemployment benefits, the less time they spend searching for a job.
With the passage of this plan to extend unemployment benefits, the result will be a continuation of the downward spiral of higher unemployment, lower government revenues and higher government spending – all of which lead to higher and higher budget deficits. In addition, businesses will continue to be assessed higher unemployment tax rates, further reducing their ability to hire new workers even if they want or need to. It is a vicious downward spiral, and not one that, thanks to the members of Congress, will begin to reverse itself anytime in the next 14 to 20 more weeks.
Rob Binsrick
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