April 17, 2014

Properly Financed, Jobless Aid Can Boost Economy

Extending emergency unemployment compensation for another year would add 200,000 jobs to the economy but would carry a one-year price tag of $25 billion, according to a new analysis by the Congressional Budget Office (CBO).

Democrats and Republicans this week continued to argue over extending the aid, with both sides citing last Friday’s jobs report as support for their positions on passing an extension of the emergency assistance.

The Bureau of Labor Statistics said the overall unemployment rate dropped to 7 percent. However, 37 percent of the unemployed have been without a job for more than six months. Democrats say the jobs report shows that many of the long-term unemployed are still struggling and need help. But Republicans say the dropping unemployment rate shows that emergency benefits are no longer needed.

Unemployment compensation provides an immediate surge in economic activity as recipients quickly spend their benefits on consumer goods and services, boosting aggregate demand. If the program expires at the end of the month, 1.3 million workers will immediately lose emergency benefits.

Emergency unemployment compensation is one of the more effective forms of fiscal stimulus, but its cost should ideally be offset with a plan that reduces deficits over the long-term.