Senate fails to pass unemployment insurance extension
Wednesday, December 01, 2010 at 8:25 am
The U.S. Senate Tuesday failed to pass a bill that would have extended federal unemployment benefits through next year. Republicans, citing concerns for the growing budget deficit, objected to the fact that the $56.4 billion price tag tied to the extension was not offset by cuts elsewhere.
The benefits expired Tuesday at midnight. Deep into the U.S. jobless recovery, where job applicants far outpace job openings, roughly 800,000 Americans will lose benefits next week. Two million more will lose them by the end of the year and nearly four million will lose them by April.
The move will not just affect those eligible for unemployment benefits. The nation’s top economists have said the loss will also create more unemployment and lower economic growth because the benefits are one of the most effective ways of stimulating the economy by directly fueling regular nationwide spending on goods and services. The Associated Press reports:
Unemployment benefits help drive the economy because the jobless tend to spend every dollar they get, pumping cash into businesses. A cut-off of aid for millions of people jobless for more than six months could squeeze a fragile economy, analysts say. Among the consequences they envision over the next year:
— Annual economic growth could fall by one half to nearly 1 percentage point.
— Up to 1 million more people could lose their jobs.
— Hundreds of thousands would fall into poverty.
“Look for homelessness to rise and food lines to get longer as we approach Christmas if the situation can’t be resolved,” says Diane Swonk, chief economist at Mesirow Financial.
Economists say that for every dollar paid out in unemployment, nearly two dollars in economic stimulus is created as the money circulates through the economy. They also say that concerns about the deficit are misplaced or merely political because the benefits payouts are short term, especially compared to most government spending, and because nearly all of the cash paid out is spent and therefore comes back in part as tax revenue.