With the surprising support of six Republicans, the Senate on Tuesday mustered the 60 votes necessary to proceed on extending emergency unemployment benefits for an additional three months, at a cost of $6.5 billion.
This is good news for the 1.3 million unemployed workers who have been laid off so long that they have exhausted their unemployment insurance. It also is good news for another roughly 1.9 million at risk of exhausting their benefits later this year.
Certainly, today’s unemployment rate of 7 percent, in the context of a shrunken labor force, undermines Republican arguments that more benefits would enable recipients to avoid seeking employment, or – as Sen. Rand Paul, R-Ky. – put it, “to become part of this perpetual unemployed group in our economy.”
Economic theory does, indeed, suggest that overly lengthy or generous unemployment compensation discourages work; this has been problematic in certain European countries. In the United States, where benefits generally do not exceed 50 percent of prior earnings, the best evidence suggests that extending unemployment insurance benefits now would increase the unemployment rate by only a few tenths of a percentage point. And that would mostly be because of a statistical quirk, not perverse incentives – many long-term unemployed would cease seeking work once they lost their benefits and thus no longer count as part of the labor force.
We’d like to see Republicans and Democrats discuss ways to reform unemployment insurance programs to maximize relief to the unemployed and incentives to get back on the job. Economist Michael Strain of the American Enterprise Institute suggests cash bonuses, paid with unemployment insurance funds, as a reward to the unemployed when they find work. Ultimately, the best answer to long-term joblessness is restoring rapid economic growth, a subject to which Congress must turn as soon as the unemployment benefits fight is over.