Fisher Capital Management Strategies: Shortening Unemployment Benefits Will Help U.S. Jobless: View | Fisher Capital Man

http://www.bloomberg.com/news/2011-08-03/shortening-federal-unemployment-benefits-will-help-jobless-in-u-s-view.html

By the Editors Aug 2, 2011 5:00 PM PT

In 2009, Congress extended jobless benefits to 99 weeks, the longest period in U.S. history. Those payments were meant to help unemployed workers get through a tough recession, while shoring up a faltering economy. Was it a wise approach? And with extended benefits expiring at year’s end, should compensation be prolonged again?
Drawn-out benefits have been most effective at sustaining household income for displaced workers. State and federal programs will pay $129.5 billion this year in jobless benefits, according to Labor Department actuaries. Those payments provide roughly 50 percent of lost wages.
Nearly all that cash re-enters the economy quickly as recipients pay for food, clothing or housing. For that reason, jobless benefits have long been thought of as one of the most efficient ways to prevent consumer spending from collapsing during a slump.
Unfortunately, the 99-week experiment hasn’t been so successful in helping people get re-employed. Drawn-out benefits have caused job hunts to stretch out by almost a month — with no greater guarantee of success — according to economists Mary Daly, Bart Hobijn and Rob Valletta. All three work for the Federal Reserve Bank of San Francisco.
In a discussion paper published this month, the Fed economists conclude that 99-week benefits have pushed up the U.S. jobless rate as much as 0.8 percentage point. The long-term unemployed now account for nearly half of all people out of work, an unusually high share.
Benefits Run Out
Many of the 99-weekers are exhausting their benefits without finding work. In June, the average jobless person had been out of work for a seasonally adjusted 38 weeks, up from 32.8 weeks a year earlier. Meanwhile, the U.S. jobless rate remains stuck above 9 percent.
Until this downturn, jobless benefits never stretched beyond 65 weeks, a level briefly tried in the late 1970s. More typically, states provide six months of benefits regardless of economic circumstances. The federal government adds three to six months of federal coverage during downturns, so job seekers can wait out a slump or be pickier about their next career move.
Offering almost two years of benefits runs the risk of sidelining workers rather than helping them. Displaced workers’ skills and job-hunting networks tend to be strongest immediately after losing a job. If claimants shun early prospects that aren’t ideal because of location, wages or working conditions, there’s no guarantee of better work later.
Protracted unemployment brings about a cascade of problems, including poorer health and a slim likelihood of ever regaining prior earning power, according to Columbia University economist Till von Wachter.
Shunning the Jobless
Making matters even tougher, some employers may be shunning the long-term unemployed, regarding them as less desirable workers. Bloomberg News reported in February that the Equal Employment Opportunity Commission was examining whether some help-wanted ads target only people with jobs or recent dismissal notices.
Recoveries from most recessions since 1980 have taken place with unemployment compensation totaling 39 weeks to 52 weeks. Given the difficulties of getting new spending measures approved in straitened times, Congress would be well advised to adopt the 39-week standard for 2012, providing an extra 13 weeks of federal support beyond what states provide.
As matters stand, extended federal benefits are due to expire at the start of 2012. If nothing changes, jobless claimants next year will face a bare-boned 26 weeks of coverage under standard state benefits. That’s not enough, especially because laid off workers in some states will face even less. Florida and Michigan are among states that will shorten maximum benefits next year, in response to budget pressures.
By limiting benefits coverage to 39 weeks, the federal government would free many billions of dollars that could be used to more effectively put people back to work. We will spell out promising ways of doing so in a coming editorial.
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