A Not-So-Merry Christmas for more than 3,500 Unemployed Mainers

More than 3,500 unemployed Mainers will lose critical economic support for themselves and their families if Congress allows emergency unemployment compensation (EUC) to expire on December 28th, according to the Maine Department of Labor. In total, as many as 18,100 unemployed Mainers could be affected by EUC expiration over the course of 2014, according to a recent report by the Council of Economic Advisors.[i] In addition to pulling the rug out from underneath workers hardest hit by the recession and lackluster recovery, the loss of this injection of federal money into the Maine’s economy would cost the state 675 jobs.

Unfortunately, the recent “mini-budget deal” struck by Representative Paul Ryan and Senator Patty Murray was the best opportunity for Congress to act, and that deal failed to include any provision to extend EUC for another year. It’s now increasingly likely that Maine’s long-term unemployed will lose unemployment benefits three days after Christmas.

More than 80,000 Mainers received EUC benefits at some point since January 2008. EUC was established during the recession to provide federally-funded extensions to state-based unemployment insurance programs. It provides additional benefits to workers who lost jobs through no fault of their own, have been unemployed for more than six months, and are actively looking for work.

Unemployment benefits have helped pull millions of unemployed workers and their families across the nation out of poverty and have strengthened the economic recovery by putting money in the pockets of people who spend it on necessities. The Congressional Budget Office has consistently ranked unemployment benefits as one of the most effective things Congress can do to increase economic growth and hasten the economic recovery.

Critics of unemployment insurance have long argued that it creates a disincentive to work. This position is not well-supported by real-world evidence. Council of Economic Advisors economists Jason Furman and Betsey Furman summarized the research in their new report (PDF):

On the one hand, some argue that extending benefits may dull the incentives for unemployed workers to exert effort to search for another job, leading to increased unemployment—the so-called “moral-hazard” effect. But on the other hand, providing benefits gives families income that can in the limit keep them from poverty but more generally can help them to finance a longer job search that might ultimately result in a job better matched with their talents, resulting in higher overall labor market productivity—what Chetty (2008) terms the “liquidity effect.”

Economists have researched these tradeoffs extensively for over 20 years, producing a wealth of evidence on the topic (Katz and Meyer 1990, Meyer 1990, Card and Levine 2000). In a recent editorial, economist Raj Chetty summarizes these studies as follows:

“Nearly a dozen economic studies have analyzed this question by comparing unemployment rates in states that have extended unemployment benefits with those in states that do not. … These studies have uniformly found that a 10-week extension in unemployment benefits raises the average amount of time people spend out of work by at most one week. This simple, unassailable finding implies that policy makers can extend unemployment benefits to provide assistance to those out of work without substantially increasing unemployment rates (Chetty 2013)”

Along with the nation, Maine’s unemployment rate has steadily improved over the past three years, but it remains 2 percentage points higher than pre-recession levels. Over one-third of Maine’s nearly 50,000 unemployed workers have been without work for more than six months. We still have a long way to go to achieve full recovery from the worst recession since the Great Depression. Congress shouldn’t abandon unemployed workers and add more obstacles to our path to economic recovery by allowing emergency unemployment benefits to expire prematurely.

[i] The CEA projects that 18,100 unemployed Mainers will be affected by the expiration of EUC program by estimating the number of Maine workers currently receiving EUC benefits who will be cut off when the program expires on December 28th, and the cumulative number of Maine workers who will exhaust their regular 26 weeks of unemployment insurance at some point in 2014. These workers would be eligible for EUC if it were extended.

That estimate is probably too high, according to the Maine Department of Labor. In an email exchange December 11, Julie Rabinowitz of the Maine Department of Labor (MDOL) wrote that approximately 3,300 to 3,400 unemployed workers will lose EUC payments when the program expires on December 28th, and that an additional 250 unemployed workers will exhaust their regular UI benefits on December 28th and not be able to claim EUC. No one knows for sure how many unemployed Maine workers will exhaust their regular benefits in 2014. But MDOL provided some context from the most recent 12-month period. Cumulatively, 15,352 unemployed Maine workers exhausted their regular benefits over the 12-month period ending in October, 2013, according to Rabinowitz. If 2014 saw a similar number of workers exhausting their regular UI benefits, then the CEA’s estimate estimate of 18,100 total unemployed workers affected would be fairly accurate. But Rabinowitz pointed out that weekly claims have been declining sharply—double-digit percentage decreases—on a year-over-year basis in recent weeks. So it appears very likely that 2014 will see a smaller number of regular UI exhaustees than it did over the twelve-month period ending in October.