BUSINESS
11/14/2012 04:12 pm ET Updated Nov 14, 2012

Unemployment Benefits' Expiration Will Cost Jobs: Economists

The looming expiration of extended unemployment insurance will cost the U.S. nearly half a million jobs, according to the Economic Policy Institute.

A Wednesday report from the progressive D.C. think tank finds dropping the benefits would cost 400,000 jobs next year. That's because no benefits means no "multiplier effect" -- an economic boost from unemployed people spending their checks right away on necessities. Though they differ on the magnitude of the effect, many experts say unemployment insurance is one of the more effective ways for the government to stimulate the economy.

"Long-term unemployed workers, who are almost by definition cash-strapped, are likely to immediately spend their unemployment benefits," the Economic Policy Institute's Lawrence Mishel and Heidi Shierholz write. "Unemployment benefits spent on rent, groceries, and other necessities increase economic activity, and that increased economic activity saves and creates jobs throughout the economy."

Workers are eligible for benefits if they lose their jobs through no fault of their own and continue to search for new work. The benefits typically replace less than half a claimant's former income. During recessions, Congress routinely gives extra weeks of federal jobless benefits for workers who use up six months of state benefits without finding work.

Conservative economists have said there is no multiplier effect, arguing instead that unemployment insurance just pays people to stay home and boosts the unemployment rate, though that argument is often based on decades-old research. Studies conducted during the recent downturn have suggested that today's extended jobless benefits don't make people lazy.

The Great Recession and slow recovery have been cushioned with additional compensation since 2008, but the benefits are set to expire at the end of the year, along a host of other government spending programs and tax cuts. Lawmakers call it the "fiscal cliff."

Mishel and Shierholz say keeping the benefits would add three tenths of a percentage point to the Gross Domestic Product. Their findings are in line with a recent report from the Congressional Budget Office, which said last week that keeping the benefits, along with a temporary reduction in payroll taxes, would add three quarters of a percentage point in economic growth.

Democrats in the House of Representatives said this week they want to keep the jobless aid through 2013.

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