THE BLOG
06/01/2010 04:55 pm ET | Updated May 25, 2011

The Bad Arguments Against a Much Needed Unemployment Benefits Extension

Senators left Washington Friday for the Memorial Day recess without agreeing to a deal to renew a 99-week extension of unemployment insurance benefits. As a result, starting June 2, jobless Americans across the country will start exhausting their benefits. By the end of the month, more than 1 million people could have this critical economic lifeline severed unless the Senate approves an extension when it returns next week.

This is a tragedy for families that are relying on unemployment benefits to make ends meet while they look for work. And it's a significant step backwards in the effort to build a lasting economic recovery. So it's worth it to take a minute to rebut the specious arguments against an extension that got us, once again, to this point.

We can't afford to extend unemployment insurance. Republicans in the Senate spent most of their time arguing that, with high and rising budget deficits, we can't afford to spend money on extended unemployment benefits. But the truth is that we can't afford not to. That's because government spending on unemployment insurance is one of the most cost-effective ways to help strengthen the nascent economic recovery, and a robust recovery is the first step toward reducing the deficit. Deficit spending that is necessary to extending unemployment insurance does not ratchet up our long-term budget problems, since the added expenditures will disappear as soon as the unemployment rate goes down to a reasonable level. All of which brings us to the second flawed argument against extending benefits . . .

Unemployment benefits don't promote economic recovery. The key to ending the jobs crisis and ensuring a robust recovery lies in creating demand for the goods and services that businesses provide. When demand for goods and services increases, businesses hire more workers to help them meet that demand. This becomes a virtuous cycle, with the newly hired workers creating still more demand, and so on. What we need most, then, are effective ways of creating demand. And unemployment insurance is about as effective as it gets.

There's a commonsense reason for this. Recipients of unemployment insurance are workers who have lost their jobs through no fault of their own. Because benefits only replace a portion of their lost wages, unemployed workers will generally spend most or all of their checks quickly. This creates the most demand for the buck, helping bring about the virtuous cycle we so desperately need. In other words, extending unemployment benefits helps create jobs. When combined with subsidies to help unemployed workers pay for healthcare, I estimate that extended unemployment insurance benefits can help create over 900,000 jobs in a year. But try telling that to people who make this argument:

Unemployment insurance increases unemployment. U.S. Rep. John Linder (R-GA), the top Republican on the House subcommittee that oversees unemployment insurance, made this argument earlier this year during debate on the House floor: "[S]ome respected scholars argue these record unemployment benefit expansions actually are resulting in more unemployment, not less. That seems more than plausible." The idea here is that unemployed workers have a disincentive to look for work, since they are receiving a check.

There are a number of reasons why this is wrong. First, as I mentioned, unemployment insurance replaces only a portion of lost wages, so workers still have a strong incentive to find a new job. Second, the law requires recipients to actively look for work in order to qualify for benefits. Third, I believe that most people want to work - they want the sense of worth that a job provides. I frankly find it offensive when right-wing politicians -- who pay so much lip service to "hard-working Americans" -- make it plain how they really feel when they argue, albeit in a veiled way, that unemployment insurance essentially turns people into couch potatoes.

Most importantly, however, the problem with this argument is that it ignores the real reason that so many Americans are out of work: There just aren't enough jobs. There are 5.6 workers for every job opening in this country. The problem is not a lack of willingness to work on the part of Americans; it's a lack of available work, period. The failure to recognize this betrays a profound inability to imagine what it is like to be unemployed in an economy with roughly 10% unemployment.

It is true that benefits may, in some cases, prolong a worker's active job search - but this can be a desirable outcome. If a laid off engineer passes up a job waiting tables and then, two months later, finds work in his own field, then he'll be unemployed longer. But who in their right mind would say this is a bad thing? (And in any event, the job creation impact of extending UI -- which I described earlier -- far outweighs any effect of these longer job searches on overall unemployment).

Unfortunately, Republicans -- and some Democrats -- won the day on Friday with these wrongheaded arguments, ensuring that an extension of unemployment insurance will have to wait until at least next week, and maybe much longer. That's bad news for the millions of Americans who can't find jobs and will exhaust their benefits this year if Congress doesn't act. And it's bad news for all of us, since a failure to act threatens our still-fragile economic recovery.