11/16/2010 03:58 pm ET Updated May 25, 2011

Unemployment Benefits Boosted Economy, Saved Millions Of Jobs, Says Labor Department

WASHINGTON -- The extra weeks of unemployment insurance created in 2008 and 2009 to fight the recession significantly boosted the economy and saved millions of jobs, according to a study commissioned by the Labor Department.

"Unemployment insurance is one of the best investments we can make, not only for the millions of people that utilize UI benefits to provide for their families in a time of need, but for the millions more whose jobs are kept secure because of the stabilizing effect it has on our economy as a whole," said Labor Secretary Hilda Solis in a statement.

Most economists agree that unemployment benefits are among the most economically stimulative fiscal policies, because people receiving a few hundred dollars in benefits per week tend to spend the money immediately on necessities like food and rent. During every recession since the 1950s, Congress has given the unemployed additional weeks of benefits beyond the 26 provided by states. During the current recession the long-term unemployed have been eligible for as much as 99 weeks of aid -- though the extra help currently hangs in the balance.

The Labor Department's study, conducted by IMPAQ International and the Urban Institute, found that every dollar spent on unemployment benefits increased economic activity by two dollars, and that the extended benefits kept 1.6 million people on the job and averted 1.8 million layoffs each quarter. The study also found that extended unemployment insurance prevented an 18 percent fall in Gross Domestic Product.

The progressive Economic Policy Institute estimates that reauthorizing the benefits for another full year will cost $65 billion and create more than 700,000 jobs. The Obama administration has called on Congress to reauthorize the benefits.

If it doesn't, the Labor Department estimates that two million long-term jobless will face an abrupt cut-off by the end of the year. "While the economy and the job market are on the road to recovery, the loss of consumer sales from removing billions of dollars in unemployment benefits will set us back," said Solis. "Now is not the time to turn our backs on the families that rely on these benefits and the businesses that serve them."

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