Politics & Policies

Unemployment Insurance / Its Importance for American Families and the Economy

Among the many spending cuts and tax increases legislated to take effect at the turn of the year, few policies have as direct an effect on those most affected by the Great Recession than the expiration of extended unemployment insurance (UI) benefits. In the first week of January, roughly two million individuals will lose extended benefits with the expiration of legislation that temporarily increased the duration individuals can claim UI. Although these benefits make up only $30 billion of the roughly $500 billion ‘fiscal cliff,’ they have a disproportionate effect on the lives of the unemployed and their families, as well as on the aggregate economy.

Whether to extend unemployment benefits—a decision currently tied up in the greater debate around the federal budget—should be motivated by consideration of the benefits and costs of the program. Advocates of an extension of UI benefits point to the fact that these benefits accrue to unemployed workers and their families and help put food on the table and pay the rent at a time of extraordinary economic weakness; in doing so, these benefits also boost the economy as a whole as UI recipients maintain consumption. Skeptics of an extension point to potential costs arising because beneficiaries may spend less time and effort searching for work, and the impact of funding the extension on the deficit.

The evidence continues to suggest that extended benefits provide a sizable boost for workers and the economy, but have little negative effect on work incentives and unemployment.

The chart below shows the likelihood of finding a job as measured in the monthly Current Population Survey data. The chart shows the probability of leaving unemployment for employment in each month. These rates are simply at exceptionally low levels. The odds that an unemployed worker found a job each month fell from 28 percent in 2007 to an average of 16 percent during the last three months of 2009. This year, the job finding rate is still 30 percent lower than the average from 1990-2007.

'The Importance of Unemployment Insurance for American Families and the Economy I Brookings Institution' - www_brookings_edu_research_papers_2012_12_04-unemployment-insurance_rssid=unemp

Why is the job-finding rate so low? The basic reason is that job openings remain depressed and there are a lot of unemployed workers competing for those jobs. The job opening rate fell more than 40 percent between 2007 and 2009 and is still almost 20 percent lower than that level now. As a result, the number of unemployed workers per job vacancy surged, as the next chart illustrates.

'The Importance of Unemployment Insurance for American Families and the Economy I Brookings Institution' - www_brookings_edu_research_papers_2012_12_04-unemployment-insurance_rssid=unemp

Choosen excerpts by Job Market Monitor from

via The Importance of Unemployment Insurance for American Families and the Economy | Brookings Institution.

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