Extending Unemployment Beneficial or Unintentional Deficit

Unemployment Deficit

Recently Nancy Pelosi, Speaker of the United States House of Representatives was quoted as saying that unemployment benefits are the leading stimulus to an economy in need of a quick fix. Her reasoning was that the unemployed immediately spent those benefits, therefore generating economic activity. Financial experts were quick to point out that such reasoning would mean that every citizen should just go on unemployment then, because such action would generate so much economic activity that the recent recession would be a distant memory in a very short period of time.

The question that this paper will seek to answer is whether extending unemployment benefits is a boon to the economy as stated by Nancy Pelosi, or does the extension of those benefits only add to the deficit, thereby ensuring that unemployment continues to be a huge problem and a drag on the economy.

The answer to that question is important because of the current situation facing the United States. The official government unemployment figures hover at just under 10% and there are many additional millions of other unemployed individuals who are not included in that number, many of whom have just given up all hope of finding a job. Jobless benefits have been extended to three years with bleeding heart liberals decrying the notion that we as a country would leave our unemployed fellow citizens with no benefits at Christmas time, while cold-hearted conservatives are decrying the notion that we keep unemployed fellow citizens on the government teat for up to three years. The conservatives say it takes away all incentive to even look for work, and does nothing to alleviate the long-term unemployment scenario.

So, who is right and who is wrong? Many experts believe that today's job market is eerily similar to the late 1980's and early 1990's.

One expert wrote about the jobless rate at that time in the following manner; "In contrast to more educated professionals who could, at least until recently, anticipate a return to their previous living standard once they obtained a new position, blue-collar workers experiencing structural unemployment often face a future of reduced economic circumstances and the need to find new occupational opportunities (Hansen, 1988).

That same scenario is occurring today, but at an even faster rate. Many manufacturing, warehousing and manual labor intensive jobs have left America's shores to find greener pastures elsewhere around the world. The viability of electronic transitions have enhanced those efforts. Many of the former employees in these areas are now looking at chronic long-term unemployment. Paying these individuals not to work only adds to the disincentive to find a job, at least that is how some view it. Others, like our esteemed President, Mr. Barack Hussein Obama, say that not extending benefits to these individuals would lead to financial despair and chaos amongst the unemployed. In a July, 2010 speech he said "there's been a tradition -- under both Democratic and Republican Presidents -- to offer relief to the unemployed" (Obama, 2010, p. 1). In the same speech he states "These leaders in the Senate who are advancing a misguided notion that emergency relief somehow discourages people from looking for a job should talk to these folks" (p.1).

Talking to people about their unemployment circumstances is a nice political ploy, but it does not address one issue in particular; who is going to pay for these extended benefits, especially in a time when the federal and many state budgets are already facing huge deficits. A recent article concerning Rhode Island is a perfect example.

The article states: "By late 2008 and early 2009, claims for unemployment benefits were climbing so quickly the Rhode Island Department of Labor and Training had trouble keeping pace. Those who phoned the state's unemployment insurance call center in early 2009 were put on hold for more than two hours on average -- assuming they could get through at all." According to the article, between the first quarter of 2008 and the first quarter of 2009, Rhode Island lost 20,300 jobs, and by May 2009, the Ocean State's unemployment rate was 12.1% -- the highest since at least 1976…Budget deficits for FY 2009 and 2010 bulged. State officials repeatedly revised their figures as the economy soured and tax revenue slumped" (Downing, 2009, p. 22).