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Extending unemployment benefits would cost $26 billion, Congressional Budget Office says

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Jobs,Entitlements,PennAve,Joseph Lawler,Economy,CBO,Unemployment

Extending emergency unemployment benefits for another year would cost $26 billion, the Congressional Budget Office estimated Tuesday.

That's lower than the total for this year's one-year extension, which was roughly $30 billion. The program, authorized in 2008, has become less costly as the economy has slowly improved and the number of the long-term unemployed Americans has decreased.

Total spending peaked at the depths of the labor market's free-fall in 2010 at nearly $73 billion, according to the Department of Labor, and has dropped since. In 2010, by Office of Management and Budget figures, the federal government spent just over $160 billion on total unemployment benefits, including Emergency Unemployment Compensation, extended benefits and the regular 26 weeks of unemployment benefits.

Democrats have been pushing to renew the authorization for the emergency program for another year, warning that 1.3 million people would suddenly lose benefits on Dec. 28 if it is not continued.

But Republicans are resistant to extending the program, arguing that it is too costly and that it gives workers incentives to pass over job opportunities.

The most likely scenario for the program to be extended is if it is packaged in a larger deal. Congressional budget negotiators for the two parties are working in conference committee with a Dec. 13 deadline. Congress also will have to pass a bill to fund the government before mid-January to avoid another shutdown.

The CBO projected that extending the unemployment benefits for another year would increase gross domestic product by 0.2 percent and raise employment by the end of 2014 by 200,000.

Although the benefits would discourage some workers from taking jobs, the CBO concluded, the resulting extra spending by the unemployed would "encourage businesses to boost production and hire more workers than they otherwise would, particularly given the expected slack in the capital and labor markets," leading to greater job growth.

Other research has reached different conclusions about the overall economic impact of extended unemployment benefits. Letting the program expire as scheduled likely would have the effect of lowering the unemployment rate regardless of the economic impact of the program, according to Goldman Sachs.

Economist Alec Phillips wrote in a Tuesday research note for the bank that the expiration of the benefits would affect the unemployment rate through two channels. The first would be that some recipients would take jobs. The second would be that others would drop out of the labor force entirely, and thus not be counted as unemployed.

The net effect could be to lower the unemployment rate by about 0.3 percentage points from its current 7.3 percent.

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