Unemployment Compensation has Broad Based Benefits

(MoneyWatch)  Senator Jim Bunning (R-KY) is blocking the extension of unemployment benefits and health benefits for the unemployed. His reasoning is that the $10 billion bill is not paid for, something that shows he does not understand the role of deficit spending in stimulating employment and the economy. He is insisting that the bill be paid for out of unspent stimulus money. But since the unspent stimulus money will go back to the Treasury, his plan doesn't actually pay for the benefits. Paying for the unemployment benefits out of unspent stimulus money increases the deficit by the same amount as would occur if this accounting trick was dropped. So, given his remedy -- which increases the deficit -- his objection that an extension will increase the deficit makes no sense.

I've already responded here in a long post on this, but I want to comment on a different aspect of the objection to extending benefits, something Senator Jon Kyl (R-AZ) said in support of Bunning's position:

Sen. Jon Kyl of Arizona, the Republican whip, argued that unemployment benefits dissuade people from job-hunting "because people are being paid even though they're not working."

Unemployment insurance "doesn't create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work," Kyl said during debate over whether unemployment insurance and other benefits that expired amid GOP objections Sunday should be extended.

"I'm sure most of them would like work and probably have tried to seek it, but you can't argue that it's a job enhancer. If anything, as I said, it's a disincentive. And the same thing with the COBRA extension and the other extensions here," said Kyl.

The claim that unemployment insurance cannot create jobs, or save them, is wrong. When people receive unemployment compensation, they spend the money at grocery stores, they buy clothing, they pay other bills, etc. The money spent at, say, grocery stores creates extra demand for food and other household items, demand that would not be there without the unemployment compensation payments. This increased demand for goods and services supports higher employment levels.

In addition, the money that the unemployed are able to spend at the store as a result of the payments they receive turns into the income of store employees and owners. The grocery store is able to support more employment and pay out more wages than otherwise, and these employees create even more demand when they spend their incomes at various stores around town, pay their own bills, etc. In addition, the store owner has higher profits, and when those are spent it generates even more demand which in turn supports higher employment.

And, of course, this doesn't just happen at grocery stores. As the unemployment compensation is spent at various businesses, and respent as it moves from hand to hand, the entire community benefits. The benefits are not limited to helping just the individual receiving the payments.

Denying unemployment compensation and health benefits doesn't just hurt the unemployed, which is bad enough by itself; the consequences ripple through the entire community.