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Failing to extend jobless aid could hurt economy

The current fight in Congress over whether to extend emergency jobless benefits to the long-term unemployed has a familiar ring to it.

Since the Emergency Unemployment Compensation (EUC) program was first enacted at the height of the Great Recession in 2008, it has been reauthorized and/or expanded 11 times. The aid was most recently renewed in January "to help ensure that eligible unemployed job-seekers retain a modicum of income support," according to the National Employment Law Project.  The benefits have lapsed twice before, after which they were restored were paid back retroactively.

According to the Center on Budget and Policy Priorities, about two-fifth of the 10.9 million people who are unemployed have been out of work for 27 weeks or longer, representing 2.6 percent of the overall workforce, the highest its been since June 1983. Extending EUC benefits for another year would cost taxpayers about $25 billion, though the costs of letting them lapse could be even higher since without the assistance, affected people and their families would have less money to spend.

"It's very, very efficient economic stimulus," says Josh Bivens, research and policy director of the Economic Policy Institute, a liberal-leaning think tank. "One thing that unemployment insurance does is to keep people looking" for jobs.

People who receive emergency jobless aid are required to be actively looking for work. Though some economists such as James Sherk of the conservative Heritage Foundation have argued that extending unemployment benefits encourages workers to take longer to find a job and increases the overall jobless rate, Bivens counters that these sorts of effects are minor. Sherk, for his part, counters that the data used for these studies -- the government's Current Population Survey -- is flawed because it doesn't count workers who move and doesn't directly ask if they are getting unemployment benefits. 

As a result, workers are "focused too long on jobs that they are less likely to find,"  Sherk said, adding that he doesn't blame these people for being particular about the jobs they want. "Were I in that situation, I would be doing the same thing."

The jobs picture is certainly getting brighter. Unemployment fell in November to 7 percent, its lowest level in five years as businesses add a better-than-expected 203,000 jobs for the month. As the labor market improves, many economists are expecting the Federal Reserve to ease up on its program of purchasing U.S. Treasury and mortgage bonds, a policy known as "quantitative easing" aimed at boosting economic activity by keeping longer term interest rates low.
"The strong report makes the case for tapering sooner but one month's numbers shouldn't determine any course of action," said former Fed Vice Chair Alice Rivlin in an email to MoneyWatch.

The jobs market still is a work in progress. As Chad Stone, the CBPP's chief economist noted, if all the people who are discouraged from seeking employment or are working part-time when they want to be full time, the jobless rate as of November would be 13.2 percent, which is 4.4 percentage points higher than it was at the start of the recession.

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