UI Extension: Does the Unemployment Rate Matter?
by Dana Chasin, 5/7/2008
Since the beginning of the year, when talk of a recession was first heard, Congress has been debating whether or to extend unemployment insurance (UI) benefits by 13 weeks -- as it has done during every single recession, with one exception, for the past 50 years. The principal objection to such a proposal, which Bush opposed in the winter stimulus package is, as the White House press secretary said last month, that the president doesn't believe the extension is needed, "given that the unemployment rate that we have is historically and relatively low at just over 5 percent." (Note that the first bill Bush signed after the election of a GOP Congress in 2003 was -- that's right -- a 13-week unemployment insurance extension... when the rate was 5.8 percent.) But increasingly, the focus of the UI extension debate is shifting away from the unemployment rate to what seems like a more logical barometer of the need for an extension: how long it takes to find a new job. The latest voice to join that chorus is mainstream economics writer Robert Samuelson, opining in today's Washington Post: When benefits were extended in early 2002, the unemployment rate was 5.7 percent. In 1991 the extension occurred at 7 percent. But so what? What's wrong with this argument is that it ignores basic changes in U.S. labor markets. Over the past two decades, American businesses have gradually toughened their hiring and firing policies. In recessions, they resort more to permanent dismissals as opposed to temporary layoffs; in recoveries, they're more cautious in adding new workers. It's harder to find a new job. Average spells of unemployment have slowly lengthened. The increase since 1960 has been about six weeks, estimates economist Gary Burtless of the Brookings Institution. Nearly 1.4 million U.S. workers qualified as long-term jobless at the beginning of the year, more than twice as many as when the recession started in March 2001 -- and more than the 1.3 million who were long-term jobless the last time Congress temporarily extended benefits, in March 2002. In this environment, is the unemployment rate, per se, a logical reason not to extend unemployment benefits?