Revised May 6, 2003

NEARLY FOUR MILLION OF THE LONG-TERM UNEMPLOYED WILL
BE DIRECTLY AFFECTED BY UPCOMING LEGISLATIVE DECISIONS
By Isaac Shapiro and Jessica Goldberg

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Unless new federal legislation is enacted, the Temporary Extended Unemployment Compensation (TEUC) Program — the program created in March 2002 that provides federally-funded unemployment benefits to workers who have exhausted their regular, state-funded benefits — will begin to phase down sharply at the end of May.  Unemployed workers who are already receiving TEUC benefits at that point will be able to receive up to 13 weeks of benefits.   But any unemployed workers who exhaust their regular benefits after that date will not be eligible for additional federal aid.  This analysis examines the number of long-term unemployed who could be affected by extending and strengthening the TEUC program, reviews several key indicators of labor market weakness, and assesses whether extending and strengthening the TEUC program is affordable and sound economic growth policy.

In the first week of April, legislation was introduced in the House and Senate to extend the TEUC program for six more months, as well as to strengthen the program.[1]  We estimate that 3.9 million of the long-term unemployed would be assisted by this legislation, including:

Table 1

Workers Benefiting from Proposed TEUC Legislation

Workers who will exhaust regular unemployment benefits between June and November 2003 Workers who will exhaust TEUC by the end of May and still be unemployed at that time Workers who will exhaust TEUC benefits in June, July, and August Estimated number of total workers affected
2,101,000 1,104,000 682,000 3.9 million

A table at the end of this analysis provides estimates on a state-by-state basis of the number of workers who would be helped by the proposed legislation.  In 13 states — California, Florida, Georgia, Illinois, Massachusetts, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas, and Washington — more than 100,000 workers per state would be affected.

 

Why Would So Many Workers be Affected?

 In part, the large number of workers who would benefit from the new legislation reflects the weak labor market:

But the weak labor market is only part of the story.  The 3.1 million workers expected to exhaust their TEUC benefits by the end of May is substantially larger than the 1.9 million unemployed workers who exhausted their temporary federal benefits in a comparable period of the downturn of the early 1990s.  Much of this gap reflects differences between the design of the current TEUC program and the design of the temporary federal program in place in the early 1990s.[2]  Today’s TEUC program provides many fewer weeks of unemployment benefits than did the temporary federal program of that earlier period, even though by several labor market indicators this slowdown has been more severe.  The federal program established in the early 1990s initially provided 26 weeks of additional benefits to workers whose regular unemployment benefits had run out in 34 states, and 33 weeks of additional benefits in the other 16 states.  After the program had been operating for about eight months, the number of additional weeks provided was reduced to 20 weeks in the majority of states and 26 weeks in the high-unemployment states.

In other words, for the first 22 months the program operated, the minimum number of additional weeks of federal benefits provided in any state was 20 weeks.  This compares to 13 weeks today.  A worker is more apt to exhaust his or her unemployment benefits before finding work when these benefits are provided for a significantly shorter period of time, as is currently the case.

Further, few states today are qualifying to provide a second, longer tier of federal unemployment benefits.  Under the statute governing TEUC, just six states are currently classified as “high unemployment” states, which permits workers in these states to receive up to 26 weeks of TEUC benefits, rather than up to 13 weeks of these benefits.  The small number of such states is largely the result of a serious deficiency in the mechanism that the TEUC program uses to determine which states qualify as having high unemployment: the mechanism fails to count the long-term unemployed.  A better-designed mechanism was used in the previous recession to measure which states qualify as having “high unemployment;” it enabled more states to provide a more adequate number of weeks of federal unemployment benefits during that downturn.[3]

 

Is Extending and Strengthening the TEUC Program Affordable and Sound “Growth” Policy?

In light of the sharp deterioration in the nation’s fiscal condition, any proposal to increase spending or reduce taxes should be scrutinized especially carefully.  In assessing whether to devote additional funds to the TEUC program, it first should be noted that funds already have been set aside for this purpose.  The federal unemployment insurance trust funds currently have a surplus of more than $21 billion.  To extend and strengthen TEUC, unemployment insurance taxes thus do not need to be raised.  If TEUC is allowed to expire, these trust fund surpluses will sit unused while several million jobless workers go without benefits, even though one of the main purposes of the trust funds is supposed to be to finance additional federal unemployment assistance during economic slumps.

Further, the budget resolution agreed to by Congress on April 11 includes at least $350 billion for a “growth package” that will be allowed to be voted on through expedited procedures.  Extending and strengthening the TEUC program could be made part of the package.  From its inception in 1935, unemployment insurance has been considered one of the best sources of economic stimulus.  Its benefits increase consumer spending in the hardest-hit areas and among the hardest-hit workers.  Unemployment benefits go to workers who are likely to spend them quickly, as many of these workers are facing economic hardship and need additional income to meet immediate household needs.

Indeed, a recent study by Economy.com, an independent financial research group, found that the single most effective stimulus measure would be further extension of emergency federal unemployment insurance benefits.  The same study found that the principal tax cuts proposed by the Administration in its “economic growth” package would be inefficient as a means of stimulating the economy in the near term.[4]  For instance, while the study found that each dollar dedicated to extending the TEUC program would boost the economy by $1.73, it found that each dollar connected to reducing the taxation of dividends would boost the economy by just nine cents.[5]

 

Who Will Congress and the President Choose to Help?

Between now and the end of May, Congress and the President will be faced with several critical domestic policy choices, with virtually all attention to date focused on what type of tax cuts might be enacted by Memorial Day.  Another set of critical decisions, however, will need to be made concerning the TEUC program.  Will it be extended?  If so, for how long and will it be strengthened?  The decisions will directly affect those individuals — estimated here as 3.9 million workers — and their families who have borne much of the brunt of ongoing economic weakness.

Table 2.  Number of Workers Affected by Proposed UI Legislation

 

Number of Workers
Who Are Projected to Exhaust Regular State UI Benefits, June-Nov 2003

Estimated Number of
Workers Who Will Have
Exhausted TEUC Benefits and Still Be Unemployed,
End of May 2003

Projected Number of
Workers Who Will
Exhaust TEUC Benefits,
June-August 2003

Total

Alabama

23,400

14,600

5,800

43,800

Alaska

9,200

4,800

3,500

17,500

Arizona

26,700

13,600

4,400

44,700

Arkansas

20,900

7,300

5,100

33,300

California

339,900

150,400

72,600

562,900

Colorado

31,200

15,900

9,200

56,300

Connecticut

32,100

11,900

14,500

58,500

Delaware

5,400

2,500

1,400

9,300

DC

6,600

2,100

1,000

9,700

Florida

81,700

58,200

22,000

161,900

Georgia

58,400

28,200

14,200

100,800

Hawaii

4,500

2,400

1,200

8,100

Idaho

8,600

4,700

2,800

16,100

Illinois

102,100

53,100

31,800

187,000

Indiana

39,200

18,200

13,600

71,000

Iowa

14,500

9,800

4,800

29,100

Kansas

17,800

7,800

4,500

30,100

Kentucky

21,400

10,300

6,800

38,500

Louisiana

17,100

10,400

5,500

33,000

Maine

5,800

2,700

2,100

10,600

Maryland

26,700

11,800

6,200

44,700

Massachusetts

65,100

32,700

42,900

140,700

Michigan

81,900

53,600

18,700

154,200

Minnesota

31,200

17,500

10,000

58,700

Mississippi

14,400

9,700

4,400

28,500

Missouri

38,200

19,700

9,500

67,400

Montana

3,800

2,900

1,300

8,000

Nebraska

10,200

4,200

2,500

16,900

Nevada

15,200

6,500

4,600

26,300

New Hampshire

4,300

1,900

1,100

7,300

New Jersey

106,500

51,000

32,800

190,300

New Mexico

7,300

4,800

1,200

13,300

New York

180,500

103,100

48,700

332,300

North Carolina

66,900

34,400

26,800

128,100

North Dakota

1,800

1,200

1,600

4,600

Ohio

64,700

36,500

15,500

116,700

Oklahoma

15,000

7,200

4,700

26,900

Oregon

37,300

17,200

22,900

77,400

Pennsylvania

105,800

77,900

74,800

258,500

Rhode Island

8,700

4,700

2,400

15,800

South Carolina

28,500

15,800

8,400

52,700

South Dakota

900

600

300

1,800

Tennessee

31,100

25,100

12,900

69,100

Texas

133,000

69,200

39,900

242,100

Utah

12,000

6,600

4,600

23,200

Vermont

3,400

2,200

700

6,300

Virginia

36,000

16,800

9,700

62,500

Washington

51,200

20,400

30,400

102,000

West Virginia

7,800

3,900

1,900

13,600

Wisconsin

42,600

14,400

12,100

69,100

Wyoming

2,000

1,300

1,300

4,600

Total

2,100,700

1,103,900

681,500

3,886,100


End Notes:

[1]   The TEUC legislation was proposed in the House by Reps. Rangel (D-NY), Cardin (D-MD), and others (H.R. 1652), and in the Senate by Senators Kennedy (D-MA), Smith (R-OR), and others (S. 923).  Among other provisions, both bills would keep the TEUC program in place for another six months and would also provide a minimum of 26 weeks of TEUC benefits in all states.  Legislation introduced earlier this year -- including H.R. 162, introduced by Rep. Quinn (R-NY) and others, and H.R. 682, introduced by Rep. English (R-PA) and others -- would also strengthen the TEUC program, by increasing the number of weeks of benefits available to jobless workers.

[2] There also are more workers in the labor force today than there were a decade ago, so the increased number of exhaustees today partly reflects growth in the labor force.  But even after adjusting for the growth in the labor force, significantly more workers have exhausted their temporary federal unemployment benefits in this downturn than in the last one.

[3] For an explanation of the problems with the design of the “high unemployment” trigger in the TEUC program, see Wendell Primus and Jessica Goldberg, “Number of Workers Exhausting Federal Unemployment Insurance Benefits Will Reach an Estimated 1.5 Million by the End of September and Exceed Levels in the Last Recession,” Center on Budget and Policy Priorities, September 2002.

[4] Andrew Lee and Joel Friedman, “Report Finds Most Administration ‘Growth’ Proposals Would Be Ineffective Stimulus,” Center on Budget and Policy Priorities, April 8, 2003.

[5] An earlier study commissioned by the Department of Labor found an even larger “bang for the buck” from unemployment insurance benefits.  That study found that each dollar of unemployment benefits likely increases gross domestic product by $2.15.  See Lawrence Chimerine, Theodore Black, and Lester Coffey, “Unemployment Insurance as an Automatic Stabilizer: Evidence of Effectiveness over Three Decades,” Unemployment Insurance Occasional Paper 99-8, U.S. Department of Labor, July 1999.