May 21, 2003


by  Isaac Shapiro and Jessica Goldberg

PDF of this report

View Related Analyses

If you cannot access the files through the links, right-click on the underlined text, click "Save Link As," download to your directory, and open the document in Adobe Acrobat Reader.

House Republican leaders have been balking at supporting an extension of the Temporary Extended Unemployment Compensation (TEUC) program, sometimes noting how the program was supposed to be temporary in nature.[1]  Indeed, all agree that the TEUC program should be temporary.  (In contrast, certain key supporters of the "temporary" tax cuts Congress is now considering freely admit that they intend to extend these tax cuts indefinitely.)  But the end of May is not the time for the TEUC program to begin its scheduled sharp phase-out.

Similarly, in the early 1990s the temporary federal benefits program did not end until job growth had picked up considerably.  This contrasts with the fall in employment over the past few months.

It is thus not surprising that found that unemployment insurance was the single best mechanism to boost the economy that was under discussion.  It found that extending federal benefits would give the economy a $1.73 jolt for each $1 of benefits.  This is nearly 20 times the expected “bang for the buck” received from cutting dividend taxes; in part, the difference reflects the degree to which cutting taxes on dividends will disproportionately benefit high-income households, who are unlikely to spend their tax cuts immediately.  The contrast is particularly striking since the President and nearly all members of the majority party in Congress are supporting reductions in dividend taxes that dwarf the costs of extending and strengthening the TEUC program.

Paychecks vs. Unemployment Checks

Administration officials, in particular, have responded to questions about whether the TEUC program should be extended by suggesting their goal is to make sure everyone has a job, and that paychecks are preferable to unemployment checks.  The latter preference is unassailable, but currently it is impractical.  Not enough jobs are available.  Moreover, even accepting for the moment the Administration’s claim that its $726 billion tax cut proposal would have created 500,000 jobs by the end of the year, with 8.8 million workers now unemployed, unemployment would remain high through 2003.  In the neighborhood of four million unemployed individuals would still need the assistance that would be provided by extending and strengthening the TEUC program.

Further, it is inconsistent to argue that a vast amount of tax cuts are needed to create jobs to help the unemployed when one is unwilling to commit a modest amount of resources to assist the large number of people who — even if job growth occurs — will be without both an unemployment check and a paycheck.  This inconsistency is especially glaring since TEUC benefits would provide more stimulus to the economy than the tax cuts under consideration.

Finally, House Republican leaders have also expressed concern about unemployment checks encouraging workers to remain unemployed.[2]  (As discussed in the text box on the next page they have also pointed to “Reed Act” funds as an alternative approach to the TEUC program)  The leadership concern is not well-founded.  As Federal Reserve Chairman Alan Greenspan testified at the end of last year, when the labor market was stronger than it is today, extending unemployment insurance benefits while the labor market is weak does not raise the danger of prolonging unemployment spells.[3]

The remainder of this analysis elaborates on some of the above points.

"Reed Act" Funds are no Substitute for the TEUC Program

In recent days, House Republican leaders have raised a new argument against continuing the TEUC program.  They have pointed out that $6 billion of the $8 billion that was transferred to states in March 2002 (under a mechanism known as the Reed Act) remains in state accounts, implying that states can use these funds to provide additional weeks of unemployment benefits to those who have exhausted their regular benefits.

A separate CBPP analysis (“State Reed Act Funds Are No Substitute for the Temporary Federal Unemployment Benefits Program”) of this argument finds:

  • the Reed Act funds are insufficient to replace TEUC benefits for the large majority of those expected to exhaust their regular benefits over the next six months;
  • that use of Reed Act funds for this purpose would automatically lead to tax increases in a large number of states and would prevent these funds from being used for the purpose of shoring up state benefit programs; and
  • that the traditional source of funding for additional unemployment benefits — the federal unemployment insurance trust fund — has more than adequate resources to extend and strengthen the TEUC program, and more than three times as much in reserve as remains in Reed Act funds.


Nearly Four Million Workers Will Need Additional Assistance in the Next Six Months

Weak labor markets and persistent long term unemployment indicate that the need for additional weeks of unemployment benefits provided by the TEUC program will remain high in the six months after the program’s scheduled expiration.  As Table 1 indicates, three groups could benefit from TEUC legislation.

Table 1
Workers Benefiting from Possible 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




3.9 million

Table 3 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.


Labor Market Indicators are Now Worse than when TEUC was Created, Extended

As table 2 depicts, six key indicators of the labor market are worse now than when the TEUC program was first enacted in March 2002, and when it was extended in January 2003.  The unemployment rate and the number of unemployed are both higher than in both earlier periods.  Further, last month the number of payroll jobs fell for the third straight month, hitting its lowest level since November 1999.  Not only has employment fallen since the TEUC program was enacted and when it was strengthened, it is now 2.1 million below its level when the downturn began.

Indicators of long-term unemployment also are troubling.  Since the TEUC program is designed to assist those experiencing long spells of unemployment, these indicators are particularly relevant in assessing whether it is time for the program to end. 

Of further interest, the number of “exhaustees” increased for 24 straight months, from March 2001 through February 2003, when compared to the number of exhaustees in the same month of the previous year.  The March 2003 figure was virtually the same as the March 2002 figure.


End of TEUC Program is Premature by Historical Standards

The temporary federal benefits program in place in the early 1990s allowed workers to enter the program for 27 months — a full year longer than the TEUC program will have lasted when it begins cutting off new recipients on June 1.  The earlier program lasted longer even though the labor market remained weak for a shorter period of time in the early 1990s than it has today.  Two years after the start of the recession in the early 1990s, job growth had begun to pick up markedly.  As noted, two years into this period of labor market weakness the number of jobs has continued to fall.

The need for a temporary federal benefits program is best measured by the number of workers who are exhausting their six months of regular, state-funded unemployment benefits.  The program in the early 1990s lasted until need was abating significantly and for an extended period.  The number of workers exhausting regular state benefits fell (relative to the same month in the previous year) for 19 consecutive months before that program ended.  Similarly, in the early 1980s, the number of workers exhausting regular state benefits fell in 23 of the 24 months before the temporary federal benefits program then in place was allowed to expire.

In contrast, the most recent data show that the number of workers who exhausted regular unemployment benefits in March 2003 was about the same as the number who exhausted such benefits in March 2002.  The month of stagnation follows 24 consecutive months of increases in exhaustions of regular state benefits.

End Notes:

[1] See, for example, remarks made by House Ways and Means Committee Chairman Bill Thomas in Congress Daily, May 15, 2003.

[2] “He [House Majority Leader DeLay] said Republicans want to give aid to workers, but ‘not encourage them to stay unemployed,’” Congress Daily, May 20, 2003.

[3] At a Joint Economic Committee Hearing on November 13, 2002, Chairman Greenspan said:  “But when you get into a period where jobs are falling, then the arguments that people make about creating incentives not to work are no longer valid and hence, I have always argued that in periods like this the economic restraints on the unemployment insurance system almost surely ought to be eased to recognize the fact that people are unemployed because they couldn't get a job not because they don't feel like working. That is clearly the case now and is likely to be the case in the immediate future."

[4] Indeed, because the unemployed have been having greater difficulty finding work than CBO assumed when developing its methodology, the number of workers who will have exhausted all available federal benefits and will still be unemployed as of the end of May might be as high as 1.4 million.