WASHINGTON — If Congress lets unemployment benefits expire this week for the long-term unemployed, those without jobs won’t be the only ones to feel the pain. The overall economy would suffer too, analysts say.
Unemployment benefits help drive the economy because the jobless tend to spend every dollar they get, pumping cash into businesses. A cut-off of aid for millions of people unemployed for more than six months could squeeze a fragile economy, analysts say. Among the consequences they envision over the next year:
• Annual economic growth could fall by one half to nearly 1 percentage point.
• Up to 1 million more people could lose their jobs.
• Hundreds of thousands would fall into poverty.
“Look for homelessness to rise and food lines to get longer as we approach Christmas if the situation can’t be resolved,” says Diane Swonk, chief economist at Mesirow Financial.
The average weekly payment for the roughly 8.5 million people receiving unemployment benefits is $302.90. That money ripples through the economy, into supermarkets, gasoline stations, utilities, convenience stores. The Congressional Budget Office says every $1 spent on unemployment benefits generates up to $1.90 in economic growth. The program is the most effective government policy for generating growth among 11 options the CBO has analyzed.
Analyst Mark Miller of William Blair & Co. figures that, in particular, discount retailers like Dollar General and Family Dollar will see their revenue pinched by a couple of percentage points next year if extended unemployment benefits expire.
“If you’ve been unemployed for six months, you’ve gone through your savings,” says Heidi Shierholz, economist at the Economic Policy Institute. “You have no choice but to spend (benefits) immediately.”
In July 2008, Congress began extending unemployment benefits, which can now last for up to a record 99 weeks: 26 weeks of regular benefits from the states, plus up to 73 weeks in federal aid in states with high unemployment rates. As of last week, about half the states offered the maximum 99 weeks of benefits. The extended federal benefits will start phasing out today if Congress doesn’t act.
At its peak in the first week of this year, just over 12 million people were receiving unemployment benefits — the most on records dating to 1986. The Labor Department estimates that if Congress lets the aid run out, nearly 2 million people will lose their benefits by Christmas.
Some economists worry that renewing jobless aid would discourage some unemployed people from seeking work. But a study this year by the Federal Reserve Bank of San Francisco downplayed the impact as “quite small.”
Republican lawmakers oppose an extension of the unemployment aid if it would enlarge the government’s $1.3 trillion budget deficit. They insist that the cost — around $5 billion a month — be offset with budget cuts elsewhere.
