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Congress Votes on Extending Unemployment Benefits-- Again
By Julie Borowski on July 19, 2010
On Tuesday, the Senate is expected to vote on H.R. 5618 “Restoration of Emergency Unemployment Compensation Act of 2010” which would extend unemployment benefits to November 30th for the long-term jobless. Unfortunately, prominent Democrats are accusing those opposed to the bill as being cruel individuals that have no sympathy for the unemployed. In a recent New York Times column, Paul Krugman claimed that those against the proposed measure were a “coalition of the heartless, the clueless and the confused.” Some media outlets even allege that Republicans are voting against the bill since they purposely want to increase the unemployment rate. According to Senate Majority Leader Harry Reid (D-NV),
They're betting on failure. They think the worse the economy is come November, the better they're going to do election wise. Almost two million people who are long-term unemployed. These are not numbers. They are people.
In reality, those opposed to the specific bill are neither heartless nor want the economy to tank even further. With nearly 1 out of 10 Americans unemployed, all of us are likely to have a close friend or family member currently out of work. During these hard economic times, all Americans are likely to empathize with those who have lost their job through no fault of their own. Every single one of us has been negatively affected in varying degrees by the economic recession.
Senate Republicans have insisted that any extension of unemployment benefits should be offset with spending cuts. Minority Leader Mitch McConnell (R-KY) has proposed a bill that would extend unemployment benefits by using unspent “stimulus” funds. However, Harry Reid has blocked four Republican attempts to extend unemployment benefits. According to Senator McConnell,
Both sides have offered ways to address the programs in this bill that we agree should be extended. The only difference is that Democrats are demanding that we add the cost to an already unsustainable $13 trillion national debt.
Therefore, the real debate in the Senate is whether the extension of unemployment benefits should be paid for in advance or not. According to the non-partisan Congressional Budget Office, H.R. 5618 would increase the deficit by $34 billion. Even Paul Krugman acknowledges that this bill would add to the budget deficit but he claims that a massive $34 billion is simply “penny-pinching.”
House Speaker Nancy Pelosi’s (D-CA) recently claimed that unemployment benefits create “jobs faster than almost any other initiative you can name.” However, a growing number of economists are asserting that unemployment benefits are not a form of economic stimulus at all. Every dollar that a person receives as a form of unemployment benefits must first be taken away from someone else. According to Arthur Laffer’s op-ed in the New York Times, we should not ignore the cost of unemployment benefits to employers:
And if workers require more pay because of higher unemployment benefits, employers will hire fewer employees. Whether increased unemployment benefits incentivize workers to work less or disincentivize employers from hiring more workers, the effect will be the same—higher unemployment.
We can visibly see unemployed people buying more goods as a result of their unemployment benefits. However, Nancy Pelosi fails to acknowledge the less visible consequences of unemployment benefits on all groups. Arthur Laffer further explains the unintended consequences of unemployment benefits:
To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy… The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.
Regardless of party affiliation, we are all likely to agree that unemployment benefits have the good intention of helping those that have been laid-off from their jobs. However, those who oppose H.R. 5618 are not heartless Senators who want to increase the unemployment rate for their own personal gain. As Senator Mitch McConnell explains, they want to pass an unemployment extension measure that will not add to our skyrocketing national debt that we cannot afford. Furthermore, any extension of unemployment benefits will not help recover the economy or create jobs in anyway. Before Congress votes on the “Restoration of Emergency Unemployment Compensation Act of 2010” it is essential to analyze all the consequences of the bill including adding $34 billion to the budget deficit while not improving the current economic climate.