Extending the federal Emergency Unemployment Compensation (EUC) program that allowed claimants to collect up to 99 weeks of benefits during the depth of the recession may have actually slowed the nation’s economic recovery, says a report by the U.S. House Ways and Means Committee.

And after the program expired in December 2013, job-creating activity and labor force participation increased markedly, according to another study.   

Not the First, but the Largest

The congressional committee’s report noted that the “temporary,” 66-month EUC program wasn’t the first of its kind, but the largest in terms of number of weeks, benefits paid out, and the number of weeks of benefits collected per recipient.

Ultimately, it outspent previous federal emergency benefits programs by more than $200 billion in inflation-adjusted dollars, and outlasted previous programs by at least two years.

 

 

 

 

 

 

Grow the Economy?

Federal policymakers supporting the EUC programs had claimed that the EUC benefits would “grow the economy,” with the president suggesting it would help create 3.5 million jobs and reduce the U.S. unemployment rate to 5% by 2013.

However, despite the  magnitude of the EUC program compared to the ones prior, the recent recession was the first in which the nation failed to recover all the jobs lost within three years of implementing the EUC. 

Some researchers at the University of Pennsylvania believe the EUC program actually hurt the economy recovery. They claimed extended unemployment benefits had a “dramatic negative effect on employment.”

According to the Penn researchers, the dramatic increases in employment taxes levied on businesses for such an extended period of time made businesses less able to afford to hire employees. 

More reasons to question the EUC program were found after it expired.

Comparing data from the seven months before the EUC program expired in December 2013 with the seven months after it expired, the Penn researchers found that, post-EUC, “employment growth more than doubled, job growth accelerated, the labor force participation rate started rising after previous falling, and average and median durations of unemployment dropped rapidly after previously rising.” 

This is attributable to states taxing employers less once their federal unemployment tax debts were repaid, as well as employers being more likely to hire unemployed individuals that had been out of the workforce for shorter periods of time. 

Even so, the report is supportive of temporary EUC programs as long as they return to their “timely, targeted, and temporary roots” in lieu of the long running and larger program in effect between 2008 and 2013. 

For more information, contact CBIA’s Eric Gjede at 860.244.1931 | eric.gjede@cbia.com | @egjede