Stimulus from jobless aid fades as U.S. hiring grows

By the time Congress got around to passing an extension of emergency jobless benefits last week, Clyde Lance no longer needed them.

On Dec. 17, his 52nd birthday, Lance started a full-time job helping train technicians for the International Society of Automation in Research Triangle Park, North Carolina, ending a three-year search for a permanent position.

“I didn’t even realize it was my birthday,” said Lance.

The dwindling ranks of the long-term unemployed, while testament to the improvement in the labor market, also shows the diminishing returns from what economists such as Mark Zandi say is one of the most effective government programs implemented to spur the recovery: Extended unemployment insurance payments. By the time all figures are in, Lance will be among the almost 1.5 million people who stopped getting those checks last year.

“The bang-for-the-buck from the program is among the highest of any fiscal-stimulus program,” said Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania, who estimated that every dollar spent in benefits generated 1.55 times as much economic activity. “It is important to have it in place as long as unemployment is high and the recovery is fragile.”

The legislation passed by Congress last week preserved benefits for harder-hit states that provide payments to the jobless for as long as 73 weeks, extending the normal program that typically lasts for the first 26 weeks of unemployment. About $30 billion in long-term benefits will be paid this year, down from about $45.5 billion in 2012, according to government estimates.

Growth Impact

Had the benefits lapsed, it would have decreased economic growth by almost 0.2 percentage point this year, according to estimates by economists at JPMorgan Chase & Co. in New York.

Of course, some of that shortfall will be made up by the bigger paychecks and the subsequent gains in spending of the newly hired workers who no longer get jobless payments.

The number of Americans on extended and emergency benefit rolls dropped to 2.07 million in the week ended Dec. 15, the latest data available, from 3.56 million in the last week of 2011 and 4.72 million in the same period in 2010, according to figures from the Labor Department. That reduces both the stimulus provided by the extension and the program’s costs.

Fewer Qualify

To be sure, the decline isn’t totally due to gains in employment. As state jobless rates fall, some no longer qualify for payments from the federal government, depriving the remaining long-term unemployed of benefits.

The unemployment rate has declined from a 26-year high of 10 percent in October 2009 to 7.8 percent in December, according to a Labor Department report last week. The economy added 155,000 jobs last month, and has regained 4.78 million of the 8.78 million lost as a result of the recession.

The share of all jobless out of work for 27 weeks or more dropped in December to 39.1 percent, the lowest since October 2009, last week’s Labor report showed. The decrease probably reflects both the improvement in the labor market and the fact that some discouraged workers have abandoned the job search. To be classified as in the labor force and unemployed, a person must be actively looking for a job.