Extend unemployment compensation—and raise the minimum wage

The current hot button in Congress is whether to extend the federal emergency unemployment compensation program for long term unemployed individuals for an additional 3 months. My answer: yes, but at the same time, raise the minimum wage.

If you are unemployed in Minnesota, you can receive an unemployment compensation benefit of approximately 50% of your average weekly wage, up to $629 per week. Benefits last 26 weeks under the main unemployment compensation program,  however, emergency benefits had been extended in Minnesota to 33 weeks. However, Congress allowed this emergency benefit program to expire, effective December 29, 2013 in Minnesota. 

The tension in the current argument is the need for unemployed individuals to take minimum wage jobs instead of receiving unemployment benefits. For example, in Michigan, there is a proposal to cut off unemployment benefits at 10 weeks and require individuals to take minimum wage jobs.  These two issues, while somewhat related, do not depend on each other. Indeed, when over 20,000 people apply for 600 jobs at a new Ikea store, it is impossible to make the two depend on each other.

The current federal minimum wage is $7.25 per hour, or $290 for a 40 hour week. This law only covers employers having more than 50 employees or more than $500,000 in interstate commerce. Otherwise, states are free to set their own minimum wage for smaller employers. Minnesota progressive advocates are pushing for a $9.50 minimum wage, while a number of federal proposals suggest raising the minimum wage to more than $10 per hour. 

Raising the minimum wage to $10 per hour will result in annual income of $20,800 for a 52-week year.

Minnesota's unemployment rate is 4.6%, compared to 7% nationally. There were 34,056 claims for unemployment compensation in 2012. Data for 2013 is only available through November, but the numbers should be on par, perhaps slightly lower, with the previous year. Of these, 16,071, or slightly less than half, involved extended benefits. Between 8,500 and 9,200 are estimated to have lost their extended benefits last month.  In John Kline’s district, 1,200 people were cut off from benefits.

How much do these long term benefits cost? Remember, it is only the extended, emergency unemployment benefits that are being cut. Nationwide, extending emergency unemployment benefits another full year would cost $25.2 billion. The three month extension the senate is currently considering will cost about $6 billion, with about $3.5 million being spent in Kline’s District, or 0.5% of the national cost. 

According to the Council of Economic Advisors (CEA), failing to extend unemployment compensation would have serious adverse economic consequences:

• Failing to extend UI benefits would put a dent in job-seekers’ incomes, reducing demand and costing 240,000 jobs in 2014.
• Estimates from the Congressional Budget Office and JP Morgan suggest that without an extension of EUC GDP will be .2 to .4 percentage points lower.
• In 2011, CBO found that aid to the unemployed is among the policies with “the largest effects on output and employment per dollar of budgetary cost”
• In over a dozen studies, economists have found that any disincentive to find new work that could result from extended UI benefits is, at most, small
• Expiration of extended UI benefits may also lead some long-term unemployed to stop looking for work and leave the labor force, reducing the number who could eventually find jobs as the economy heals

As the CEA report notes, “since 1948 Congress has never allowed extended unemployment benefits to expire with unemployment rates as high as they are now and the long-term unemployment rate is currently twice as high as in any previous month in which benefits expired.” President George W. Bush signed an emergency unemployment bill in 2002 when the unemployment rate was 6.0%.  And, since 1967, the rate of poverty has declined from 27% to 16%, coincident with the implementation of federal safety net programs.

How does working part time influence unemployment compensation? In Minnesota, a partial benefit payment will be made for any week you work less than 32 hours and your earnings are less than your weekly benefit amount.

Putting this all together, one can conclude:

1. It is beneficial to the economy to extend these benefits.
2. It is beneficial to the individuals involved to extend these benefits.
3. Raising the minimum wage will allow some to obtain minimum wage jobs and either eliminate or reduce the cost of unemployment benefits.