Shooting ourselves in the foot

Added July 28th, 2014 by Judy Putnam | Email This Entry Email This Entry
Judy Putnam

Michigan and the seven other states that cut unemployment benefits in the wake of the Great Recession caused financial hardship for unemployed workers and failed to boost the overall economic outlooks of the states, a new report from the Economic Policy Institute concludes.

Problems with the unemployment system actually stemmed from underfunding the state trust funds in good times, rather than paying out benefits too generously, the report concludes. And cutting benefits not only shortchanged jobless workers and their families, it undermined the countercyclical role of the unemployment system that is designed to kick in when times are tough.

In the eight states cutting benefits, African American workers made up a more disproportionate share of the long-term unemployed than African American workers in the other 42 states.

The Michigan Legislature cut the basic period of unemployment benefits from 26 weeks to 20 weeks beginning in January 2012 — even as unemployment remained high and long-term unemployment took its toll on families across the state.

In State Cuts to Jobless Benefits Did Not Help Workers or Taxpayers, EPI Research and Policy Director Josh Bivens, economist Valerie Wilson, and economic analyst Joshua Smith provide an overview of the U.S. unemployment insurance system, explain the interaction between federal and state financing of unemployment insurance, and examine the economic conditions of states that cut the duration and dollar amount of jobless benefits.

“There’s no evidence of any benefit to reducing the length or dollar amount of unemployment insurance when the economy is so weak,” said Bivens. “It’s hard to understand why states would shoot themselves in the foot like this.”

The report follows another reaching a similar conclusion in April by the Michigan Unemployment Insurance Project, which found that the changes caused the loss of benefits to as many as 32,800 workers a week over a six-month period. It also triggered the loss of up to 11 weeks of additional federal benefits for workers and their families that were available to jobless workers in the states with high unemployment that had not cut their state benefits.

The EPI report addresses one of the oft-repeated urban legends that offering benefits is a disincentive to work, saying that research shows “there is little evidence that extending unemployment aid provides a disincentive to work.” Instead, a weak demand for labor is the culprit “not that workers have effectively chosen to stay unemployed to get benefits,” EPI concluded.

In a state that still has the fourth-highest unemployment in the country, it’s clear that Michigan policymakers should not only restore the basic period of unemployment to 26 weeks, they should also demand that Congress renew emergency unemployment benefits that expired in December.

— Judy Putnam

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