Millions Face Loss of Unemployment Benefits

Nov. 30, 2010— -- In a blow for millions of out-of-work Americans, Congress failed to agree today on extending emergency jobless benefits for the nation's long-term unemployed. The benefits are set to expire tonight.

The consequences of ending the extended benefits aren't entirely clear though most agree it could hurt the recovery. The Labor Department estimates that 635,000 people could lose all benefits by Dec. 11, with more than 1.6 million losing them by Christmas. The rippling effect, some argue, could be devastating.

"If for some reason it is not authorized it would be catastrophic for the economy," said Judy Conti, a federal advocacy coordinator at the National Employment Law Project, an advocacy organization for employment rights.

The unemployment bill, along with an extension of the Bush tax cuts, is among the hottest issues in the lame-duck session of Congress that began Monday. Some lawmakers argue that the nation simply can't afford the extension bill, which would cost the country another $12 billion, adding to a deficit that tops $13.7 trillion. The tax-cut extension could also cost $3.7 trillion over the next decade.

Unemployment insurance has for many decades provided about 26 weeks of benefits, but the current Congress has extended the benefit to 99 weeks in four separate bills.

"There will be no safety net in terms of greater job loss," Conti said. "If the program is not reauthorized by the end of the year, 2 million will prematurely lose benefits. It could lead to great homelessness. The ripple effect would be devastating."

Not so fast, says Matt Mitchell, a senior research fellow at Mercatus Center at George Mason University. "Unemployment benefits probably actually increase unemployment," he says.

The reason, Mitchell says, is because unemployment insurance makes it easier to increase so-called reservation wages, the lowest wage an unemployed person will accept for a job.

"The existence of unemployment insurance doubles the amount of unemployment spells that last more than three months," he says.

Without Congressional action, many of the jobless still searching for work -- in a market where there is one job for every 5 unemployed individuals -- will lose federal unemployment benefits Nov. 30.