Millions Face Loss of Unemployment Benefits

VIDEO: Congress fails to extend jobless benefits, but is there another safety net?
WATCH No More Help for the Long-Term Unemployed

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.

With unemployment hovering above 9 percent, some economists say it is imperative that the government extend benefits.

"Economist agree that unemployment is going to remain in the 9 percent range all next year, and we have never cut back on unemployment benefits when unemployment was over 7.2 percent," Conti says.

Though the country is coming out of its longest recession since the Great Depression, more than 14 million people are still unemployed or underemployed.

For each of those 14 million, the issue of unemployment benefits is extremely personal.

"It means I can keep a roof over my head," said Ellen Andrews, a New Yorker who lost her job as an Event Planner last year. She's been supporting herself and her one-year-old son Henry with her unemployment benefits.

"Even though it's a struggle to buy food and everything, it means that I am keeping the lights on and I'm keeping food in the house, sometimes just barely but I'm able to do that," Andrews said. "It's keeping me afloat until I can get to that next job."

With the holiday season in high gear, many of the unemployed could be forced out of their homes without money coming in to pay for rent or mortgages. Ending extended benefits could cause small businesses to falter as the unemployed lose income to put back into their local economies.

A bill to extend unemployment benefits fell short, by 17 votes, of the two-thirds majority needed under a special rule to pass earlier this month. Growing concerns over adding to the deficit have left some members of Congress hesitant about the bill, which is estimated to cost $5 billion a month.

The real tragedy of failing to extend benefits would be the loss of an estimated $5 billion a month in spending that comes from the long-term unemployed, says Heidi Sierholz, an economist and labor market columnist for nonpartisan economic think tank Economic Policy Institute based in Washington, D.C.

"That's $5 billion that's yanked out of the economy every month," Sierholz says. "Each month, almost 1 percent of the GDP will be taken out of the economy if we don't extend benefits, and that's going to be a massive drag on growth."

To answer some concerns over the rising deficit, President Obama's press secretary released a fact sheet Monday about freezing pay for civilian federal workers to help cut the deficit. The two-year freeze is expected to save $2 billion in 2011 and $28 billion over the next five years.

"Just as families and businesses around the nation have tightened their belts so must their government," the statement says. "That must be done in a targeted way that focuses our investments in what works and in what will lay the foundation for job creation and economic growth for years to come while cutting back elsewhere in our budget."

In Illinois, 127,000 will lose benefits by Christmas if unemployment benefits are allowed to lapse, Sen. Dick Durbin, D-Ill., said Sunday on "Meet The Press."

In a meeting between Congressional leaders and the president today, unemployment is a priority, in addition to the earned income tax credit, the child care tax credit and the making work pay tax credit, he said.

"We should be focusing on what it takes to move this economy forward," Durbin said. "We should not be worried about the discomfort of the wealthy, but the fact that there are many people struggling to survive every day now because they have no job and no means to keep their family together in very difficult times."

ABC's Sharyn Alfonsi contributed to this report.