Unemployment Benefits Expire After Extension Bid Fails in Senate

Dec. 1, 2010— -- Federal unemployment benefits for millions of out-of-work Americans expired at midnight after Congress failed Tuesday to pass an extension for another year.

Sen. Jack Reed, D-R.I., took to the Senate floor Tuesday night to urge his colleagues to extend the benefits, but to no avail.

"Now it is time to govern. Now it is time to act. Now it is time to do what we have always done in a situation like this – to pass a promptly and timely extension of unemployment insurance benefits," Reed said. "Acting now is the right thing to do, the responsible thing to do, the wise economic thing to do."

He argued that the jobless benefits serve as an economic stimulus that is more effective than tax cuts for the wealthy, one of the Republicans' priorities during the lame-duck Congress.

But Sen. Scott Brown, R-Mass., objected to the Democrats' bid to move forward with the jobless benefits bill.

Brown said Democrats should have allowed more time to work on the bill, rather than taking a week-long break for the Thanksgiving holiday and spending the past few legislative days working on a food safety bill.

"Seven days? Give me a break. We should have spent time working on this. But we need to work on food safety?" Brown said on the Senate floor.

Loss of Extended Benefits Consequences Not Clear

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 ripple 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.

Unemployment Benefits Extremely Personal

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."

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."

ABC's Sharyn Alfonsi and Leezel Tanglao contributed to this report.