Extended Unemployment Insurance Benefits: The Heritage Foundation 2009 Labor Boot Camp
What Are Extended Unemployment
- States provide unemployment insurance (UI) benefits to
involuntarily unemployed workers. UI benefits typically replace
35-40 percent of a worker's weekly income.
- Most states provide UI benefits for up to 26 weeks. Workers in
states with particularly high unemployment rates may collect UI
benefits for an additional 13 weeks for a total of 39 weeks.
- Congress has temporarily provided funding for extended
unemployment insurance benefits. Workers in all states may now
collect unemployment insurance for up to 46 weeks after losing
- Under current law, extended benefit eligibility expires on
March 31, 2009, and UI eligibility reverts to 26 weeks. All
extended benefit payments cease on August 27, 2009. Congress will
probably vote on continuing extended benefits before extended
benefits are allowed to lapse.
- Subsidizes and Extends Unemployment
- The consequences of extended unemployment benefits are some of
the most conclusively established results in labor economic
research. Extending either the amount or the duration of UI
benefits increases the length of time that workers remain
unemployed. o UI benefits subsidize unemployment. They
reduce the incentive unemployed workers have to search for new work
and to make difficult choices--such as moving or switching
industries--to begin a new job.
- Roughly one-third of workers receiving UI benefits find work
immediately once their benefits expire. This happens both when
unemployment is high and when unemployment is low.
- Economic research shows that extending UI benefits from 26
weeks to 46 weeks increases the average duration of unemployment by
approximately three weeks.
- Reduces Other Income
- Families respond to unemployment benefits by reducing other
income. Wives' earnings fall by between 36 and 73 cents for each
dollar of UI benefits married men receive.
- Ineffective Stimulus.
- Extended UI benefits are frequently claimed to provide
significant economic stimulus.
- The studies that come to this conclusion ignore the effect of
UI benefits in raising unemployment and incorrectly assume that
unemployed households spend every dollar of UI benefits they
receive. Empirical studies contradict both of these
- Heritage Foundation macroeconomic modeling accounting for both
these factors show that for each dollar spent extending UI benefits
to 46 weeks, GDP expands in the first year by just $0.17. Almost
any other use of resources would provide a greater short term boost
to the economy.
- Higher Unemployment
- Heritage Foundation macroeconomic modeling shows that extending
UI benefits to 46 weeks has increased the unemployment rate by 0.22
- Negligible Wage Effects
- Some analysts suggest that extended UI benefits should enable
workers to find better jobs and increase their wages when they
return to work.
- Other analysts suggest that workers skills deteriorate when
they are unemployed and, by encouraging longer unemployment,
extended benefits will reduce workers wages.
- Economic research finds neither effect--extended benefits do
not increase or decrease unemployed workers wages when they find
Sherk is Bradley Fellow in Labor Policy in the Center for Data
Analysis at The Heritage Foundation.
Show references in this report
Stepan Jurajda, and Frederick J Tannery,
"Unemployment Duration and Extended Unemployment Benefits in Local
Labor Markets," Industrial and Labor Relations Review, Vol.
56, No. 2 (January 2003), pp. 332-334.
B. Cullen and J. Gruber, "Spousal Labor Supply as Insurance: Does
Unemployment Insurance Crowd Out the Added Worker Effect?" Journal
of Labor Economics, Vol. 18 No.3, (2000), pp. 546-572.
Sherk and Campbell, "Extended Unemployment