Unemployment Insurance has had many extensions as part of the government’s efforts to alleviate the pain and suffering caused by the economic downturn. These extensions inevitably expire. At one point, we faced the possibility of all extensions expiring on a specific date. That would have immediately cut the benefits to roughly 3 million people. In terms of acting as a social safety net, the expiration of all benefits on a single day would be a catastrophic failure. Shock absorbers cushion the blow, they don’t take months of problems and focus them on a single instant.
When the extensions don’t end, but the extended benefits are exhausted by people, people leave the safety net at approximately the rate they entered. In previous downturns, there would have been some attrition along the line as people got new jobs, but that seems not to be very significant in this downturn. Lose your job, odds are pretty high that you will stay unemployed for a while. This also reduces the effectiveness of the shock absorber. In addition, job losses have not occurred at a constant rate. There’s a strong seasonal component to job losses. This also reduces the effectiveness of a simple extension as a shock absorber. The shock is just transferred down the line.
Should an effort be made to make the expiration of benefits more evenly spread? This inevitably means that someone will have benefits extended while someone else does not. How would you deal with fairness concerns? The easiest way is probably to provide a greater benefits extension to those who paid more into the system. Another technique might be to make the net payout the same, but provide a bigger check to some. Perhaps a lottery is a fair technique.
It is likely reality that unemployment insurance extensions will stop being renewed before the jobs rate increases to match population, now estimated at 125,000 jobs per month. The most probable scenario is that nothing is done to provide additional extensions at some point. I am not convinced, however, that the most likely scenario is also the most graceful. Perhaps I am wrong, and there exists political will to extend benefits indefinitely.
