As of the
jobs report the Bureau of Labor Statistics issued March 8, there were 4.8 million Americans counted as long-term unemployed. That is, Americans who have been without work for more than half a year. The lucky ones, if you can call them that, about two million people, are receiving federally funded Emergency Unemployment Compensation. Most states provide only 26 weeks of jobless benefits (although some have reduced that duration to as few as 18 in the past year).
But the sequester, which will hack $85 billion out of the federal budget this year if Congress doesn't act, means those Americans receiving EUC benefits will lose 10.7 percent of their average $300 a week benefit starting this month. That's an April Fools' joke not in the least bit funny:
“Cutting benefits will have real effects on people’s consumption,” said Jesse Rothstein, an associate professor of public policy and economics at the University of California (Berkeley). “That 300 bucks a week or so goes a long way when you don’t have anything else.”
The economic literature on unemployment benefits casts them as a positive, productive service overall on the part of the federal government. It’s money that is spent quickly on rent or groceries or gas, boosting consumer spending at time when the economy needs to grow.
See what states are doing individually below the fold.
States will implement the cuts independently of each other. The sooner they start, the smaller the cut. Most states have already set a date. For example, Indiana's cuts begin April 8. But California and 14 other states have yet to do so. If the Golden State waits another three months—to the end of its fiscal year on June 30—to make the sequester's mandated reduction, it will amount to a 22.2 percent axing of each check from then until Sept. 30. That's down to $232 a month. One problem, according to Mitchell Hirsch at the National Employment Law Project, is the fact that states have antiquated systems in place to deal with unemployment benefits. The National Journal quotes him:
“A complicating factor in this is that a lot of the money that states need to do the processing comes from the federal government. These administrative funds, as well as job training and a whole host of services beyond the regular benefit checks, will also be reduced,” Hirsch said.
Because other Americans will exhaust their state benefits during 2013 and shift to EUC compensation, the U.S. Department of Labor estimates that as many as a total of 3.8 million unemployed workers could be hurt by the sequester-mandated benefit throughout 2013. The average recipient would lose about $400 they would have received if the sequester had not been in place.
It's not just the long-term unemployed who will be hit. The cuts will yank some $2.3 billion in consumer spending out of an economy still sluggishly recovering, in part, because of low demand. The loss will hit local businesses hard, enough for some of them to lay off workers and add to the unemployment rolls.
In addition to the cuts in benefits for the long-time unemployed, the sequester will also mandate cuts in $203 million in federal funding for administering the state benefit programs, including claims processing, appeals and tax collection systems, and reemployment efforts to help out-of-work Americans find jobs.