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The Jobs-Killing, Unemployment-Insurance-Eliminating "JOBS Act"

May 12, 2011 - by Donny Shaw

One of the final acts of the last session of Congress was passing legislation to keep extended unemployment insurance benefits for the long-term unemployed available into 2012. Their reason for doing so was, of course, to ensure that the hardest-hit victims of the ’08 economic crisis would have some form of financial support while the jobs market remains weak. Well, the jobs market is still weak, but Republicans in the House are moving to scale back the extended unemployment insurance benefits with a new bill they are calling the “Jobs, Opportunity, Benefits, and Services Act of 2011,” or the “JOBS Act.”

The bill would turn the $32 billion that would be made available for unemployment insurance programs under current law into flexible block grants for states to spend in other ways. States could continue to use the money for unemployment insurance, but they would also have the option to reduce or eliminate the extended unemployment insurance program, which is financed by money loaned from the federal government, and instead use the federal money to pay back their debt obligations (PDF) to the federal unemployment trust funds. Some states with particularly high unemployment rates and particularly deep financial troubles, like Florida and Michigan, have already begun the process of scaling back benefits once the current federal law expires. You can be sure that if the JOBS Act becomes law they’ll take the opportunity to scale back almost immediately.

Without the JOBS Act, states would have to find other ways of paying back the funds. That would likely mean some form of tax increase. Under the JOBS Act states would be able to avoid putting this burden on corporations and individual taxpayers and instead put it on the unemployed who have been unable to find work through no fault of their own. From that angle, it can be seen as a sharp political move — limit the burden on the wealthy who have money and time to invest in political campaigns and shift it to the middle class and poor who don’t have as many resources to reward politicians.

What’s especially ironic about this bill, given its title, is that economic impact studies show, very clearly, that spending on unemployment insurance creates more jobs than just about any other investment a government can make. The liberal-leaning Economic Policy Institute explains:

The $40 billion in economic activity generated by the EUC and EB programs under current law would create around 322,000 jobs.

Spending on unemployment insurance programs gives the economy its biggest bang for the buck in terms of job creation because the GDP multiplier effect of unemployment compensation—which CBO estimates in a range from 0.7 to 1.9—is greater than any of the other possible uses under the proposed Act. Putting cash in the hands of unemployed workers generates more economic activity than any other option: it results in more consumption of goods and services produced by private-sector businesses, generating more economic activity by their suppliers and contractors.

But if the states choose not to spend the money on EUC and EB, some funding options will be better than others. For example, if a state uses its share of the $31 billion to pay down its debts to the federal UI trust funds, it will remove that amount of money from the economy, generate no new economic activity, and create no jobs at all.  Likewise, if a state chooses to eliminate EUC and EB and instead deposit its share of the federal funds into its UI trust funds to improve their balance, the money will be removed from circulation and create no jobs at all.

The bill was passed out of the House Ways and Means Committee yesterday by a 20-14 vote and will likely hit the full House soon. Frustratingly, the House Ways and Means Committee does not published roll call details, so there’s no way to know for sure how individual members voted. But extrapolating from the committee membership and the vote total, it looks like the vote followed party lines very closely. That suggests that the bill doesn’t stand much of a chance in the Democratically-controlled Senate.

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