Unemployment Extension Would Boost Employment By 200,000 Jobs Next Year: CBO

WASHINGTON -- A Democratic proposal to save expiring jobless benefits would boost the economy to the tune of 200,000 jobs next year, according to the Congressional Budget Office.

Federal unemployment insurance kicks in for laid-off workers who use up the standard six months of state-funded compensation. In a few states with high unemployment rates, the federal benefits provide an additional 47 weeks of assistance. The budget office says the extra cash creates jobs because unemployed people tend to spend it right away and the money reverberates through the economy.

"Recipients of the additional benefits would increase their spending on consumer goods and services," the CBO said. "That increase in aggregate demand would encourage businesses to boost production and hire more workers than they otherwise would, particularly given the expected slack in the capital and labor markets."

Rep. Chris Van Hollen (D-Md.), the highest-ranking Democrat on the House Budget Committee, trumpeted the budget office's report in a press release. Democrats have been pushing for a reauthorization of the benefits, which are set to expire abruptly for 1.3 million Americans on Dec. 28. Van Hollen said Congress should prevent that expiration and undo budget cuts known as sequestration before the holidays.

"Congress should not leave town until we extend unemployment insurance and replace the sequester," Van Hollen said. "Failure to act on those two priorities will result in 1 million fewer jobs by this time next year -- that would be a self-inflicted wound that we cannot afford."

Republicans haven't said whether they're interested in keeping the benefits, which would cost $26 billion. The December expiration has been an annual ritual for the past four years, with lawmakers waiting until the last second to reauthorize benefits for millions of workers. But a decreasing national jobless rate might make it more difficult for Democrats to overcome GOP concerns about the budget deficit.

The CBO says that despite the short-term boost to the economy, the cost of the benefits would add to the federal debt and eventually reduce economic growth. The budget office also expects that the extended duration of benefits would reduce the intensity of some workers' job searches, although some recent research has suggested extended compensation doesn't turn the jobless into slackers.

The report is similar to previous analyses of bills to preserve long-term unemployment benefits.

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Unemployment Rates By College Major For Recent Grads: Georgetown University Study (June 2013)