Disaster Looms if Congress Fails to Renew Jobless Benefits

More than 1 million U.S. citizens lost their extended unemployment benefits last weekend. What happens if Congress doesn’t reinstate the program?

Jan 4, 2014 at 10:00AM

On December 27, 2013, more than 1.3 million Americans lost their extended unemployment benefits, an emergency measure funded by the federal government to allow the long-term jobless to continue collecting benefits after the expiration of their home state's program. While state benefits generally end after 26 weeks, the crisis-era extension program, in effect since 2008, allows the benefits' timeline to stretch to somewhere between 54 and 73 weeks.


Senate Democrats plan to vote on a program renewal when Congress reconvenes on Monday, but House Republicans may vote down such a proposal, claiming that the cost is too high. Not extending the program, however, could have detrimental effects not only on hundreds of thousands of American families, but on a still-unstable economy, some analysts say.

Long-term jobless will suffer
The average monthly payment of $1,166 will be sorely missed by those who lost their benefits this past Saturday, but that's only part of the picture. According to the Democratic members of the congressional Ways and Means Committee, close to 72,000 additional persons will drop off the benefit rolls each week until mid-2014. This adds up to an astounding 1.9 million people -- on top of the current 1.3 million -- who will face life without a job or unemployment benefits by the end of June.

That's well over 3 million families that could be pushed into poverty, with states that were hard-hit by the recession leading the way. In California alone, nearly 540,000 will be left without that backstop, with another 260,000 in New York, and almost 180,000 in New Jersey.

A body blow to a recovering economy
The personal suffering will be terrible enough, but the damage to the fragile economy is sure to cause further disruption. Monthly stipends are recycled back into the economy as recipients buy the necessities of everyday life. Preserving that cash infusion, despite the cost of the program, could increase the country's gross domestic product by 0.2% this year, while adding another 200,000 jobs. 

Another problem involves the unemployment rate, which could drop by 0.5% as the long-term jobless are no longer counted as "looking for work." A similar scenario occurred last year in North Carolina, when 170,000 people lost jobless benefits in a bid to cut state costs. The state's unemployment rate dropped quickly to 7.4% from 8.8% as those people were no longer considered unemployed.

A drop in the national unemployment rate could have more serious consequences. The Federal Reserve has specified a jobless rate of 6.5% as one economic indicator that would prompt the Fed to cut back on its accommodative monetary policy and consider raising short-term interest rates.

While the Fed stresses that interest rates will very likely stay low well beyond the time the jobless rate hits the 6.5% mark, a falling unemployment rate will likely spur the speed-up of the so-called taper. It's very possible the announced reduction of $10 billion in the Fed's monthly $85 billion bond and mortgage security buying plan could be accelerated if the jobless rate hits 6.5%, particularly if the rate continues to drop.

This could send long-term interest rates surging, hurting housing and the greater economy. Clearly, there are other factors, such as inflation, that the Fed will consider as it moves to wean the economy from its quantitative easing policy. It is notable, however, that the Federal Open Market Committee clearly regards a national unemployment rate of 6.5% as a sign of an improving economic climate -- not the byproduct of shutting off the benefit supply to those who have been unable to secure viable employment.

President Obama, National Economic Council Director Gene Sperling, and Senate Democrats are pushing for an extension of benefits when Congress reconvenes on January 6. For the sake of the U.S. economy, let's hope they get their wish.

The long-term view is still the best
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers