Unemployment benefits aid economic recovery

US Labor Department study underscores positive impact of unemployment insurance

WASHINGTON — The U.S. Department of Labor today announced the findings of a multi-year study of the impact of the Unemployment Insurance program in stabilizing the economy during a deep recession. The study was commissioned by the department and undertaken by IMPAQ International LLC and the Urban Institute

Using UI data and the proprietary economic model from Moody's Economy.com, researchers studied how gross domestic product, employment and other economic variables would have performed without the increase in regular UI benefits; federally-funded Emergency Unemployment Compensation; and Extended Benefits, including the offsetting effect of the payroll taxes that pay for UI.

Thanks to the aggressive, bipartisan effort to expand UI benefits and increase eligibility during both the Bush and Obama administrations, the Unemployment Insurance program had an even more positive impact on the economy than in previous recessions.

Among the key findings:

  • For every dollar spent on UI, economic activity increases by two dollars.
  • During each quarter of the recent recession, UI benefits kept an average of 1.6 million Americans on the job.
  • At the height of the recession, UI benefits averted 1.8 million job losses and kept the unemployment rate approximately 1.2 percentage points lower.
  • UI benefits reduced the fall in GDP by 18 percent. Nominal GDP was $175 billion higher in 2009 than it would have been without UI benefits. In total, unemployment insurance kept GDP $315 billion higher from the start of the recession through the second quarter of 2010.

"Unemployment insurance is one of the best investments we can make, not only for the millions of people that utilize UI benefits to provide for their families in a time of need, but for the millions more whose jobs are kept secure because of the stabilizing effect it has on our economy as a whole," said Secretary of Labor Hilda L. Solis.

Unless there is congressional action over the next few weeks, our unemployment insurance system will be drastically curtailed. Without continued support for the Emergency Unemployment Compensation and Extended Benefits programs, most people facing unemployment will have only 26 weeks of benefits available.

"Two million people stand to lose benefits before the end of the holiday season if Congress does not act to extend federal benefits. Four million more would lose benefits early in 2011," added Secretary Solis. "While the economy and the job market are on the road to recovery, the loss of consumer sales from removing billions of dollars in unemployment benefits will set us back. Now is not the time to turn our backs on the families that rely on these benefits and the businesses that serve them."

For additional findings and a link to the full report, go to: http://s.dol.gov/BW.

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