Why Democrats have let the unemployment insurance extension lapse

Democrats could have made deals with Senator Snowe or Senator Voinovich to get the unemployment extension renewed, but they wouldn't do it. My own guess is that for Democrats the decision to let these extensions lapse have been a win-win for Democrats. They can blame Republicans for being heartless and letting the extensions lapse and at the same time the lapse will lower unemployment rates. Here is one estimate of what letting the extension lapse will mean to the unemployment rate:

But on June 2nd even that concession expired. A mini-stimulus bill now before Congress would keep the extension in place until November. When the package passed the House on May 28th, worries about the deficit had whittled back the stimulus provisions from a proposed $79 billion to $40 billion. . . .

America’s UI payments are usually stingier and more short-lived than their equivalents in Europe and Canada. That is not necessarily a bad thing: it is one reason why America’s unemployment rate is also usually lower. There is concern now, though, that repeated extensions of UI may have made unemployment both higher and longer-lasting. Benefits are routinely extended during recessions, but the current 99 weeks in most states, almost four times the normal 26 weeks, is another record. Some 10m people are now claiming unemployment benefits, half of them through these extensions (see chart). . . .

JPMorgan Chase estimates that this may have raised the unemployment rate by 1.5 percentage points. . . .

UPDATE: From Marketwatch:

The number of people submitting initial applications for state unemployment insurance benefits fell 29,000 to 429,000 last week, hitting the lowest level since August 2008, the Labor Department reported Thursday. . . .

The total number of people collecting some type of unemployment benefits in the week ended June 26 was about 8.7 million, down about 270,000 from the prior week. The decline in total continuing claims is worrisome, wrote Dan Greenhaus, chief economic strategist with Miller Tabak, in a research note.

"Unless there has been an incredible outbreak of hiring to meet a forceful upward move in domestic demand, it is almost assured that the drop in claims is related to Congress's inability to extended funding for unemployment benefits," Greenhaus wrote.

He added: "Should the Senate finally get around to extending - retroactively - these benefits, the recent decline will reverse. In the meantime though, several million unemployed persons are getting their Christmas lump of coal a whole lot sooner than they thought."



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