“NO” on Retroactive Extension of Emergency Unemployment Benefits Extension

This week, the Senate will vote on the Emergency Unemployment Compensation Extension Act of 2014 (S.2149) sponsored by Sen. Dean Heller (R-NV) 56% and Sen. Jack Reed (D-RI) 10%.  The bill would extend emergency unemployment insurance benefits for five months and would provide retroactive payments to those who would have received benefits after the program expired in December.  This bill would encourage prolonged unemployment for many Americans and would be paid for using accounting gimmicks that would pose unnecessary risks to taxpayers.  

The bill would increase the prospect of prolonged unemployment for many Americans and would reduce the likelihood that more Americans would find employment quickly. Studies have consistently shown this to be the case. The Heritage Foundation’s James Sherk explains:

Extended unemployment benefits are not an economic free lunch. Economists have consistently found that they prolong workers’ job searches, raising the unemployment rate. Many liberals argue this is a plus—it helps the unemployed hold out for higher wages, but higher wages discourage businesses from hiring, which means fewer new jobs.

Sherk has noted studies “show that extending UI [unemployment insurance] benefits to 99 weeks has increased the national unemployment rate by roughly 0.5 percentage points.”  In a testimony before Congress on the effectiveness of extending unemployment insurance (UI) benefits, he explained the Emergency Unemployment Compensation system has the negative effect of making being “unemployed less costly, causing UI recipients to take longer to find new work.”  While unemployment benefits can serve an important function, Sherk explains giving unemployed workers more flexibility and resources must be balanced with the danger of facilitating their unemployed status because they would prefer to wait for an ideal position:

To find work, many workers will have to take positions that are much less than ideal. Extending benefits for too long encourages the unemployed to search for jobs that they will not find. This can hurt them in the long run.

In addition to harming the very workers the bill is designed to help, the pay-fors in the bill would put taxpayers at risk. The Heritage Foundation explains the bill uses an accounting trick known as “pension smoothing,” which could lead to another taxpayer bailout:

A similar approach was used in the 2012 transportation conference bill, also known as MAP-21. The idea behind the proposal is to loosen the rules governing pension contributions, allowing corporations that still sponsor defined-benefit plans to contribute less money to those plans.

In particular, the MAP-21 law changed the interest rate calculation that determines how much corporations must contribute to their pension plans each year. This matters because the interest rate calculation is supposed to keep the pension plans adequately funded. When corporations underfund their pensions and end up in bankruptcy, the U.S. taxpayer could be on the hook for a pension bailout through the Pension Benefit Guaranty Corporation (PBGC), a federal agency.

Taxpayers not cannot afford tens of billions in new spending (according to previous estimates, a full one-year extension would cost upwards of $25 billion).  And even if the offsets were not gimmick-ridden, lawmakers would still be throwing taxpayer money at an ineffective and wasteful program.

Heritage Action opposes S. 2149 and will include it as a vote on our legislative scorecard.

Related:

Extending Unemployment Benefits Could Lead to Fewer Americans Finding Jobs Quickly
Pension Smoothing on UI Bill Is an Accounting Trick That Could Lead to Taxpayer Bailout
Extended Unemployment Insurance Benefits

Originally posted March 27, 2014.  The Senate is using the Protecting Volunteer Firefighters and Emergency Responders Act of 2014 (H.R. 3979) as a vehicle for this legislation.