The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

Illinois will lose 27,000 jobs in 2012, and its unemployment rate will increase from 10% to 10.5%, unless Congress approves extending the Emergency Unemployment Compensation (EUC) program, according to the Economic Policy Institute. EPI’s projection that failure to extend the EUC program will have such a dramatic effect in increasing unemployment is based on standard economic “multiplier” effects and the fact that the long-term unemployed—often the most desperate for resources to meet their basic needs—are apt to immediately spend any benefits they receive. Taking this consumer spending out of the economy, by failing to extend EUC, would result in lost jobs in the stores and businesses where the money would be spent. That is why failing to extend the EUC would increase the unemployment rate.

The EUC program was created as part of the American Recovery and Reinvestment Act of 2009 to provide unemployment insurance benefits to the millions of Americans who lost their jobs in the Great Recession and have exhausted or no longer qualify for unemployment benefits through existing state programs. The EUC program is desperately needed given the anemic pace of job growth since the recession’s end and the long durations of unemployment that a record number of Americans are experiencing.

The EUC program will expire at the end of 2011 if Congress fails to extend it. Rep. Sandy Levin (D-Mich.), the ranking Democratic member on the House Ways and Means Committee and the co-sponsor of legislation to extend the EUC program for a year, explains: "Never before has Congress allowed emergency unemployment benefits to expire with such a large percentage of Americans looking for work and we must not let that happen now.”

The EUC program was extended for one year near the end of 2010 as part of a grand compromise that also included a two-year extension of the Bush tax cuts for the wealthy. The EUC program has been a target of some Tea Party adherents and their supporters in Congress, who believe that extending the period that unemployment compensation is available makes people lazy and unwilling to look for work. Nevertheless, it is currently expected that Congress will agree to extend the EUC program, although what other demands will be made in return for agreeing to such an extension remains to be seen.

This blog is based on analysis and a report by the Economic Policy Institute.

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The financial meltdown has led many people to rely on unemployment compensation (UC) more than ever. Only 54,000 jobs were created in May, and the unemployment rate remains high at 9.1%. In this volatile market, it is becoming increasingly important for the government to protect consumers who were hit hardest by the economic crisis – the unemployed.

Forty states including Illinois, California and New York have transitioned paying UC from paper checks to prepaid cards. A prepaid card is a network branded – VISA or MasterCard – card that can be used like a bank debit card without the individual bank account. Delivering UC benefits on prepaid cards allows: (a) state government agencies to eliminate the costs of issuing paper checks; and (b) recipients, who may prefer not to have their employment payments deposited to a bank account because of the problems with overdraft fees, garnishment by debt collectors among others.

While using these sorts of prepaid card systems may offer some benefits, effective consumer protection measures must be implemented to ensure that vulnerable unemployed individuals are protected. In particular, pre-paid card fees and other charges can quickly reduce the amount of UC payments. A study by the National Consumer Law Center (NCLC), found that the typical UC check is only $294 a week. This means that it is crucial for recipients to save every dollar and penny by avoiding unnecessary fees.

The U.S. Department of Labor (DOL) has issued guidance for UC cards which states that money drawn from the federal unemployment fund may not be used to cover a state’s administrative costs related to the payment of UC. 

Yet many UC card systems charge multiple fees, presumably to help defray the state’s administrative costs, in contravention of the DOL’s guidance.  Out of the forty UC prepaid cards currently offered by states:

• 22 cards charge fees at network automated teller machines (ATMs), and all charge out-of-network ATMs, on top of ATM surcharges;
• 24 cards charge ATM balance inquiry fees;
• 24 cards charge denied transaction fees;
• 5 cards charge $10 to $20 overdraft fees;
• 16 cards charge for calls to automated customer service menus; and
• 28 cards charge inactivity fees.

States need to eliminate or reduce these fees. Additionally, every state should offer direct deposit and checks, in case of hardship, as well as prepaid cards in order to allow consumers to choose their preferred method of payment and the types of associated fees that they wish to incur. Currently, only 3 states, Alaska, Florida and West Virginia, offer all three payment options. Perhaps most importantly, states must clearly disclose the fees associated with UC cards on their websites. Addressing these concerns will create a UC prepaid card system that benefits both a state and its unemployed workers.

Ji Won Kim coauthored this article.

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It has become fashionable to attack President Obama for a perceived lack of leadership and resolve. These attacks have come from all directions. Undoubtedly the tax cut compromise brokered by the President will give new fodder to his implacable critics on the Right and the Left. The bottom line, however, is that President Obama succeeded in negotiating the best possible deal out there for the unemployed and those in working poverty, while adhering to his principles and deferring until the next presidential election cycle the debate between cutting taxes for the rich and reducing the deficit. 

First, here is the financial situation that the President faced:

1. The program extending unemployment insurance benefits beyond 26 weeks for up to 99 weeks had expired on November 1. Two million people were going to lose their unemployment benefits by Christmas if no agreement was reached.
2. The progressive tax cuts enacted under the President – expanding the earned income tax credit and the child tax credit, growing the college tuition tax credit, and the middle class make work pay tax cut – would have expired on January 1, and the average American’s taxes would have gone up $3,000.

Of course, the Right was faced with expiration of the tax cuts on the wealthiest 2% of Americans and reinstitution of the Estate Tax. Who was in a better position to hold out?

Second, here is the political situation that the President faced:

1. A new, very conservative Republican majority takes control of the U.S. House of Representatives in January.
2. Senate Republicans recently announced that they would block consideration of all other matters in the Senate until the tax cut extension issue was resolved.
3. Influential liberal Democrats had recently introduced legislation that would have extended unemployment insurance benefits for three months only.

The deal reached by the President:

1. Extends all Bush tax cuts, including the tax cut for the wealthiest 2%, for two years.
2. Preserves all of the progressive tax cuts enacted under President Obama (with a temporary reduction in the payroll deduction replacing the make work pay credit).
3. Makes slight concessions on the estate tax.
4. Continues eligibility for extended unemployment insurance benefits, which expired on November 1, for another 13 months, with no requirement that the cost be offset with cuts to other domestic programs.

In short, the deal reached by the President ensures that 2 million unemployed Americans will not lose their unemployment insurance benefits during the holiday season, that millions more will not lose their benefits next year, and that all of the progressive tax cuts for the working poor enacted during the Obama Administration will continue. It ends, on the most favorable terms available, a stalemate that is hurting low-income Americans every day it continues. The President got a lot more than other progressives were willing to settle for, while bringing the pain to an end.

The two-year extension of the tax cuts means that the issue of driving up the deficit by continuing tax cuts for the rich will be debated during the next presidential cycle. President Obama made it clear in his statement announcing the tax compromise that he strenuously opposes continuation of tax cuts for the rich. The President reached a political compromise, but there was no compromise on principle.

It’s time to move on.

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A recent editorial in the Chicago Tribune professes to have some "heart" for the long-term unemployed, but it calls upon Congress to vote down an extension of unemployment benefits anyway. We disagree. Congress should approve the extension as soon as possible.

Some may blame lingering unemployment on the unemployed, accusing them of failing to look for or take jobs "on employers' terms." But the main cause today is that there simply are no jobs. There are currently five workers for every job opening, according to a U.S. Department of Labor survey of employers. In normal times, this ratio is one to one. In the last recession, it was two to one. Employers are not waiting for workers to show up for vacant jobs. There is no relationship whatsoever between unemployment benefits and American productivity; indeed, even if an insured worker fails to take a job (which we do not concede), there are millions of uninsured and unemployed workers to snap them up.

In fact unemployment insurance allows laid-off workers the ability to preserve their retirement accounts and life-insurance policies, it helps them avoid foreclosures and bankruptcies, it maintains a minimally decent standard of living and it keeps them consuming goods and services. They buy things with the benefits at stores who employ people, who get paychecks and who make their own purchases. This "multiplier" effect has been estimated at $1.61 of positive economic impact for each dollar of benefits.

Yes we can and should have a "heart" for these workers, but we should also know that unemployment insurance helps to fight the recession and maintain jobs. Its minimal cost is well worth it.

This post was co-authored by Andrew Stettner, deputy director, National Employment Law Project, and Carrie Thomas, associate director, Chicago Jobs Council.

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