The Local Impact Of Long-Term Unemployment Insurance Cuts

Ken O’Brien

On December 28, 1.3 million Americans were immediately cut off of their unemployment insurance coverage. New data from states across the country highlights the harm local communities will face due to the Republican failure to extend unemployment insurance before leaving for the winter holiday break.

When Congress failed to extend the federal Emergency Unemployment Compensation program more than 58,700 people in Massachusetts lost their insurance coverage immediately on Dec. 28, according to the Massachusetts Department of Unemployment Assistance. An additional 54,800 people in Massachusetts will lose their coverage in the first six months of 2014 if Republicans continue to block an extension of the program, according to Department of Labor estimates. 

Federal unemployment insurance took effect in 2008 and has been reauthorized several times since as Americans continue to recover from the worst economic downturn since the Great Depression. Despite the real progress the economy has made since its near collapse in 2008, there are still 1.3 million fewer jobs than there were before the recession began and long-term unemployment as a percentage of the unemployed is 37 percent, near historic highs.

Failure to extend federal unemployment insurance would also hurt job growth throughout the nation, costing the economy 240,000 jobs, according to the White House Council of Economic Advisers. The CEA estimates that in Massachusetts alone, failing to extend the program will cost 7,067 jobs.

Data provided by the U.S. House of Representatives Committee on Ways and Means allows us to take a look at the impact of the December 28 cuts at the local level. The data is provided at the level of postal zip codes and shows the number of individuals who lost long term unemployment insurance benefits. The O’Zone has assembled this data for Southbridge and surrounding towns to show the local impact of the cuts.

At first glance some might say that this is not very significant. Sure, it’s unfortunate that almost 1,400 local residents have lost their sole remaining source of income. But the fact is that it is only a little more than 1% of the total population.  Of course that overlooks the fact that the average number of persons per household in Massachusetts is 2.5. That number of course includes the elderly and the young who reduce the average family size. But accepting that number as a base and realizing that in most cases the benefits are the sole source of income for the family involved, the minimum number of people actually affected grows to almost 3,500 at the local level, or closer to 3% of the population.

Still, you might say, so what? I work, I have a job and it’s not my problem.

Well, the economic impact is more significant than you might think.

According to reporting by WWLP TV in Springfield the average weekly long term unemployment check is $300 or about $1,300 per month. The loss of these benefits by the individuals in these 11 towns results in a loss of spending in the local economy of $1.8 million per month.

But the bad news doesn’t end there. In terms of economic analysis one must take into account what is termed “the multiplier effect”. This results from the fact that every dollar injected into an economy is circulated to others who re-spend a portion of that original dollar. Since the recipients of these benefits are essentially living on the economic edge, they spend all of their benefits for immediate needs. It is virtually impossible for them to save any of that money. As a consequence research by the U.S. Department of Labor shows that unemployment benefits have a multiplier effect of 2.0: for every dollar spent on unemployment insurance, they report an increase in economic activity of two dollars.

What that means is that, on a practical basis, these cuts in long term unemployment benefits will result in a loss of $3.6 million per month in economic activity in the 11 towns studied.

If you work in one of these communities or if you have a business here, can you really afford to see a sudden drop in that level of local spending power? Is your job or your business more secure or better off when there is $3.6 million per month less coming into the local economy?

So, beyond the fundamental issue of the costs in human suffering, you might want to consider the impact these cuts may have on you and your family. If compassion isn’t sufficient motivation for you to act, perhaps enlightened self-interest will be.

I suggest that the rational response would be to contact your local representatives in Congress and to urge them to vote to extend long term unemployment insurance benefits when they return to Washington on Monday.