When Do You Stop Extending Unemployment Benefits?
With the swearing in of Carte Goodwin to replace the late Sen. Robert Byrd, Democrats have the 60 votes they need to extend unemployment insurance for more than two million Americans who have lost their benefits since June.
But the debate about UI won't end this week. It won't end this year, and it might not end one year from today. With some projections -- like the one above from the IMF -- seeing unemployment staying over 9 percent through much of 2011, politicians will have to ask themselves: at what point do we stop?
There are no obvious cut-off points. It doesn't make a lot of sense to say, for example, that once the job-openings/unemployed ratio sinks below 4.5 (now it's at 5) we immediately cancel the extended benefits program. At some point, however, unemployment benefits will discourage workers from seeking real job openings. For now, the San Francisco Fed estimates that UI artificially inflates the unemployment rate by about 0.4%. But in a healthy economy, Paul Krugman has acknowledged that especially generous or long benefits are a disincentive to work, as we've seen in Europe.
Over time, this very real stimulus will become a very real drag. Reining in the extended benefits program, necessary as it may be, will be a very real drag, too.