For the Jobless, the Stimulus Clock Is Ticking


Hundreds of thousands of workers wait for state governments to enact federal provisions extending benefits or providing them for the first time

The realities of the deteriorating job market were underscored again on Apr. 3 when the U.S. government announced that 663,000 jobs were lost in March, pushing the national unemployment rate to 8.5%. For many workers who lost their jobs weeks ago, the worst news is that they may be about to fall through the safety net.

The $787 billion economic stimulus package passed in February contained several measures aimed at cushioning the blow of layoffs. That included the Unemployment Insurance Modernization Act, which provided $7 billion to help states offer benefits to a greater population of workers, including part-time and low-income workers who hadn't previously qualified. It also provided funds to extend an emergency 13 weeks to 20 weeks of benefits to the unemployed in states with especially high rates of unemployment—over 6.5%.

But as of today, a number of states haven't managed to enact the expanded benefits program or the emergency extension. In the case of the extension, that could force 300,000 workers in 16 high-unemployment states—including Florida, New York, Illinois, and Tennessee—to drop off the unemployment insurance rolls by the end of April. Another 500,000 jobless workers stand to gain benefits because of the $7 billion in "modernization" funds provided by the stimulus bill, but only if their states make changes to eligibility requirements, thereby allowing more part-time and low-wage workers to qualify.

Rendering the Stimulus Less Effective

In some states, governors have expressed an ideological opposition to changing their unemployment laws to accommodate more part-time and low-wage workers; in other states, legislatures have been slow to act on legislation for the emergency extension. The resistance or foot-dragging on the part of states isn't just causing hardship for the unemployed; it's also dampening the effectiveness of the stimulus spending. Moodys.com (MCO) estimates that every dollar in increased unemployment insurance benefits spent by the government adds $1.63 to U.S. gross domestic product; the U.S. Labor Dept. has estimated the effect on gross domestic product to be as high as $2.15 for every dollar spent on benefits.

"For unemployed workers, the obvious problem is they're about to drop off a cliff," says Christine Owens, executive director of the National Employment Law Project (NELP), an advocacy group for low-wage workers. "For the economy as a whole, we're losing the stabilizing and stimulative effects of expanded or extended unemployment benefits."

So far, four states—California, Iowa, New Jersey, and South Dakota—have adopted some or all of the reforms. Governors and majorities in legislatures in a number of states are moving toward approval. But a handful of governors, including Sarah Palin of Alaska and Bobby Jindal of Louisiana, have said they won't make changes to their unemployment systems based on federal recommendations.

Many Jobs Are Lost Forever

The delays cut especially deep because of the nature of this downturn. Jobs are becoming so scarce that unemployment is increasingly chronic. In March 2009, 24.2% of the jobless—3.2 million workers—were out of work for more than six months, surpassing the previous recession peak of 19.8% in November 1982. On average, the unemployed have been jobless for 20.1 weeks as of March, a 24.8% increase from a year ago. The long-term unemployed may approach or exceed 30% of all jobless workers by 2010, according to a forthcoming study by NELP and the Institute for Research on Labor & Employment at the University of California at Berkeley.

Other economists say that some of the lost jobs are disappearing forever, symptomatic of a structural shift in the economy.

"Employers in high tech, retailing, manufacturing, publishing, and elsewhere are not temporarily furloughing workers; rather they are restructuring employment downward, permanently, for what they expect to be smaller markets for their products for several years," says Peter Morici, professor at the Robert H. Smith School of Business at the University of Maryland. "The more-than-6-million jobs lost in 2008 and 2009 [may] not be regained for many years."

Tig Gilliam, CEO of the North American group of temporary-help giant Adecco (ADEN), says he doesn't see the job market recovering until 2010 at the earliest. "We're going to get to 9% [unemployment]," says Gilliam. "Where we go from there depends on how fast the economic stimulus improves consumer confidence and allows companies to add back employee capacity." In the first quarter of 2009, Adecco's revenues were down 15% from a year earlier.

Herbst is a reporter for BusinessWeek in New York.

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