Will extending jobless benefits help CT in the long run?
There’s little disagreement that the failure by Congress to renew extended unemployment benefits would hurt Connecticut’s economy in 2014.
But as the last round of checks in the expanded program goes out this week, the state’s top leaders and economists had mixed views on whether extending it would help or hinder the Nutmeg State’s sluggish recovery in the long run.
“There’s no doubt there’s some pain in the short term,” said Peter Gioia, chief economist for the Connecticut Business & Industry Association. “But is (another expansion) really helping in the long run?”
President Obama’s administration estimates that more than 1 million Americans, including about 85,100 Connecticut residents, would be affected at some point in 2014 if the expanded unemployment insurance program isn’t renewed.
Originally crafted as part of the federal stimulus response to the Great Recession, the expanded program had been providing an extra 37 weeks of unemployment benefits on top of the 26 weeks of coverage Connecticut already provides.
During the depths of the recession, the expanded program provided 73 weeks of additional coverage in addition to 26 weeks provided by the state.
Connecticut’s senior U.S. senator, Richard Blumenthal, said in some respects the extended benefits are “the lifeblood” of an economy that — while making progress — still reflects the effects of the last recession.
Unemployment here is 7.6 percent, and Connecticut has recovered about half of the 121,000 jobs lost in the last economic downturn.
“The business community has seen the economy gain some momentum and real force in recovery,” Blumenthal said. “Why risk it?”
Gov. Dannel P. Malloy said a failure to renew extended benefits would be nothing less than “a kick in the teeth to the economy” and would cost the nation billions of dollars in growth in 2014.
Both Malloy and Blumenthal said that if unemployment were closer to 5 percent — traditionally seen as evidence that past recoveries had reached completion — it might make more sense to scale the unemployment program back.
Professor Fred V. Carstensen, who heads the University of Connecticut’s economic think-tank, echoed that argument.
Many economists estimate modest growth for Connecticut’s economy in 2014 — at between 2 percent and 3 percent.
And Carstensen said eliminating the purchasing power of tens of thousands of residents could eat away one-tenth to one-fifth of that growth. The Obama administration estimates this lost growth could cost Connecticut between 5,000 and 6,000 jobs in 2014.
Further compounding matters, many people who are unemployed will find it increasingly harder to find new work the longer they remain out of job. And Carstensen said that increases the likelihood they will turn to the state for subsidized health care or other assistance with basic needs.
But Donald Klepper-Smith, top economic adviser to former Republican Gov. M. Jodi Rell, said the problem is more complex than many realize.
Government effectively has been encouraging too many workers not to seek to re-enter the workforce, said Klepper-Smith, who is a senior economist with DataCore Partners in New Haven.
“Right now you can’t incent long-term unemployment,” he said. “We can put a Band-Aid solution on it, or we can start attacking this problem.”
What the extended program has done, Klepper-Smith said, is allowed both the federal and state governments to ignore that businesses have radically changed since the last recession. Using technology, outsourcing jobs to foreign countries and other steps, U.S. companies have greatly reduced their need for American labor.
By ignoring this, “we’re creating a situation where it’s adding risk to the employment environment in the long-term,” he added.
Among many unemployed for several years, “their skills atrophy” and “their marketability atrophies,” Gioia said.
Gioia said both federal and state governments would be better served in 2014 by spending more on worker training programs in areas with growth potential, such as skilled machine work and other manufacturing fields.
But Blumenthal, a Democrat, said he’s hopeful that a bipartisan compromise can be reached in January on Capitol Hill on a proposed three-month extension, in part because of urgings from employers.
“The centrist bodies of both parties see the need to avoid job losses and other lost opportunities” in 2014, he said. “I think the Republican Party is hearing from a business community that is trying to avoid losing economic growth.”
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