Iowa’s economy to take a hit without extension of unemployment benefits

Thousands of Iowans — and 1.2 million Americans – will exhaust their unemployment benefits Sunday unless an extension can be passed in the U.S. Senate, something becoming less and less likely.

In addition to hurting Iowa families who are counting on the benefits, Congress’ failure to pass an extension could have a dramatically negative impact on Iowa’s overall economy, with hundreds of millions of dollars in economic activity and thousands of jobs at risk, according to Andrew Cannon, a research associate with the nonpartisan policy think tank Iowa Policy Project.

Extended unemployment compensation (EUC) is a tiered system, Cannon said. Because of federal stimulus funds, an unemployed person completing the normal 26 weeks of state unemployment insurance was then eligible for an additional 20 weeks of EUC in tier one. A worker remaining jobless could then continue to receive 14 additional weeks of EUC under tier two. An additional 13 weeks of EUC — under tier three — was available to qualified workers in states with persistent unemployment. Iowa workers have been eligible for those tier three benefits.

Unfortunately, national trends suggest that long-term unemployment — unemployment that lasts 27 weeks or more — is on the upswing. Of the 15 million officially unemployed Americans, more than 6.3 million have been unemployed for more than 27 weeks. This long-term unemployment has risen by 5 million since the start of the recession. As EUC winds down and job creation stagnates, more and more Iowans will find themselves, after exhausting their 26-week unemployment insurance benefits, without a lifeline, Cannon said.

“Workers who are nearing the exhaustion of their 26-week state benefits will, without further action from Congress, find themselves with neither a job nor assistance,” he said. “Through Feb. 13, over 61,000 Iowans were receiving unemployment benefits. According to Iowa Workforce Development, over 34,000 Iowans currently receive either Tier 1, 2, or 3 EUC benefits.”

A report issued earlier this month by the National Employment Law Project found 1.2 million Americans would lose their unemployment benefits at the end of this month unless Congress steps in to extend the filing deadline. By July, that number jumps to almost 5 million.

The Iowa Fiscal Partnership released a study Wednesday showing the economic impacts of stimulus spending for unemployment benefits. Analysts found that direct spending for unemployment insurance included in the federal stimulus, along with ripple effects from that spending, produced $501.7 million increased economic activity and $112.1 million in income in 2009, creating or saving 3,727 jobs.

For the current year, the researchers also found direct and indirect benefits but in lower amounts, $314.6 million activity, $68.6 million income and 2,258 jobs.

“If Congress fails to again extend EUC, thousands of Iowa families will find the struggle to make ends meet even more difficult, and Iowa’s economy will forgo millions of federal dollars and thus, needed Iowa jobs,” Cannon said.

Cannon said the staggered nature of both the state unemployment insurance program and EUC make it difficult to know how many Iowans will be affected if Congress fails to extend EUC. As EUC winds down, recipients will be allowed to exhaust their current tier of benefits but unable to proceed to the next tier.