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EconomicPolicyInstitute July 27, 2010

Efforts to provide more assistance to millions of unemployed workers cleared a major hurdle last week when President Obama signed into law a measure to preserve extended unemployment insurance benefits for the long-term unemployed. At a time when close to half of all unemployed workers have been looking for a job for more than six months, and about a quarter have been jobless for more than a year, the extension provides critical safety net protection. But there is still a massive jobs hole that will require additional policy action to fill.

At this pace, full employment won’t return for years  
EPI President Lawrence Mishel took this message to the House Committee on Financial Services where he testified on July 22 that “The jobs crisis is severe and there is no end in sight.” Mishel addressed Congress one day after Federal Reserve Chairman Ben Bernanke warned that unemployment rates would remain elevated for several years. Mishel supplied several additional sobering forecasts: The unemployment rate will likely rise above its current rate of 9.5% before the end of the year, and the Congressional Budget Office expects it to average 9.5% in 2011 – four years after the start of the recession.

“Some policy makers may be getting tired of having to deal with job creation and unemployment,” Mishel said. “But it is surely true that American families are even more tired of having to endure extreme labor market distress with no real end in sight.” EPI says the government needs to support job creation by providing relief to cash-strapped state governments and to invest in infrastructure, such as school and transportation network modernization.

The reason that a more robust jobs creation effort is required, Mishel said, is that the current pace of job creation is not nearly strong enough to create the 10.6 million jobs needed to return to pre-recession levels of unemployment: Even if the country could achieve the strongest rate of job growth seen during the late 1990s (2.6% in 1998) and sustain that indefinitely, it would still take until 2015 to return to pre-recession unemployment rates of 5%.

In his testimony, Mishel also outlined a number of factors that could make a bad situation worse, chief among them, a premature focus on deficit reduction. “Creating more jobs in the short run will necessarily mean having higher deficits in the next few years,” he said. “One should not invoke worries about future deficits as a reason to avoid creating jobs now. In fact, these are complementary strategies, creating jobs and more taxpayers now is the way to move the fiscal situation to a healthier place.”

On July 20, new state unemployment data confirmed that while jobs are starting to return, the pace of recovery remains slow. Sixteen states, along with Washington, D.C., have double-digit unemployment rates. The official unemployment rate in June was 14.2% in Nevada, 13.2% in Michigan, and 12.3% in California. For a full list of unemployment rates by state, as well as by gender, race, and education level, visit EPI’s Economy Track.

Creating jobs will reduce the deficit
At a time when so much discussion of fiscal policy is focused on deficit reduction, Economist Josh Bivens published an Economic Snapshot showing that lost jobs have been the main factor contributing to the increased federal deficit in recent years and that an improved economy that supports more jobs will be key to deficit reduction. Bivens showed that the growth in the federal deficit since the start of the recession could be attributed to three main sources, with recession-related spending and revenue losses  being the biggest source by far, contributing more than three-quarters of the growth in the deficit since 2007. Bivens also stressed that “explicitly temporary policy responses to the recession, such as the Recovery Act, have added to the deficit in recent years but will be withdrawn when the economy recovers.”

EPI in the News
The Washington Post ran a piece by Economist Heidi Shierholz that outlined five common myths about unemployment, showing why unemployment insurance benefits are critical to achieving an economic recovery and why the current jobs crisis is much worse than the official 9.5% unemployment rate suggests. Shierholz also outlined why the private sector cannot fix the jobs crisis on its own: While the private sector has created an average of 100,000 jobs per month this year, the country needs to add almost three times as many – roughly 280,000 jobs per month – in order to get down to pre-recession levels of employment within the next five years.

The New York Times quoted EPI Vice President Ross Eisenbrey in a story about the struggles workers face finding jobs, even after they have completed training in a new field. MSNBC also quoted Eisenbrey discussing the value of unemployment insurance. “If you took all of the unemployment benefits out of the economy, you wouldn’t put anyone to work,” Eisenbrey said. “All you’ll do is suck demand out of the economy and make it more likely that employers will lay people off.”

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