Extending emergency unemployment compensation for another year would add 200,000 jobs but carries a price tag of $25 billion, according to an analysis released recently by the Congressional Budget Office (CBO). Such an extension now appears to be a central focus of negotiators trying to reach a budget deal before Congress adjourns for the year.
Emergency unemployment compensation (EUC) provides more “bang for the buck” than many other policies aimed at improving the economy. It provides an immediate surge in economic activity due to recipients quickly spending their benefits on consumer goods and services, which boosts aggregate demand and induces businesses to increase production and hire more workers.
CBO noted that part of this positive effect is offset as some workers reduce the intensity of their job searches in response to the extension of benefits.
Emergency unemployment compensation was approved in 2008 as the unemployment rate was rapidly rising due to the recession. It provides at least 14 additional weeks of benefits to individuals who have exhausted...