It's a sign of the times: an increasing number of states are running out of money to pay unemployment compensation benefits. Seven states have already depleted their employment insurance trust funds, according to the National Conference of State Legislatures (NCSC). Another 11 states are in danger of running out of money by the end of 2009.
What's more, states have borrowed $2.3 billion in emergency money from the U.S. government - - money that must be paid back - - to pay for unemployment compensation.
The U.S. unemployment rate rose to 7.6% in January, according to U.S. Labor Department data. More than 3.5 million jobs have been lost since the U.S. recession started in the fall 2007. The NCSC said 14 states and the District of Columbia have unemployment rates higher than the national average, with Michigan, Rhode Island, and Puerto Rico having rates above 10%.
Even worse, more than 4.8 million Americans represent continuing claims, the Labor Department said - - the highest level of continuing claims since the department started tracking the statistic 40 years ago.
Unemployment: costs all around
Economist Peter Dawson said, contrary to some views of the business cycle, unemployment is far from the innocuous, inconsequential, normal reoccurring part of commerce that it's portrayed as in some policy debate circles.
"Even ignoring the enormous loss of human potential, unemployment has large fiscal consequences for states, and for the nation," Dawson said. "As unemployment rises, state social service costs always rise, often leading to higher state taxes and reduced spending elsewhere. Also, the federal government frequently must provide assistance to the states, increasing the federal government's obligations, as we saw with the fiscal stimulus package."
And, as investors and bank executives know, rising unemployment was a major factor, along with speculative real estate building and investing, in the nation's surge in home foreclosures in 2008, Dawson added, so in that sense economists can point to unemployment as a driver of first the spike in toxic assets, and the current financial crisis.
To be sure, full employment would not have guaranteed the avoidance of the financial crisis, "but full employment would have put the United States in a better position to cope with it," Dawson added. Full employment, or a job for everyone would who wants one, would require the addition of 5-5.5 million jobs, right now, Dawson said.
Economic Analysis: For investors, rising unemployment makes it very hard for U.S. GDP to increase, and by extension, for corporate revenue and earnings to rise at adequate rates. With revenue and earnings slumping, the stock market historically languishes. Rising unemployment almost always also leads to an increase in taxes at some level (state or federal), if not immediately, then later, as the recovery begins, as governments seek to recoup the large increase in social program expenses.
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Reader Comments (Page 1 of 1)
2-11-2009 @ 8:12PM
Bobby said...
Hear is an idea, people are already in the unemployment offices trying to make ends meet with unemployment benefits and everyone keeps saying they are trying to help. If they really want to help explain this, why do they give you money in one hand and tax it in the other, taking food off our tables and money for bills away from the families that they are claiming to help. In these days and times we need every dollar we can get our hands on. Why not drop the tax on unemployment till there is a note worthy up swing in the economy, now that would be a big help. Everyone would like to do their part, but to cut the back bone of the work force even more by taxing unemployment benefits is sad and inhuman and an insult to the american way. Thats like kissing us in the face and saying everything will be ok while being stabbed in the back. I think a three or four month up swing and while putting people back to work in each State would be fair because it was not us that put the U.S. in this condition. Really unemployment shouldn't be taxed at all, but I guess that would be just a pipe dream. I also think it should be a requirement for the ones that want to sit in Washington D.C. with there jobs and fat bellies picking the steak out of there teeth wasting time fussing like a hurd of old women should have to go down to the unemployment offices and tell all the people in there why they are dragging their feet and give up part of their pay to feed them for each day they can't vote or choose not to vote, if they are really concerned. It's also funny that Repulicans sit and fight about how much this bill will cost and now they pick at every little thing. Now these are the same ones that closed there eyes and sign the bill that Bush pushed through, go figure right. Bush had done so bad in office that the republicans figured ooooooooh this will save us at the end, but it was a big horrible mess. So why are they not firing the CEO's that runn the companies in the ground they slap them on the hand and tell them "Now don't do that again ok" while taking vacations and getting bonuses. Now that is a slap in all Americans faces. They need to look at that as if the CEO's had taken their personal money and lost it all, because I'll bet any amount of money that if ole Joe blow worker made a misstake that cost the company to scap one car he would not have a job. So why are you giving money back to the ones that lost it in the first place ???