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Tell-tale stat: States' unemployment compensation funds running low

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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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Last updated: November 25, 2009: 03:32 AM

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