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Unemployment Extension: Little Help for Minnesotans Out of Work Long Term

July 22, 2010 By Senta Knuth, Undergraduate Research Fellow

The U.S. Senate passed an unemployment extension bill Wednesday night that will add $34 billion in unemployment benefits for those out of work. But Minnesota, with an unemployment rate that dropped to 6.8 percent in June, will not be eligible for a large portion of the benefits. That's because the bill targets states with higher unemployment rates - those with three-month averages for April, May, and June that are above eight percent - in an attempt to send the limited aid where it's most needed. Minnesota's average for the last three months was about seven percent.

To garner the 60 votes necessary to end the Republican filibuster, congressional leaders severely cut its size. Most conservatives' unwillingness - including Minnesota conservatives - to support the measure is sending a strong message about their attitudes toward stimulating our economy and helping those hit hardest by the recession. The most recent version of the bill doesn't include an expansion of certain benefits for states like Minnesota, which have lower unemployment rates.

How will this bill impact Minnesota? According to the Center on Budget and Policy Priorities, a national research group, Minnesota's maximum duration of unemployment insurance will now be capped at 86 weeks. Earlier versions of the bill, which included an expansion of the Federal-States Extended Benefits program for all states, would have expanded our limit to 99 weeks. This means conservative efforts across the nation have cost many hard-pressed Minnesotans 13 extra weeks of unemployment benefits. 

In the meantime, Minnesota is dropping about 1,000 workers from unemployment benefit rolls each week, and our job market is falling far short in providing new opportunities for workers to get back on their feet.

Minnesota's Employment Picture

Minnesota's unemployment rate may look encouraging compared to other states, but Minnesota is by no means out of the woods. In May, temporary Census hiring accounted for more than half of the jobs added, causing the unemployment rate to drop from 7.1 percent to 7.0 percent.

In June, the unemployment rate fell again to 6.8 percent, but not because we added jobs. Instead, we saw the depressing phenomenon of the official unemployment rate going down as people got discouraged and gave up their job searches. No longer counted as part of the workforce, these long-term unemployed aren't represented in the numbers and the employment situation starts to seem better on paper. During last month alone, 13,824 people dropped out of the labor force; state labor officials say that retirements can only account for a small portion of the decrease. At the same time, employment rolls fell by 7,857, making the 0.2% drop a technicality as opposed to real improvement in the job market.

Minnesota's Tradition of Providing a Safety Net is Slipping

For the last several decades, Minnesota has set an example as a state that maintains infrastructure and supports its residents at every income 
level. As a state, Minnesota offers some of the best unemployment benefits in the country, with some of the longest maximum durations of benefits. But for many Minnesotans, benefits have run out, and households have become dependent on federal unemployment relief to keep them out of poverty.

Minnesota, like most other states, is caught in a horrible economic cycle. It needs to increase the size of existing programs like unemployment insurance and health care aid, but by law it must have a balanced budget at the end of the biennium. Since people are making less money during the recession, less revenue is being collected and states are reluctant to raise taxes in such difficult economic times.

The best way out is for the federal government to help states sustain their programs so that they don't have to cut services when people need them most. The federal government, unlike the states, has the ability to take on debt during the course of a recession and then run surpluses when times are better to pay it off. That way, the economy recovers faster, more revenue streams in sooner, and unemployment recedes more quickly.

The flip side of this mechanism is pretty ugly. Slashing public sector jobs and reducing funding for government programs dampens economic growth and slows the recovery. Efforts taken on by the federal government to stimulate growth are undermined by state and local governments, who are forced either to dramatically raise taxes or make drastic cuts. This is exactly what is starting to happen in Minnesota, as federal stimulus money for states is drying up.  In May, 2,300 jobs at the state and local level were cut as budgets tightened, and the trend continued in June. Nevertheless, conservatives continue to block desperately needed stimulus measures, claiming that we shouldn't spend any more money because it would mean raising taxes in good times. What they refuse to acknowledge is that failing to get the economy back on its feet by running short-term deficits now will mean more pain for the country in the short-term and the long-term.

The difficult passage of this bill, cut down to a mere fraction of its original version, represents the attitude of many national conservatives who are adverse to making necessary short-term spending decisions that would help ordinary Americans. The current bill is a drop in the bucket in terms of the stimulus our economy still needs, and it doesn't bode well for Minnesota.


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