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Failure to pass unemployment insurance extension could cost billions, reports say

November 19, 2010 |  1:17 pm

Letting the nation's unemployment benefits expire could drain billions from the economy and cost millions of jobs, according to two reports out this week. On Thursday, House Republicans voted to deny an unemployment benefits extension, unhappy with the method planned to fund it.

Ending federal extensions would drain the economy of $80 billion of purchasing power, according to a report by the U.S. Congress Joint Economic Committee. Every dollar spent on benefits increases the gross domestic product by $1.60, the report said.

"Workers receiving unemployment insurance payments are typically cash-strapped and will spend their benefits quickly," the report said. They spend about $6.5 billion a month on the local economy to buy essentials such as food, clothing and utilities.

"A failure to extend the unemployment insurance program could hamper the fragile recovery," the report said. It predicts that consumer spending will fall by $50 billion over the next year if benefits are not extended, and that economic growth will be reduced by 0.4 percentage points by February 2011.

A similar report from the California Budget Project warns that allowing unemployment benefits to lapse at the end of November could deal a critical blow to the retail sector. That sector provides jobs to one out of nine Californians.

Unemployment benefits put $225 million into the nation's economy every day in 2010, the report said.

Some economists worry that if jobless workers keep receiving extensions, they will stop looking for work. But the dearth of jobs in the labor market makes that point moot, the California Budget Project said.

"Cutting off federally supported unemployment insurance benefits would make unemployed workers more desperate to find work, but it would not make them more likely to find work, because jobs are scarce," the report said.

-- Alana Semuels

Photo: People stand in line at L.A.'s General Relief office. Credit: Gary Boster/Los Angeles Times