Shortchanged and Shortsighted

Florida’s Cuts to Unemployment Benefits Will Stifle Economic Growth

Despite troublingly high unemployment rates, some states are passing legislation that cuts unemployment benefits. The most recent state to do so is Florida, which as a result of pending legislation is set to become the most miserly state when it comes to providing jobless benefits.

This is a dubious distinction for a state with one of the highest unemployment rates in our country. Yet the Florida legislation sets a dangerous precedent that must not be replicated by other state governments because they, too, would then not only harm their own unemployed but also cause damage to their already fragile state economies.

Under the new legislation awaiting Gov. Rick Scott’s signature, regular unemployment benefits will be slashed from 26 weeks to a maximum of 23 weeks. Additionally, for every 0.5 percent decrease in the state unemployment rate from 10.5 percent, claimants will see a one-week reduction in their benefits. The state’s unemployment rate has hovered above 11 percent since late 2009, among the highest in the country.

The regular unemployment benefits targeted in this legislation are funded by the state and cover the first 26 weeks the worker is unemployed. This legislation, however, will also reduce the extended benefits that a long-term unemployed worker can earn, which is funded by the federal government. Why? Because the laws governing federal extension benefits tie their duration to the amount of benefits states pay.

Unemployment insurance is critical to our families and the economy at large. It provides a much-needed safety net to a vulnerable population, and is an important tool in fighting recessions. Because unemployment insurance benefits are provided to those most likely to spend it right away, it is a very effective way to create much-needed demand during recessions.

Economist Wayne Vroman in a study for the Department of Labor estimates that for every dollar spent on unemployment benefits by the government, an additional $2 was put back into the economy. During the Great Recession, the regular unemployment insurance program—the exact program targeted in the Florida legislation—reduced the fall in the gross domestic product by 10.5 percent. Cutting unemployment benefits would remove a substantial amount of demand from Florida’s economy.

Equally troubling is that these cuts will occur in a state with a median duration of unemployment of 27 weeks and a benefits exhaustion rate of 67 percent, the second highest in the country. Clearly, many Floridians are experiencing difficulty in finding a job before they exhaust their regular 26 weeks of unemployment insurance benefits. Reducing the number of weeks that benefits will be provided would mean that tens of thousands of the unemployed will have no safety net.

Depriving the unemployed of benefits could lead to higher rates of poverty in Florida. Recent research shows that unemployment insurance benefits lifted an estimated 3.3 million individuals out of poverty in 2009, including almost a million children who lived with an unemployment benefits recipient.

Some critics argue that unemployment insurance benefits serve as a disincentive to finding work. Yet with more than four jobless workers for every opening, the issue of high unemployment cannot be a function of people unwilling to work, but rather employers unwilling to take on new employees because of weak demand. And removing that demand by cutting unemployment benefits only makes it more difficult for the unemployed to find work.

Gov. Scott thinks his legislation will spur economic activity and job growth. Instead, it will damage his state’s economic recovery and push vulnerable Floridians into poverty.

These people did not cause the recession. They deserve better.

Heather Boushey is a Senior Economist and Danielle Lazarowitz is a Special Assistant for Economic Policy at American Progress.

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