The Poverty-fighting Effects of Unemployment Insurance

Lost sometimes in the fog of ignorance and petty insults – you know, that workers receiving unemployment insurance are like lazy addicts, or that they’re “stealing from their neighbors” and that the benefit funds should be used instead to give more tax breaks to corporations – is the crucial role that unemployment insurance plays in fighting poverty.

A recent study from the Congressional Research Service shows that unemployment insurance (UI) has had a powerful antipoverty effect in the U.S., both during periods of economic expansion and periods marked by recession.  The study shows that UI has an even more significant antipoverty effect both during and in the wake of recessions, and that according to the most recently available statistics – for 2009 – UI benefits have had their biggest impact keeping Americans out of poverty during the most recent recession.  Indeed, the data shows that when benefits, availability and duration of eligibility are maintained at expanded levels, the number of Americans kept from falling into poverty rises dramatically.  In 2009, an estimated 3.3 million people were saved from poverty by UI – including nearly 1 million children.

CRS Graph: People Saved from Poverty by UI

Annual income levels for the poverty threshold are updated each year by the Census Bureau for individuals and households of various sizes.  The average poverty thresholds in 2009 were $10,956 for individuals, $13,991 for a two-person household and $21,954 for a family of four.  While average weekly UI benefit amounts vary from state to state, the national average is now about $300 per week – so that if a two-person household relied solely on such an average benefit for an entire year, that income of $15,600 would be just enough to keep that household slightly above the official poverty level.

In the study, researchers looked at the antipoverty effects of UI from 1987 through 2009.

Their findings included:

  • UI kept more than 20 million people out of poverty from 1987 through 2009
  • The 3.3 million people kept out of poverty by UI in 2009 was more than twice the next-highest total of nearly 1.5 million in 1993
  • In 2009, of all unemployed workers the poverty rate for those not receiving any UI benefits was nearly 30 percent, compared to 10.5 percent for those who received some UI
  • UI benefits in 2009 reduced the overall poverty rate by 7.1%, almost twice the next largest reduction of poverty attributable to UI benefits in 1992, when UI cut the overall poverty rate by 3.8%
  • During the three most recent recessions, among persons in families and unrelated individuals that received UI benefits in 2009, those benefits cut their poverty rate nearly in half (48%), compared to about one-third in 1992 (32.5%) and nearly two-fifths (38.1%) in 2002
  • The increased benefit levels and duration of UI eligibility brought about by the expanded federal emergency and extended benefit programs appears to have been a significant factor in the finding that the antipoverty effects of UI benefits in 2009 were about twice that of two previous peak years of unemployment, in 1993 and 2003

The persistence of high unemployment combined with inadequate job growth means we’re failing to make much progress in addressing our 11 million jobs deficit.  Yet, some states have been moving to cut UI benefits and restrict eligibility,  thereby reducing needed income support for struggling job-seekers and their families, and hampering the poverty-alleviating effects that UI benefits have.

In Congress, some leading lawmakers are even attempting to immediately dismantle the entire federal unemployment insurance program, and steal the funds allocated for federal UI benefits to give corporations even more tax breaks.

In light of the recent study examined here, undermining UI would certainly cause more Americans to fall into poverty.  What we need is to strengthen our social insurance programs, including unemployment insurance, even as we must promote substantial public and private investment to expand and accelerate the pace of job creation.

There is a larger issue here.  See, it’s not only about all of the people and families that are saved from poverty by UI – as crucial as that is.  It’s also about the impact on the broader economy – on our society.  Unemployment insurance – like Social Security, like Medicare – is an essential component of our social insurance.  And our society would be poorer without it.

There are those who say we can’t afford to invest in either boosting job growth or strengthening social insurance.  To them, the solution is to continue to bestow society’s benefits on the prosperous – and at the expense of everyone else.

There are those who say we can’t afford to invest in both job creation and a strong safety net.  But they present a false choice.

The effective tax rates on the wealthiest Americans and on corporations are astonishingly low by historic standards.  And, even without a much-needed increase in those rates, government estimates indicate there are about $400 billion in uncollected taxes annually – much of it owed by the wealthy.  That $400 billion could create 8 million jobs – at $50,000 pay a year.

The question really is whether we’ll invest what we can in a future of truly shared prosperity – or will we allow a future that guarantees the spread of poverty in America?


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