Long-term jobless face frayed safety net

John W. Schoen Senior producer • Profile • E-mail

Out of work, out of savings and out of things to sell, Carolyn Johansen is running out of options to keep her home even as her unemployment benefits run out.

"By February I will be in a tent," said Johansen, from Fredericksburg, Va. “My big concerns are finding homes for my German shepherd Anna and my cat Tigra and a free place to store a thousand hardback and paperback books.”

For millions of out-of-work job seekers like Johansen, unemployment insurance is providing an increasingly tenuous financial lifeline.

With jobless benefits expiring for a record number of workers, some 7,000 a day, Congress is sending the president legislation to expand a popular homebuyers tax credit and extend unemployment benefits.  The $24 billion economic package seeks both to propel a sluggish economic recovery and help out the millions who have lost jobs and have been unable to rejoin the workforce.  

Under the measure, the $8,000 tax credit for first-time homebuyers would be extended for seven months and expanded with a $6,500 credit for some prospective homebuyers who already own homes.  The nearly 2 million people who have lost or are in danger of exhausting unemployment benefits before the end of the year would receive up to 20 weeks in additional benefits.

The measure comes as state unemployment insurance funds are running low, and tight budgets are fraying the safety net that jobless workers without benefits rely on.

After losing her job last October, Johansen figures she’s applied for over 300 jobs, but can’t find anything, not even seasonal work for the holidays. A single mom with a master’s degree and a career as a librarian, she applied for work at Blockbuster this week but couldn’t get an interview.

Johansen said she’s burned through her IRA and 401(k) savings and sold everything she could sell, including her jewelry. She applied for food stamps, but her $297 weekly jobless benefit, which expires Dec. 31, is $12 too high to let her qualify. She sent her teenage daughter to live with her older sister in Nevada; a disabled son who lives with her is scheduled to enter a residential treatment center in March.

Nearly two months after it was introduced in the House, the benefits extension has been delayed by debate over its cost and how to pay for it. Passage also has been complicated by added provisions that would extend tax credits for businesses and first-time home buyers.

As Congress has debated, weekly checks have run out for nearly 400,000 people. Friday’s looming employment report, expected to show another roughly 200,000 workers lost their jobs in October, has increased the political pressure on both parties to pass the measure. 

“I just sent in my form requesting my last unemployment check,” Jim Schmitt, 58, of Apple Valley, Calif., said in an e-mail. “I have always voted Republican, and now I'm reading the Republicans are holding up the vote to extend the benefits. I might not be voting Republican again, even though the Democrats are no better.”

Under the Senate bill, jobless benefits would be extended by 14 weeks for workers who have exhausted their benefits. Those in states with jobless rates of 8.5 percent or more would get another six weeks of benefits, for a total of 20 weeks extra.

The extension would help head off financial suffering for the hundreds of thousands who face the loss of benefits by year's end. It also would help shore up a frail economy in the very early stages of a recovery from the worst contraction since the Great Depression.

For millions of households, the outlook remains bleak. Roughly 6,600 new foreclosures are filed every day, or about one every 13 seconds.  As of the end of September, some 2.6 million mortgages were in some stage of foreclosure and another 1.6 million loans were 90 days late and headed there. Another 6 million families could lose their homes over the next three years, according to the Treasury Department.

The rise in homelessness is straining state and local budgets, already reeling from lower tax receipts, as they try to cope with the increased need for social services. In Fredericksburg, Va., said Johansen, local nonprofits have take up some of the slack, but they’re still stretched.

“There are 80 beds in the homeless shelter, and every night they turn people away,” she said.

Though massive government spending has given the economy a lift, any recovery will be short-lived unless it’s followed by a sustainable recovery of consumer spending, which accounts for two-thirds of economic activity.

“It’s about supporting demand,” said Mark Zandi, chief economist at Moody’s Economy.com. “If unemployed workers have no social safety net, they have to significantly ramp back their spending. And in many cases they force everyone around them to ramp down, too. They’re borrowing money from their family and friends and putting financial pressure on everyone.”

Aside from easing financial suffering, extending unemployment benefits is one of the most efficient ways to stimulate the economy, say some economists. Zandi estimates that, with the exception food stamps, money spent to extend unemployment insurance gets the biggest bang for the buck, roughly $1.61 in added economic activity for every dollar spent. That’s because the payments are typically spent right away unlike, say, tax cuts which may be diverted into savings.

“They’ve gone through their savings,” said James Parrott, chief economist of the Fiscal Policy Institute, a New York state think tank. “You can pretty much expect that they will take every dollar they get in extended unemployment benefits and spend that money to cover basic essentials for living.”

An extension of benefits will help some but not all unemployed workers. For one thing, even an extra 13 weeks won't be enough for some job seekers.

As of September a record 5.4 million workers had been out of a job for 27 weeks or more, more than double year-ago levels and the highest since the government began tracking the data in 1948.

Those numbers don’t include 2.2 million people who are considered “marginally attached to the labor force” — up from 615,000 a year earlier. These people don’t show up in the official unemployment numbers because they didn't look for work in the 4 weeks preceding the survey.

Having that many people without a financial safety net can put a serious damper on overall consumer confidence, said Zandi.

“Nothing is more debilitating than having no financial resources,” he said. “But it’s also very psychologically scarring on everyone around that unemployed person. It’s scary to see that happen. And confidence in a recession is so important — it’s the key to spending and investment and everything else that drives the economy forward.”

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