As Extended And Emergency Unemployment Benefits Finally Begin Expiring, A Much Different Employment Picture Emerges

Tyler Durden's picture

The following very interesting analysis from Goldman focuses on an issue long-discussed on Zero Hedge and elsewhere, namely what happens when those millions in unemployed currently collecting unemployment insurance, finally start to roll off extended and emergency benefits, as terminal benefit exhaustion sets in, even with ongoing governmental unemployment stimulus programs. Goldman's estimate: approximately 400,000 people will no longer have the backdrop of so-called  "government jobs" in which workers receive on average $1,200 a month for doing nothing. "If the rate of exhaustion continues at the current pace, this implies over 400,000 workers will exhaust their benefits in some months, even if Congress continues to extend the current, more generous, unemployment program." What this means for the economy is, obviously, nothing good: "Assuming something on the order of 400,000 exhaustions per month, at an average benefit of $1200 per month, this implies roughly $0.5 billion in lost monthly compensation compared with a scenario in which there are no exhaustions.  If the relationship between exhaustions and initial claims 16 to 17 months prior (the maximum benefit period in most states) holds constant, the pace of exhaustions is likely to stay elevated for several months, implying several billion dollars in cumulative lost compensation." Couple this with front-loaded tax refunds, also previously discussed on Zero Hedge, and the "consumer-driven" economy in next few months is sure to see a rather substantial shakedown. Absent a dramatic increase in (c)overt Obama unemployment stimulus, is the extend-and-pretend phase of the bear market rally about to end?

From Goldman Sachs:

Expanded unemployment benefits expired on Monday, after the Senate failed to enact legislation to renew them and several other programs.  These have since been reinstated, but the brief expiration may still result in a temporary cessation of benefits to roughly 250,000 unemployed this week.  We do not expect this have a significant effect on incomes, as the effect will be temporary. It should also not have an important effect on weekly jobless claims reports, as the affected benefits are not included in the regular continued claims data.

Aside from the short-term disruption, an increasing number of individuals will face an end to benefits over the next several months even with continued renewal of the current emergency benefits by Congress.  More than 400,000 jobless workers could run down their federal benefits each month over the next several months, even assuming that Congress continues to renew the expanded benefit period now in place.  It is possible that Congress could lengthen the maximum benefit period yet again, but the political climate is not as conducive to additional expansions as it had been last year.  The result is likely to be a greater share of unemployed workers not receiving unemployment compensation.

Jobless Benefits: Brief Disruption Now, Bigger Issues Ahead

Unemployment benefits were back in the news this week, after the Senate failed to come to agreement on a short term extension of the more generous benefit period Congress enacted in 2008 and expanded in 2009. The result was a short term disruption to benefits, but one that should be temporary. However, policymakers face a longer term issue, as the number of current recipients who will lose benefits over the next several months is likely to climb substantially, with benefit exhaustions potentially approaching 500,000 in some months.  In previous instances in 2008 and 2009 which the number of individuals facing benefit exhaustions has threatened to rise substantially, Congress has intervened by adding additional weeks to the maximum benefit period.  But with the maximum benefit approaching two years and waning support for additional stimulus spending in Congress, it isn’t clear whether another extension is in the cards.

The disruption to benefit payments caused by the legislative snag in the Senate will be temporary.  Something like 250,000 individuals may have temporarily lost benefits this week as a result of the expiration of expanded unemployment benefits at the end of February.  However, this is far short of what some reports had implied, namely that expanded benefits had ceased entirely. Instead, it was only those workers who had exhausted a benefit “tier” the prior week who were unable to start their next tier, and thus unable to collect additional benefits (see chart below). The effect on income should be relatively minor, at less than $100 million on a national basis, and retroactive reinstatement should make up most of that revenue in any case.  



More workers are moving from regular benefits into emergency benefits.  The chart above illustrates this process.  Workers who qualify for jobless benefits begin by receiving 26 weeks of standard unemployment benefits. They then move into the first of four tiers of emergency benefits, described at the bottom of the exhibit above. The third tier is generally available to states with an unemployment rate of more than 6%, so that most states are currently eligible. The fourth tier is available to states with an unemployment rate above 8.5%, which applies to a more limited group of states.  Once jobless workers move through the tiers for which they are eligible, they usually move to state extended benefit programs, which once again depend on the unemployment rate in a given state and last an additional 20 weeks. In all, this means a laid off employee can receive benefits for 99 weeks, or almost two years, after losing employment. The result is that total uninsurance compensation rolls have risen significantly, even while regular continued claims have fallen (see chart below; note that Tier IV has few beneficiaries and isn't visible on the chart).



Most workers in latter tiers of the benefit structure are exhausting their benefits….  The chart below illustrates the exhaustion rate in each tier, that is the number of workers who collect all of their payments without finding work, as a share of total initial claims in each segment.  Note that Tier III and Tier IV have been available for only three months, and thus have just begun to see exhaustions (there is only one data point for Tier III, shown below, and the one point for Tier IV isn’t meaningful).   However, in absolute terms the numbers are beginning to mount. For instance, over 100,000 workers exhausted their Tier III benefits last month, and for some of them this will be the end of unemployment compensation (a few will move to Tier IV benefits, and others will move onto state emergency benefits for a few months before completely exhausting their eligibility)  If the rate of exhaustion continues at the current pace, this implies over 400,000 workers will exhaust their benefits in some months, even if Congress continues to extend the current, more generous, unemployment program.


…Because the duration of unemployment has lengthened significantly.  The share of the unemployed who have been without a job for more than 27 weeks (i.e., roughly the duration of regular unemployment benefits) has increased significantly, and as of January stood at a record high 41.2% of the total unemployed population, as seen in the chart below. 



…Because the duration of unemployment has lengthened significantly.  The share of the unemployed who have been without a job for more than 27 weeks (i.e., roughly the duration of regular unemployment benefits) has increased significantly, and as of January stood at a record high 41.2% of the total unemployed population, as seen in the chart below. 



As benefits expire, unemployed workers will begin to seek work more aggressively….  A study by Alan B. Krueger and Andreas Muller indicates that an unemployed worker can spend as little as 20 minutes per day looking for work during the middle of the UI benefit period, but increases this to more than 70 minutes per day when the benefit is about to expire (see Krueger and Muller, “Job Search and Unemployment Insurance: New Evidence from Time Use Data,” IZA Discussion Paper No. 3667, August 2008).  Because the benefit period has been expanded three times  since 2008, this effect may be more pronounced today than during more normal periods.  For instance, another study has found that unemployment spells have an elasticity of 0.16, implying that the current policy, which has extended benefits from 26 weeks to up to 99 weeks has increased the average duration of unemployment spells by up to 12 weeks (see Lawrence F. Katz and Bruce D. Meyer, “The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment,” NBER Working Paper 2741, July 1990). While this is probably an extreme interpretation of their results, given that the average duration of unemployment in January was 30 weeks, it does stand to reason that generous unemployment benefits may be one factor in the rising average duration of unemployment.
...But the lack of benefits will cut into their incomes until they find work.    Assuming something on the order of 400,000 exhaustions per month, at an average benefit of $1200 per month, this implies roughly $0.5 billion in lost monthly compensation compared with a scenario in which there are no exhaustions.  If the relationship between exhaustions and initial claims 16 to 17 months prior (the maximum benefit period in most states) holds constant, the pace of exhaustions is likely to stay elevated for several months, implying several billion dollars in cumulative lost compensation.

Congress may come under pressure to expand the benefit period once again.   Of course, this assumes that Congress will not add additional weeks to the benefit period once more, as they did in July and November 2008, and again in November 2009.   It is certainly possible that they will extend the benefit period again, but as fiscal considerations become more important, further expansions become more difficult. That said, at a minimum we expect Congress to continue renewing the current maximum benefit period through 2012, given that previous expanded benefits have been renewed for at least a year after the unemployment rate peaks.  Indeed, we expect unemployment and related health benefits to constitute the bulk of the additional stimulus spending we expect Congress to approve.

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Cognitive Dissonance's picture

Now there you go again, letting the air out of the "things are getting better" balloon faster than the Ponzi can refill it.

Cognitive Dissonance's picture

Harry Reid says....

"Today is a big day in America, only 36,000 people lost their jobs today, which is really good."

March 5, 2010

Anonymous's picture

This must be great then....

The Middle Class Financial Compact Being Washed Away – Income Dilution and the Saving Disparity. 57 Million Households Live on $52,000 Per Year or Less.

The middle class is finding itself struggling to keep what was once seen as staples of a burgeoning working class in our country. Part of this battle has come from a system that has rewarded easy finance on the backs of the working class. Take for example residential real estate. For decades, this was probably one of the most boring and dull sectors of the economy. Residential real estate, if you were lucky, only tracked the overall inflation rate. That was the case until the banking system figured out a way to securitize bread and butter mortgages and turn them into securities for global consumption. Yet that game is now coming to a quick end. The middle class are literally being squeezed out of their homes. Healthcare costs are also cutting deeper into the wallets of most American families and many are finding that they have no coverage as unemployment is still at record levels. This decade will be a struggle for the middle class to save and prosper.

When I look at the above chart it doesn’t take a rocket scientist to figure out that many people are still in the throngs of the recession. The talk of recovery is muted by the reality of the numbers and all the average American will see is a recovery on Wall Street but in terms of their pocket book, little is funneling to them. I’ve heard from people across the country looking for work and being unable to find anyone hiring. And if they do find something, the wages are much less than what they once earned. This isn’t reflected in the data. How many people that are now marked as fully employed are in jobs that now pay less than what they once had? That is why problems even in credit cards are filtering all the way to the bottom of the bank balance sheet. People are relying on credit cards as their last lifeline and many banks are now shutting these off.

Cognitive Dissonance's picture

The most insidious part of social engineering (never let a crisis go to waste) is creating the conditions upon which the desired change is demanded by the population. Stress the population to the point where they start striking out in frustration (making sure you salt the crowd with agent provocateurs to create the desired outcome, which is an old CIA/NSA/police tactic) and the majority will beg for troops and police to clamp down on civil rights to restore "order".

Mr Lennon Hendrix's picture

"Martial law is gonna suck."  Well, I hope it sucks for Harry Reid. 

WaterWings's picture

Berkeley trying to live up to it's reputation from the 70's last week - provocateurs @ 2:45:

Same protest - girl snatched and charged with "inciting a riot"; interesting part is the arrest tactic using a fake cell phone caller to block the crowd from assisting @ 0:30:

According to the this video's maker, Narukami, the girl was "taken and arrested by police while she was telling everyone how a police officer punched her in the nose."


The two people arrested were Marika Goodrich, a 28-year-old woman from Berkeley who is facing charges of assault on a police officer and resisting arrest, and Zachary Miller, a 27-year-old Berkeley man who faces charges of inciting a riot, resisting arrest and attempting to disarm a police officer.

Sucks to be a "first mover".

Anonymous's picture

That was a pretty sneaky move, but effective. I went to Cal and participated in a lot of demonstrations... the Berkeley cops are good at handling those situations. When I was there (in the late 80's), they almost always out maneuvered the students, much to our chagrin. They've all had more practice at that than the students who just come through for four years.

Anonymous's picture

Based on the evidence of this video alone, the police falsely arrested that girl. Also, she was assaulted and deprived of her free speech rights. I say this because:

1) She was telling the protestors to "back up" - this is exact opposite of inciting them.

2) She was not unduly loud, she was not by herself disturbing the peace or anything else.

3) "Phone man" is obviously a cop and he intentially walked directly into her, put his arm on her, prevented her from backing away from the riot police (who advanced at that exact moment) and he also pushed her. This is a clear-cut assault.

4) It's especially egregious as she was in the middle of publically protesting mistreatment (bloody nose) which she was alleging the riot police did. I think she was reciting the badge numbers of the offenders.

This is an outrageous and offensive act by city-controlled riot squad. Interestingly enough, the Liberals rule in that city and yet look how the cops treat people.

The was NO reason for the cops to grab that girl - none shown on this video at least.

perchprism's picture


So you have two arrested Bezerkelies, one 27 and one 28---> are they still students?  At that age?

Fritz's picture

The repetitive extension of unemployment benefits is, quite frankly, about all that congress can accomplish.


Racer's picture

What this means for the economy and the market is that, the green shoots brigage will look at the falling numbers (even though no one has got a new job) and say look at all the new jobs found because the numbers went down dramatically.

Boom time for the stock market and even futher away from main street reality.


The market just looks at the headline that is fed to them, forget massive birth/death adjustments and big revisions to previous data...

as long as the first number that is flashed past the computer is enough to get the lemmings buying that is all that counts

bingaling's picture

Well what GS didn't get into in their report was the trickle up theory or the ramifications to the economy because of this . How many more home foreclosures will this create? Because these individuals families will be buying less to spend what will be the result on retail sales ? Because there are less sales how many more layoffs in retail and closings of stores ? How many more commercial real estate foreclosures will result? With congress now having fiscal constraints the only thing they can do now is keep these extensions open or add a few more -zero stimulus for creating jobs .So where are the jobs going to come from ? etc etc etc.

Anonymous's picture

You forgot the CC and/or personal defaults ...

aint no fortunate son's picture

On the other hand, I'm getting this feeling that as the extended benefits expire, there will be FEWER UNEMPLOYED by the gubmint's peculiar logic.. that's BULLISH for stocks!!!! In fact, if there is NO volume in stocks because nobody is getting benefits anymore, the quant kids will run this market to infinity on non volume algos. Its the perfect fucking storm!!!!!!!!!

Racer's picture

Reality is just a mere hindrance and a buying opportunity


Dotcom was a bear market in comparison to this folly of a market

Mission Stupid's picture

We should ditch minimum wage laws and cut unemployment benefits and make everyone work for what they are worth.  Of course there will be riots, but there will riots no matter what.

Anonymous's picture

Either you're joking or you have aptly named yourself.

Anonymous's picture

I couldn't agree with you more. It is about
time we eliminate all of these entitlement
programs like unemployment, minimum waqge,
and social security. Then people will
actually have to work for what the market rate
is. It isn't society's problem if their skills
aren't worth a damn in an ever changing, global,
dynamic economy. People need to be self sufficient
and carry themselves by their own bootstraps. If
they aren't, Darwinism should eliminate the weak.

Anonymous's picture

You're a Christian, right?

Anonymous's picture

What if you or your child happens to be one of the weak?

Mission Stupid's picture

At the very least, reduce the minimum wage during this deleveraging cycle.

"If a higher minimum wage increases the wage rates of unskilled workers above the level that would be established by market forces, the quantity of unskilled workers employed will fall. The minimum wage will price the services of the least productive (and therefore lowest-wage) workers out of the market. ... The direct results of minimum wage legislation are clearly mixed. Some workers, most likely those whose previous wages were closest to the minimum, will enjoy higher wages. Other, particularly those with the lowest prelegislation wage rates, will be unable to find work. They will be pushed into the ranks of the unemployed or out of the labor force.Gwartney, James D.; Richard L. Stroup. Economics: Private and Public Choice -

Anonymous's picture

I guess the US government's best hope is for all of those who run out of benefits is to just die. The government certainly has no experience in successful job expansion. They could make another war, but to get rid of this population, we would have to absorb some serious collateral damage. I figure that this group will just go postal and we will have to pull troops off the war fronts and on to Main Street. Guess Nazi Pelosi was right, after all....

Postal's picture

...go postal...

That's my job...

While usually I support free-market attitudes, I find Kudlow's latest rants against UI exentions annoying. It's easy for those who have never been SERIOUSLY unemployed to complain about UI; however, other than the "let them eat cake" response, I've seen nothing productive. I took all the UI I could get before I found work--it's not like I had a choice, and the Kudlow's of the world certainly weren't offering to help.

swamp's picture

The Katrina 'victims' relied on the government too.

Anonymous's picture

Obama was on TV this morning saying he was going to extend unemployment comp to the end of this year.

That's good but honestly, America is coming to the end of the proverbial rope.

Job creation is about negative millions a year at this point.

The FED is buying their own paper to support this (this being a happy cow marketplace in Walt Disney Land).

This can't go on forever.

They'll pack all the bad paper into the America Pinata and then set it on fire.

lovejoy's picture

I believe that he was talking of extending Tier 1 to Tier 4 till the end of the year. There will not be an extension of benefits for longer than 99 weeks.

Cognitive Dissonance's picture

"Obama was on TV this morning saying he was going to extend unemployment comp to the end of this year."

Translation: Safely past the November elections.

swamp's picture

It's QE to infinity — a la Argentina and beyond.

Anonymous's picture

I'm sure abby jo da ho can explain why we shouldn't give a shit

Oxytan's picture

Very good information, but what does the stock market have to do with the real economy now?  To illustrate I quote from The New York Times: "The stock market continues strongly upward, though movements last week were less violent than the week preceding.  Price up 12% Above October, Nearly Ten Times Above January."  Care to guess how that particular economy was doing in 1922?  We'll it didn't improve much.

Anonymous's picture

It probably improved by '23 ?

Anonymous's picture

All of this equals? = Massively higher stock prices.

Good anaylsis, but any analysis right now is over analysis. Stocks, and all assets, for that matter, WILL be lifted higher. The Fed's solvency depends upon that happening.

doublethink's picture


Charting The Depression


The only chart needed to understand where we really are.


AnonymousMonetarist's picture

Ah but look on the bright side ...

Its' making a smiley face!

Mission Stupid's picture

It is amazing how smooth and continuous the current unemployment curve is relative to previous recessions.  Any additional downward trend inflection points will make the double dip recession/depression official.

phaesed's picture

Hard to tout a recovery when your next door neighbor kills his/her pets for food and your other neighbor is waving a "WILL WORK FOR FOOD" sign on the local interstate ramp, while two doors over Bob has turned to pimping out Sally, his wife, for $50 bucks a pop.

I guess it's also hard to explain $20,000,000 salaries.

Internet Tough Guy's picture

Why does Goldman refer to the unemployed as 'workers'?

Ok, I admit it's better than calling them 'soylent green'.

AnonymousMonetarist's picture

Q: Why does Goldman refer to the unemployed as 'workers'?

A: The labor force is made up of the employed and the unemployed. The remainder—those who have no job and are not looking for one—are counted as "not in the labor force."

SteveNYC's picture

At some point in the past, when they paid tax, they indirectly worked for Goldman. As a taxpayer, Goldman considers you their worker.

Anonymous's picture

The real take home point is what do millions with no benefits do all day. Once the money tree is exhausted out come the pitch forks

AnonymousMonetarist's picture

In the year 2000:

Civilian noninstitutional population : 212,577,000
Civilian labor force : 142,583,000
Civilian labor force particpation rate : 67.1%
Number of employed : 136,891,000
Percent of Population : 64.4%
Number of unemployed : 5,692,000
Percent of Population : 4.0%
Not in the labor force : 69,994,000

Let's compare that to February 2010:

Civilian noninstitutional population : 235,998,000
Civilian labor force : 153,512,000
Civilian labor force particpation rate : 64.8%
Number of employed : 138,641,000
Percent of Population : 58.5%
Number of unemployed : 14,871,000
Percent of Population : 9.7%
Not in the labor force : 83,487,000

Holy denominator of doom oh ye bullisht throngs!

13 million people, over the last decade, have neither jobs nor any desire to look for one?

That's greater than the total increase of the civilian labor force!

bingaling's picture

Are children and retired/disabled people included in those #'s maybe that 's the 13 million?

AnonymousMonetarist's picture

Civilian Noninstitutionalized Population - The civilian population excluding persons residing in institutions. Such institutions consist primarily of nursing homes, prisons, jails, mental hospitals, and juvenile correctional facilities.

Civilian Population - The portion of the resident population not in the active-duty military.

Resident Population - The resident population includes all residents (both civilian and Armed Forces) living in the United States. The geographic universe for the resident population is the 50 states and the District of Columbia.

In 1977, the definition of resident was significantly changed.

Since the 1980 Census, a dwelling unit method has been consistently used, by OEP, in the 37 communities with a 1980 population of 5,000 or more. In all remaining communities, from 1980 to issuance of the 1986 estimates, a method of employing resident tax data was used. However, beginning with the 1987 estimates some communities discontinued the resident tax.

Couldn't though get a quick clear definition of resident so went backwards ...

Population (2008 estimate) of United States was 304,059,724
and persons under 18 years old represent 24.3% of that so it is clear that the Civilian noninstitutional population doesn't include kids...

Retired not included in labor force ...

Lots of folks have been 'retired' eh?