Unemployment benefits safety net is fraying

updated 4:16 p.m. ET Feb. 8, 2009

WASHINGTON - The government safety net designed to protect laid-off workers from financial catastrophe is falling short, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.

The shortcomings are fueling the recession as an increasing number of workers fall through the cracks and curtail spending. The trend highlights what economists say is a growing need for a 21st century makeover of a program started in the depths of the Great Depression.

Among the key problem areas:

• There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.
• Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.
• Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.

Jobless benefits are essentially mini-financial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely.

Interactive Worsening jobs picture A state-by-state look at the deteriorating employment situation.

About $27 billion of the economic stimulus package under consideration by Congress would be used to extend jobless benefits, which vary by state but average about $300 a week. That would cover roughly 3 million Americans through the end of 2009, according to the National Employment Law Project, an advocacy group.

The stimulus bill would also provide $7 billion to the states to encourage them to cover part-time workers and more low-wage workers. These changes could extend benefits to 500,000 people, according to the law project. The package would also add $25 a week to jobless benefits in an effort to further boost recipients' ability to spend.

But more fundamental reforms are needed to address the system's underlying weaknesses, several economists said.

Many of the 5.2 million unemployed Americans without jobless benefits already ran through their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most qualified job hunters.

That is forcing families to cut back on spending and dip into savings, if they have any.

Paula Stein's $363 weekly benefits ran out last month. The former office manager from Goochland, Va., who missed several mortgage payments even before her benefits ended, has had to drain her savings and lean on her partner's $124-a-week unemployment check to help make ends meet.

AP Jobs, spending data hint at recovery In a hopeful sign for the economy, the number of newly laid-off workers filing claims for unemployment benefits fell below 500,000 last week for the first time since January. New-home sales rise to highest level in a year Consumers log stronger-than-expected rebound Durable goods orders fall unexpectedly Recovery's pace slower than first thought

"It's a domino effect," said Stein, 57, who receives a small pension from IBM, where she was an accounts receivable supervisor. "If you don't have a job, it touches everything."

Gus Faucher, director of macroeconomics at Moody's Economy.com, said if the government provided benefits to more workers, it would reduce the severity of the recession.

Congress extended unemployment benefits twice last year, adding up to 33 weeks of coverage for individuals. Still, there were roughly 500,000 more unemployed Americans not receiving benefits in December than a year before.

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