The end of unemployment benefit checks for more than 1 million people on Saturday is driving out-of-work Americans to consider selling cars, moving and taking minimum-wage work, after already slashing household budgets and pawning personal possessions to make ends meet.
Greg and Barbara Chastain of Huntington Beach, California, put their two teenagers on the government-subsidized school lunch program and cut back on dining out after losing their T-shirt company in June following a dispute with an investor. They have exhausted their state unemployment benefits and now that the federal extensions are gone, the couple plans to take their children out of school next month and relocate 80km east where a relative owns property so they can save on rent — unless they find jobs.
“We could let one of our cars go, but then you can’t get to work. It’s a never-ending cycle,” 43-year-old Greg said.
He said they may try their luck in a less expensive state like Arizona or Texas if he can land a job there.
The end to the five-year program that extended benefits for the long-term jobless affected 1.3 million people immediately and will impact hundreds of thousands more who remain jobless in the months ahead. Under the program, the federal government provided an average monthly stipend of US$1,166.
Since 2008, the federal program paid out benefits to the unemployed after their 26 weeks of state benefits ran out. At its peak, the program offered up to 73 weeks of federal benefits to the long-term jobless.
While US President Barack Obama’s administration and Democrats in the US Congress want to continue the program, the extensions were dropped from a compromise budget deal struck earlier this month and Republican lawmakers have balked at its US$26 billion annual cost.
The end of the program may prompt a drop in the nation’s unemployment rate, but not necessarily for a good reason. People out of work are required to look for work to receive unemployment benefits. As benefits disappear, some jobless will stop looking for work out of frustration and will no longer be counted as unemployed.
The trend has already emerged in North Carolina, which started cutting off extended benefits in July. The state’s unemployment rate went down from 8.8 percent in June to 7.4 percent last month even though the number of North Carolinians who said they had jobs rose only slightly in that time.
The North Carolina case is consistent with the theory that ending benefits will cause some unemployed to drop out of the workforce, JPMorgan Chase economist Michael Feroli said.
That is what US Federal Reserve Chairman Ben Bernanke meant when he said this month that the end of extended benefits “will bring the unemployment rate down, but for ... the wrong reason.”
Some unemployed people said the loss of benefits might drive them to take minimum-wage jobs to get by until they can find work at their skill level and in their field.
Richard Mattos, 59, of Salem, Oregon, has been out of work since March. Without the unemployment income, Mattos said he and his wife will have enough money for one month’s worth of bills.
“I don’t know what we’re going to do,” he said. “We could end up homeless because of this.”
Last month, the country’s unemployment rate fell to a five-year low of 7 percent, but is still above the 5 to 6 percent rate that would signal a normal job market.