Limbo on federal jobless benefits makes Congress the Grinch

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Sen. Jack Reed, D-R.I. participates in the news conference on Wednesday, Nov. 20, 2013, to call for a renewal of federal Emergency Unemployment Compensation, scheduled to expire December 28th.

It's the most wonderful time of the year, but for 1.3 million jobless Americans, it could be a bleak holiday season if Congress fails to extend federal unemployment benefits.

A program known as Emergency Unemployment Compensation provides federal checks to long-term unemployed when their state benefits run out. It expires at the end of the year, and Congress is engaged in political gamesmanship about whether to renew the program or make cuts. Uncertainty about its future has left those receiving the federal checks anxious and in belt-tightening mode ahead of the holiday season.

"As far as I'm concerned this year, there are no holidays," said Andrea Hinninge, of Syracuse, N.Y., who was laid off in March from a job at a physical therapist's office. She's hardly in a position to think about shopping for gifts or a special holiday meal, she said, fearing that her federal benefits might not be there after Dec. 31.

Since 2008, Congress has debated or amended the federal program multiple times, including four year-end cliffhanger debates. This year is shaping up as round five. The program has become another bargaining chip in the ongoing budget battle—this time against the bitter backdrop of the recent government shutdown and the shaky framework for a major budget overhaul.

The federal government spent $26 billion on the program in fiscal 2013.

"The last few years it has been as much about Congress striking a large enough deal to carry this along with it," said Judy Conti, federal advocacy coordinator at the National Employment Law Project, which is lobbying to renew the program. "So we have to wait and see what Congress about to at the end of this year or the beginning of next."

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The program was created to help jobless workers sidelined by the wave of layoffs in the depths of the Great Recession. Federal benefits kick in when the 26 weeks of state-run unemployment benefits have been exhausted. Originally extending the total to 99 weeks, the program was tied in part to the jobless rate in each state. As the rate has fallen, so has the number of weeks of coverage.

Postings are sparse

With the unemployment rate well below its Great Recession peak of 10 percent and millions of once-jobless Americans back to work, Congress is weighing whether the program is still necessary.

Lawmakers may start by talking to C.J. Mitchell, 27, of Tri-Cities, Wash., who has been looking for work as a chemical engineer since May, when she lost her job with a government contractor.

"I wasn't one of those 'selfish millennials' who coasted," she said. "I chose a very difficult major with lucrative rewards."

Though she extended her job search to seven Western states, "the postings are sparse," Mitchell said. The two companies she has interviewed with were looking for more senior engineers to replace people now retiring.

In the last month she began applying for seasonal retail jobs locally, she said, but her engineering degree is an obstacle.

"I guess retailers don't want smarty-pants help demanding $15 an hour minimum wages," Mitchell said.

So she is scraping by on an unemployment check that's about half what she was making.

"My diet's become just awful," Mitchell said. "I eat a lot of rice. I've stopped eating meat almost entirely and have switched to beans, tofu and eggs." She watches the thermostat like a hawk. She's selling possessions on Craigslist for extra grocery cash.

As for Christmas? Forget about it. "I have a much deeper understanding of what my less fortunate friends have gone through on a regular basis," she said. "Worrying about money becomes all-consuming."

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Debating along party lines

While the national jobless rate has fallen to 7.3 percent, prospects are uneven from one part of the country to another.

In North Dakota, for example, an energy boom has pushed the jobless rate to 3.0 percent, while in Nevada its 9.3 percent. As a result, the total package of state and federal unemployment benefits run out after just 40 weeks in the former but last for 73 weeks in the latter.

Predictably, the debate on Capitol Hill to maintain federal benefits is playing out along well-worn party lines.

Republicans want to let the program expire. The job market has improved, the country can ill-afford to keep it going and extended benefits have done little to lower the unemployment rate, according to a House Ways and Means Committee Chairman Dave Camp, R-Mich.

Democrats, on the other hand, say the program is still needed. Allowing these benefits to expire will hurt struggling families as well as the overall economy because it would further squeeze consumer spending, according to ranking House and Means Committee member Sandy Levin, D-Mich.

'Barely scraping by'

For younger workers like Mitchell, the safety net of jobless benefits also helps support household formation, which in turn spurs spending and investment in home buying and improvement.

Mitchell recently bought a condo in Tri-Cities but is not sure she can keep it if she doesn't land a job before her benefits run out.

"I wanted to be independent," she said. "But I'm barely scraping by on unemployment. I worked out ... my budget, and I have had to cut a lot of things down to the bone to make the mortgage."

On top of her $800 mortgage payment, her dishwasher recently experienced what she called an "H2O supernova," causing $5,000 worth of damage to the kitchen floor. Without her unemployment check, Mitchell said, her spending spreadsheet just won't add up. She figures she'll have to move back in with her parents.

Doubling up may help combined households stretch their budgets further, but their thrift is a big reason the economic recovery has been so weak.

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Proponents of the extended benefits program argue it has been effective in preventing a deeper, longer recession. Some economists have long maintained that unemployment insurance and other government assistance programs act as a kind of shock absorber in economic downturns by cushioning the loss of income and spending that accompanies a spike in unemployment.

But opponents of extended benefits say the opposite is true—that they hold back the recovery by encouraging job seekers to turn down offers while holding out for a better one. Most of the persistent rise in unemployment during the Great Recession, in fact, was the result of extended benefits,according to a paper last month by a team of economists from University of Pennsylvania, University of Oslo and the Federal Reserve Bank of New York.

When Hinninge of Syracuse was laid off, the 56-year-old figured that her 30 years' experience as an administrative assistant for health-care providers would serve her well in her search. But after eight months of rising every morning to send out résumés, she has been called in for just three interviews. Each time, she said, the interviewer told her the business had received more than 100 résumés in response to the opening.

Like many of the 4.1 million who have been out of work for more than six months, this is Hinninge's first experience with long-term unemployment.

"I have no idea as to what to do or where to turn," she said. "That's what so scary. I've never dealt with even anything remotely close to this. I've always had family around, and now everything just kind of caved in."

Widowed since 1998, Henninge said the $42 a month she gets from food stamps covers basics such as milk, bread and eggs. Without a steady paycheck by the end of the year, she figures she'll be unable to keep up with her rent and car loan.

So Congress may end up being the Grinch who stole her Christmas.

—By CNBC's John Schoen. Follow him on Twitter @johnwschoen .