Over the past six months, I’ve argued numerous times that Congress should extend federal unemployment insurance and that the Republican arguments against doing so are laughably wrong. Now, a new paper makes the case for expanding benefits even stronger.
Economists Brian T. Melzer, David A. Matsa, and Joanne W. Hsu have released a new working paper in the National Bureau of Economic Research that finds that unemployment insurance “expansions during the Great Recession prevented about 1.4 million foreclosures.” The reasoning behind this is pretty straightforward: Giving people money for a longer period while they're unemployed allows them to make their mortgage payments. The authors also find that lenders offer better terms to low-income borrowers when UI benefits are more generous. After the financial crisis, states offered unemployment benefits for different lengths of time with different eligibility standards. Melzer, Matsa and Hsu took advantage of these cross-state differences to determine the effects on consumer credit.
In fact, as liberals have argued for a while now, unemployment benefits have other benefits. For instance, the study also finds that UI expansions saved government sponsored mortgage companies—Fannie Mae and Freddie Mac—more than $50 billion through mitigating foreclosures. “Furthermore,” the authors write, “preventing foreclosures reduced the fiscal cost of extending UI, a key consideration in the policy debate.”
These positive effects were certainly larger from 2008-2012, when the economists did their research, but they would still exist today. While the economy has still recovered, millions of Americans are still looking for work, including 3.2 million who are part of the long-term unemployed. There really is no argument against extending UI.
Danny Vinik is a staff writer at The New Republic.