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Unemployment Reform: Still A Bad Idea

House and Senate negotiators have been meeting to work out an agreement on extending the payroll tax cut, which currently is due to expire at the end of February, through 2012. After last month's partisan battle over the issue, which proved costly to Republicans, everyone now is apparently on board with the extension. But disagreement remains on how to pay for it, with Republicans continuing to insist on "reforming" unemployment insurance by shortening its duration by 40 weeks and requiring recipients either to possess a high school degree or to be enrolled in a GED program and "making satisfactory progress in classes." (See my earlier blog post, "I'm Sorry, You're Too Stupid To Collect Unemployment" and Jon Cohn's followup,"Republicans v. the Unemployed, Cont'd.")

Today Heidi Shierholz of the Economic Policy Institute, a liberal nonprofit, weighs in with the news that right now would be a uniquely terrible time to cut unemployment benefits. That's because the share of the unemployed who have been out of work for more than six months is 42.5 percent. That's 25 percentage points higher than it was before the 2007-2009 recession, and about what it's been for the past two years. Some Republicans will contend that this is an argument not against unemployment reform, but for it, on the grounds that extending unemployment benefits creates a disincentive to work. But as the White House Council of Economic Advisers pointed out in December, economic studies have shown that this disincentive is quite small--even smaller during economic downturns--and more than outweighed by the elimination of "liquidity constraints" that can prevent recipients from finding the right job. Perhaps more to the point, we're talking about a benefit that typically amounts only to about $300 per week, which is $85 per week above the poverty line for a single-person household and $143 per week below the poverty line for a family of four.  So unemployment insurance's effect on both work disincentive and liquidity constraints is nothing to write home about.