Unemployment benefits extensions are federal programs that were implemented in March 2020 in response to record high unemployment caused by the coronavirus pandemic. This is the first time unemployment benefits have been extended since the 2009 to 2013 time period, when benefits were extended due to the recession. The federal government funded extended unemployment benefits to provide compensation beyond the standard 26-week duration.

Unemployment benefits are available to anyone who was laid off and is actively looking for work. Those who were fired or resigned aren't typically eligible. However, the guidelines have been relaxed, making more workers eligible. Benefits are administered by each state. They average $300 a week for 26 weeks, however available benefits vary widely based on location and prior earnings.

They are funded by the federal government from payroll taxes received from employers. Unemployment benefits were originally created by the Social Security Act of 1935 to allow the millions who had lost jobs due to the Great Depression of 1929 to buy food, clothing, and shelter.

2020 Unemployment Extension

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted. The $2 trillion aid package provides financial aid to families and businesses impacted by the COVID-19 coronavirus pandemic.

Those receiving unemployment insurance will receive an additional $600 a week for four months. That’s in addition to what states already pay, which has been extended an additional 13 weeks.

The Act extended unemployment insurance benefits to the self-employed and independent contractors. The federal government provides temporary full funding for the first week of unemployment.

2013 Extension

Congress kept the extension until the end of the calendar year. It was part of the negotiations that kept the economy from falling off the fiscal cliff.

2012 Extension

February 2012: The Middle-Class Tax Relief and Job Creation Act of 2012 began phasing out the benefits.

2009 Extension

March 2009: President Obama extended unemployment benefits by 33 weeks as part of the American Recovery and Reinvestment Act. This was to help the 13.1 million people suffering from the 8.5% unemployment rate.

November 2009: As the unemployment rate climbed to 10%, unemployment benefits were extended for another 14 weeks with the Unemployment Compensation Extension Act of 2009. By that time, the economy had suffered 19 months of job losses. There were 15.2 million people unemployed, down just 400,000 from the all-time high of 15.6 million the previous month. States with unemployment rates at 8.5% or higher received an additional six weeks of benefits. That totaled 46 weeks.

2010 Extension

July 2010: Unemployment rates were stuck at 9.5%, and 14.6 million people were unemployed. Congress reluctantly passed the Emergency Unemployment Compensation Act. Despite the severity of the unemployment situation, there were legislators who opposed adding $34 billion to the national debt. The most vocal was Representative Paul Ryan, R-WI, who said, "The American people are fed up with Washington's push to spend money we don't have, add to our crushing burden of debt, and evade accountability for the dismal results." Fortunately for the long-term unemployed, the benefits were extended.

The Act extended benefits for up to 99 weeks. Not everyone qualified for the full extension. The benefits were arranged according to four tiers. The first tier gave 20 weeks of benefits. Tier 2 allowed another 14 weeks. Tier 3 applied to states where the unemployment rate was 6% or higher. The unemployed there received another 13 weeks. States where the unemployment rate was 8.5% or higher received Tier 4 benefits of 6 additional weeks.

December 2010: Congress allowed the extended benefits to expire, directly impacting 800,000 unemployed workers who relied on the extension to tide them over. Why? Because Republicans said the extension added $30 billion to the budget deficit. They also refused to extend the Bush tax cuts for families making under $250,000 unless the cuts are also extended for higher-income families. That would add $80 billion to the deficit over the next two years.

Disadvantages of Extended Unemployment Benefits

The downside of unemployment benefits is that paying them can, like any other government spending, increase budget deficits and add to the government debt. How can this hurt the economy? As debt approaches 100% of total output for the year, investors become worried that the government can't pay back its debt.

Demand falls for U.S. Treasury bonds, which are used to finance government spending. This makes interest rates rise, increasing the cost of borrowing for everyone. Most loans peg their interest rates to the yield on Treasurys.

Advantages of Extended Unemployment Benefits

Paying benefits has a similar, but even more direct effect as that of lower interest rates. Benefit payments give the unemployed more money to spend, increasing demand. In fact, every $1 of unemployment benefits puts $1.47 into the economy.

Most government spending takes the form of jobs programs, in which the government hires workers and businesses directly to build things or provide services. Benefits eliminate the middleman. In doing so, benefits put money directly into the pockets of those who will spend it right away. This is why many feel unemployment benefits are the best stimulus.