Two Important Points From Goldman On The Situation With Unemployment Benefits

Yesterday, the Senate passed a key procedural hurdle in a Democratic-lead effort to continue extended unemployment benefits.

The vote in the Senate wasn’t final passage, however, and there’s still an uphill in climb in The House.

Goldman’s Alec Phillips has two important points on the situation and what it means:

The upshot is that although the probability of an extension has increased, it is still below 50%. The fact that the bill was not defeated at the outset is a positive sign for extension, but at this point there is still much more disagreement than common ground.

Assuming that emergency benefits are not extended, this is likely to reduce labour force participation incrementally, resulting in a reported reduction in the unemployment rate of 0.1pp to 0.2pp over the next few months. Our forecast incorporates this effect. In September 2013 (the most recent month for which data is available), $US1.4bn in emergency unemployment benefits were paid, or $US17bn (0.1% of GDP) at an annualized rate. CBO estimates a one-year extension would cost $US25.5bn. Our estimate of fiscal drag assumes expiration, so a surprise extension would reduce drag slightly compared with our expectations in Q1. But for now, expiration still seems like the most likely outcome.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.