Unemployment lineOn May 12, displaced workers in eight states lost their unemployment benefits -- anywhere from 13 to 20 weeks earlier than expected. That brought the total number of workers who have prematurely lost their benefits so far this year to 400,000 in 27 states, and next month, 70,000 more Americans will.

This is all happening despite Congress extending the long-term unemployment benefits program in February.

It Was Nice While It Lasted

After the financial crisis, the federal government pitched in to extend state unemployment benefits for up to 99 weeks. That added nearly an additional two years of benefits to the 26 weeks (roughly six months) of unemployment benefits states typically paid.

That program was set to expire in February. After a tough fight with the White House, Congress decided to extend benefits again, but this time with added restrictions that have led directly to the current state of affairs:

1. Going forward, the number of weeks of extended aid has been reduced.
2. It's now harder for states to get the maximum amount of federal aid.

To determine whether states qualify for ongoing support, the federal government looks at the state's unemployment rate over the past three months and compares it to that of three years ago. If the current average is at least 110% of what it was then, the state will qualify. If not, the state won't qualify.

Adding Insult to Injury

Those hardest hit by loss of benefits are those likely already in the worst shape -- the long-term unemployed. If you've completely exhausted your state benefits and the extended federal benefits, you've been unemployed for 125 weeks, or nearly two and a half years.

Unemployment hit 9.9% in November 2009 -- its recession level high -- and has since come down to 8.1%. And while the economy has been creating jobs, the official jobless rate has also fallen because many people stopped looking for work.

According to the Government Accountability Office, by January 2010, 2 million displaced workers exhausted their unemployment insurance. The Labor Department estimates another 3.5 million exhausted their benefits throughout 2010 and 2011.

Depending on the individual situation, running out of unemployment benefits can run the gamut from survivable hardship to outright tragedy.

But there's another drawback to mass numbers of people losing unemployment benefits that's often overlooked -- the negative effect on the economy.

This Affects You Even If You Have a Job

Right now, the U.S. is not in recession. As of the end of the most recent quarter, the economy was growing at an annual rate of 2.2%. While 2.2% growth is better than zero growth or negative growth, it's far from stellar. Our economy is in a very tentative recovery -- one that could potentially be derailed by even mild economic shocks.

By putting money in people's pockets, unemployment insurance works as a kind of back-door fiscal stimulus. Almost without fail, money distributed as jobless benefits gets put right back into the economy -- spent on rent, mortgages, car payments, groceries, clothes -- anything people need to survive. That helps businesses, and the people they employ, to survive.

Removing this money could negatively affect America's economic recovery all on its own. Add this to the other items in the looming "fiscal cliff" -- a raft of spending cuts and tax increases all set to hit around the beginning of 2013 -- and you have a situation the Congressional Budget Office says will put the country back into recession in 2013.

The flip side to extending federal unemployment benefits even further is that it would be paid for by additional government debt, and the country doesn't need any more of that. But with both people's lives and the country's fledgling economic recovery hanging in the balance, it's a price that has to be considered.

John Grgurich is a regular contributor to The Motley Fool.

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It cost tax payers around 90,000 dollers to house 1 person on death row every year.And we keep them there for 10 to 20 years. Just so they have a chance for an appeal. These people have been found guilty and have been convicted to death. Why can't we save ourselves alot of money and give them their just reward?That might help our economy a little bit. I put people in charge of mis spending our money that end up hurting us in the long run.

November 14 2012 at 8:01 AM Report abuse rate up rate down Reply
Scott S.

Bad credit...no job for you!

November 11 2012 at 10:48 AM Report abuse rate up rate down Reply
Mad Dog

All the free stuff will soon be ending simply because we are running out of money. 49 percent of the people can not support 51 percent of the people. Simply math for anyone who doesn't live in Washington DC.

May 31 2012 at 12:03 PM Report abuse +1 rate up rate down Reply

Welcome to the Obama-economy and to Obama-propaganda. He cynically uses his economic failures to peddle phoney "unemployment rate" numbers.

As millions of American workers have run out of Unemployment benefits, they are no longer counted by the Obama administration as "Unemployed". (So Obama has been peddling a phoney "unemployment rate".)

As this phoney "unemployment rate" falls, the number of covered weeks falls, and more people lose their Unemployment benefits. As more people lose their benefits, the phoney "unemployment rate" goes down.

The result is that Obama can falsely claim the unemployment rate is falling, and the Obama-economy is getting better.

Since Obama took office there are 8 million more able-bodied working age Americans. Not only has the number of employed people not increased to provide them jobs, there are actually over 300,000 fewer people employed. (Meanwhile, Obama has wasted our money - over $5 Trillion in new debt.)

A smaller percentage of America's workforce is now employed than at any time over the last 30 years!

So as people continue to lose their Unemployment benefits and are no longer counted as "unemployed", Obama continues to cynically claim the unemployment rate is falling.

As real unemployment rises, and people lose their Unemployment benefits, Obama benefits at their expense by peddling his phoney unemployment numbers.

May 30 2012 at 3:42 PM Report abuse +3 rate up rate down Reply


May 30 2012 at 2:24 PM Report abuse +3 rate up rate down Reply

Not a very pleasant news, but very well anticipated, but only if the authorities try to figure out what would be the outcomes. There is a limit where people can take pressure.,with all the negative factors the unemployment was the hard hit area,and no serious measures were taken by the government to boost the employment rate and now to top it all the benefits cut. There were many other area's where a lot of margin was left to cut the funds, but inclination towards the most sensitive factor is really amazing, now what one can say that when a bank defaults for 20 billion and that's no big deal, austerity measures in defense budget beyond comprehension, but the basic civilian rights are the main target--What great Organizational system---Penny Wise---Pound Foolish--

May 30 2012 at 1:40 PM Report abuse rate up rate down Reply

This means it's time for the lazy people to stop making excuses and get a job, because there are a lot of good paying jobs out there, especially where I live!

May 30 2012 at 12:30 PM Report abuse rate up rate down Reply
2 replies to Tony's comment
Scott S.

where and what kind of jobs...toni

November 11 2012 at 10:47 AM Report abuse rate up rate down Reply

I need a good job, where do you live?

November 14 2012 at 8:16 AM Report abuse rate up rate down Reply

Its time for the unemployed to look for a job.... Im tired of hearing ( when the checks stop i get a job,and Im making more doing side jobs with my unemployment checks) These people have distroyed .. Its It is really sad for the people out there that really need the Benifets.

May 30 2012 at 12:02 PM Report abuse rate up rate down Reply

And people thing putting another Bush type politician in office it's going to get better, wake up America!!

May 30 2012 at 12:00 PM Report abuse rate up rate down Reply
1 reply to tychinnap's comment

Employment rate went over 7% last couple of months of Bush, With a democratic congress and senate. Mostly in the 5% range during his time Democratic legislature did nothing to help on any front. Just like they acted first two years of Obama admin. Dems don't get it 23 mil out of work go figure.

May 31 2012 at 12:50 PM Report abuse +1 rate up rate down Reply

And people really believe Romney is going to make it better, in your wildest dreams!!

May 30 2012 at 11:59 AM Report abuse rate up rate down Reply
1 reply to tychinnap's comment

Can't do worse than your Obama baby.

May 31 2012 at 12:51 PM Report abuse +1 rate up rate down Reply