How to Collect Unemployment Insurance Without Being 'Unemployed'

“Nothing is either good or bad, but thinking makes it so.”  -William Shakespeare

Question: How do you collect unemployment insurance and not be considered unemployed?

Answer: If the Department of Labor says so.

In the sometimes wacky world of government economic statistics, that will be the case for individuals who receive unemployment insurance under the program signed into law by President Bush June 30 (to take effect two weeks later), and economists differ on the impact. The extension provides benefits for individuals who have exhausted the 26 weeks of unemployment insurance under existing state and federal programs.

Each week, the Department of Labor reports initial claims for unemployment insurance as well as “insured unemployment” --  referred to by the media as “continuing claims,” or those individuals who had been and are continuing to receive unemployment insurance benefit. Continuing claims are considered a surrogate for hiring since, in effect, there were only three ways for the level of continuing claims to come down: claimants could get jobs, benefits could expire or for reasons of health (illness or death). Now it turns out, those levels can be reduced if an individual collects unemployment insurance benefits under the extension program.

Technically, according to the Department of Labor, the new reporting is consistent: To qualify for the extended payments, an individual would have had to exhaust benefits under the original program -- in other words, meet one of the “tests” for exclusion from the continuing claims count.

To some observers, the treatment is perfectly appropriate and will allow an“apples-to-apples” comparison of statistics before and after an extension. To others, it is “bizarre,” potentially understating the troubles in the labor sector.

According to the Department of Labor, the weekly report on initial claims, which also includes the report on continuing claims, reflects individuals who file for benefits after having been employed. Individuals who remain unemployed after exhausting benefits and seek benefits under the new program will not be included in the initial claims report.

That makes sense, to a point. The weekly report is, according to the Department of Labor, meant to illustrate new and emerging patterns of unemployment. Including those have exhausted 26 weeks of payments would not describe “new and emerging” unemployment. An individual who exhausts unemployment insurance and then “re-applies” under the extended program is truly not a new claimant.

The problem, though, with the treatment of those who receive benefits under the new program is that we may not understand, statistically, the depths of unemployment. According to the Congressional Budget Office, as many as 3.2 million people will qualify under the new program; last week the Department of Labor reported 3.1 million continuing claims for unemployment insurance.

Reaction among economists to the counting of those who will collect benefits under the emergency extended unemployment compensation (EEUC) program is mixed.

Dean Baker of the Center for Economic Policy and Research said the accounting is “bizarre” and noted the weak labor market is well known and not including individuals receiving EEUC benefits would not change that.

Others defended the calculations. “If they (EEUC recipients) were included, the claims data would be artificially boosted,” according to James O’Sullivan of UBS. “In theory, at least, they (the Department of Labor) are doing the right thing to avoid a distortion.”

“I wouldn't view this as ‘misleading,’” said Mike Englund of Action Economics, “as these numbers were never meant to be a comprehensive count of those unemployed, but just the total who receive benefits.  If the new claimants suddenly started to linger in continuing claims longer than usual because of a legislative change rather than a change in economic conditions, that is what I would see as misleading, as Congress could always extend the period regardless of economic conditions.”

“The Thursday morning number,” according to economists at JP Morgan Chase, “is meant to be an apples-to-apples comparison, and not reflective of the addition of emergency benefits; by separating out regular UI claims from those under emergency benefits they (the Department of Labor) are attempting to respect the apples-to-oranges nature of claims filed under the new program.”

John Silvia, chief economist at Wachovia Bank, sharply disagreed: “Of course [it is] misleading—how can we not account for people who are on extended benefits?”

Excluding as many as 3.2 million claimants from continuing claims data would provide statistical fodder for those who argue against classifying the current economic slowdown as a recession arguing that claims are not as bad as they were in previous downturns.

The EEUC program, according to the Congressional Budget Office, will continue through April 30, 2009 (with the deadline for applying February 1, 2009).

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president at Washington Mutual, where he was manager of economic analysis and research. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He has a degree in Economics from the Wharton School of the University of Pennsylvania.