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Faidy Jacques, 53, hands his resume to a job recruiter at a job fair in Melville, New York (REUTERS/Shannon Stapleton)
Faidy Jacques, 53, hands his resume to a job recruiter at a job fair in Melville, New York (REUTERS/Shannon Stapleton)

Analysis

U.S. jobless caught in partisan dogfight Add to ...

In Washington these days, there apparently is nothing that can bridge the partisan divide, not even the sight of hundreds of thousands of voters being cut off from unemployment insurance amid the worst jobs market in decades.

According to National Employment Law Project, some 1.2 million people stopped receiving jobless benefits in June because hiring is taking longer to pick up than lawmakers imagined when they lengthened benefit periods during their early recession-fighting efforts.

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Democratic leaders saw this problem coming. They included a plan to extend unemployment benefits to November in a broader jobs bill that also would transfer billions to cash-strapped states to avoid a mass layoff of teachers, police officers and other public workers.

But even with the unemployment rate stuck well above 9 per cent, the bill, which was approved by the House of Representatives, has run aground in the Senate as Republicans and some conservative Democrats balk at further inflating the federal debt. Even after Democratic leaders cut the total cost of the legislation in half to about $100-billion (U.S.), they still came up a few votes short when they tried to pass the measure before breaking for a week after the July 4 holiday.

The stubbornness of legislators over a piece of relatively inexpensive legislation has caught many by surprise in the network of think tanks, consultancies and lobby groups that shadow the U.S. government. Conditioned to expect the worst from politicians, many of these observers say the current vitriol is more extreme than usual. It's tempting to dismiss this standoff as just politics. But with consumer and business confidence fragile, the government still is playing an outsized role in the economy. Washington's inability to compromise is adding to the uncertainty over the future, which is one of the reasons economists say employers, who have some cash after several quarters of economic growth, are so reluctant to hire.

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"There's a lot of uncertainty about future policy and people are worried," said Phillip Swagel, a professor at Georgetown University and a former chief economist in president George W. Bush's Treasury department. "This has become more of political issue than an economic one," Prof. Swagel said of the row over the jobs bill. "If the House and Senate wanted to pass this, they could do it in a day."

Senators return Monday to Washington, but there's little reason prospects for agreement on the jobs bill have changed. As the Senate sat silent last week, the airwaves and editorial pages were full of arguments about how extending unemployment benefits only would give people an incentive to avoid work and that austerity measures risked creating an economic depression.

Amid the rhetoric, there were no sign of compromise. After slashing their bill from its original price tag of $200-billion, and offering to pay for it with a tax on wealthy managers of private-equity funds, Democrats appear unwilling to go further. In a speech in Las Vegas on Friday, President Barack Obama denigrated Republican leaders for "opposition and obstruction." Rather than cede ground to win agreement, Mr. Obama called for more spending, urging Congress to approve $5-billion in tax credits for green-energy projects.

Republicans over the weekend maintained their position that Mr. Obama's original $787-billion stimulus plan isn't working and that more spending simply would undermine private investment by stoking more concerns about the U.S.'s already inflated debt.

With mid-term congressional elections less than four months away, it's hardly surprising that politicians are digging in for a contest that polls suggest could shift the balance of legislative power to the Republicans.

With the emphasis already so heavily on rhetoric, observers are questioning whether Congress will be in a mood to resolve much of anything before the November mid-term elections. The Senate is scheduled to break again, this time for a month, on Aug. 9. There's little time on the legislative agenda before campaigning takes over completely.

"A lot of what you are seeing now is each party's November election strategies playing out," Taylor Griffin, a partner at Washington-based consultancy Hamilton Place Strategies and a senior adviser on Senator John McCain's presidential campaign, said of the debate over the jobs bill. "It may end up being an impasse."

The International Monetary Fund predicted last week that the U.S. unemployment rate would remain above 9 per cent for a third consecutive year through 2011. That kind of stagnation is virtually unheard of for the U.S., long considered the world's most dynamic economy. The unemployment rate averaged 4.9 per cent between 1997 and 2007.

Sluggish job growth is a puzzle for economists because the U.S. actually pulled out of its recession fairly well. The IMF predicted U.S. gross domestic product will expand 3.3 per cent in 2010, faster than every country in the Group of Seven major advanced economies with the exception of Canada.

At a press briefing last week, David Robinson, a deputy director in the IMF's Western Hemisphere branch, said hiring tends to be slow to resume after recessions caused by banking crises. Mr. Robinson said some preliminary research by the IMF suggests there's a "mismatch" between the jobs available and the skill-set of the majority of the unemployed. Also, the dramatic drop in U.S. home prices has left owners with bigger mortgages than their houses are worth, creating an impediment to moving to find work.

But these issues aren't part of the political debate over the U.S. jobless rate.

Prof. Swagel, who supports extending employment benefits, said he believes there is actually a bipartisan consensus on the need to extend employment benefits. The number of people who have gone without a job for six months or longer is at the highest level since the Second World War, evidence that employers lack the confidence to commit resources to salaries. Finding the money to pay for the jobs bill would be as simple as rerouting unspent money from the stimulus budget, he said.

But those kinds of compromises don't appear to be forthcoming. More likely is that tens of thousands more Americans will be left without a source of income because the U.S. economy is creating only one job fore every five people who are looking for work.

"Every week this goes on, a few hundred thousand more lose their benefits," said Gary Burtless, a senior fellow at the Washington-based Brookings Institution and former economist at the U.S. Labour Department. "It's a scandal that it is taking Congress so long to do this."

Follow on Twitter: @CarmichaelKevin

 

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