Hundreds of job seekers stand in line at a South Florida job expo. By next month, a huge wave of unemployed workers may be out on the streets as their unemployment insurance runs out.(Getty Images)
Hundreds of job seekers stand in line at a South Florida job expo. By next month, a huge wave of unemployed workers may be out on the streets as their unemployment insurance runs out.
(Getty Images)

The Unemployment Dam Is Breaking

August 6, 2009  •  From
A torrent of broke and unemployed workers may be about to start flooding the streets.

A primary bulwark against foreclosures and destitution is about to give way. Almost 500,000 Americans will exhaust their unemployment insurance benefits by September. That includes 354,000 for that month alone. The economic consequences will be severe. Social unrest is inevitable.

Unemployment insurance is the only thing keeping many Americans in their homes and off the street. But time is running out. The National Employment Law Project, a national advocacy group, released a study last weekend that should ring warning bells. Over 140,000 people in America have collected the maximum unemployment benefit available under the law—despite the fact that Congress extended payouts for an additional 33 weeks. Currently, people can draw payments for up to 79 weeks in 24 states. Other states offer help for between 46 and 72 weeks.

These first 140,000 will not be alone for long. According to the study, a gushing stream of workers will lose their aid as the year progresses, but the stream will become a torrent leaving 1.5 million jobless Americans who have exhausted their insurance by December.

Congress is under growing pressure to extend benefits again. The number of payout weeks is already triple the norm, and is the most since the program began. Rumors are circulating that Congress will try to borrow another $70 billion from foreigners to extend the program another 13 weeks for states suffering unemployment above 9 percent. Nationally, the official jobless rate is 9.6 percent.

“If more help is not on the way, by September a huge wave of workers will start running out of their critical extended benefits, and many will have nothing left to get by on even as work keeps getting harder to find,” says Maurice Emsellen, a policy director of the Employment Law Project.

Rep. Jim McDermott, a Democrat from Washington, says lining up support for more benefits won’t be a problem once politicians start getting calls from desperate constituents.

Stories of people facing the loss of their homes are emerging. Raymond Crouse of Columbus, who operated heavy machinery, has had no work since 2007. Since the construction industry went into free fall, Mr. Crouse has collected $190 per week in benefits, which has allowed him and his wife to hang on to the house they bought 15 years ago. But with the benefits ending next month, he fears they will not be able to keep up.

In Ohio, Cathy Nixon has barely worked since June 2007. Her benefits of $313 per week also run out in September. Already fighting foreclosure, she says that will probably be the end. The New York Times reports several other similar stories.

And employment conditions probably won’t improve any time soon.

Byron King, writing for the Whiskey and Gunpowder economic newsletter last week, noted that “the Fed made a shocking prediction. It forecasted that the U.S. economy would add no net new jobs over the next five years!”

“No net new jobs?” asked King. “That ought to scare you. The Census Bureau predicts that the U.S. population will grow over five years. But the numbers of new jobs will remain static. That is, for every job gain there will be a loss.”

If this forecast is true, then for the next five years, thousands of students will graduate into jobless lines; meanwhile, older workers will postpone retirement. In July, an additional 371,000 jobs were lost, according to the most recently released adp Employer Services report.

This employment catastrophe is a formula for trouble at both local and national levels. Once the safety nets expire, a deluge of social discontent could be on the way.