During the week ending February 26th, there were 368,000 new claims for unemployment benefits, according to statistics released today from the Labor Department. At the same point in 2010, there were 466,000 new claims for unemployment benefits, reflecting a 21% decline over the year. The four-week rolling average of new claims, which is a broader and more accurate indicator for overall new claims, totaled 388,500. This is the lowest four-week rolling average since July 2008.
A decline in new unemployment claims not only indicates a decline in layoffs, but also an eventual decline in those who receive unemployment benefits. There are currently 9.2 million individuals who receive unemployment benefits. At the same point in 2010, there were 11.5 million individuals receiving benefits. A primary reason for this annual decline is due to individuals who maxed out their benefits and are no longer eligible for benefits.
Once individuals begin receiving unemployment benefits, they receive benefits each week for a maximum of 99 weeks. These 99 weeks are divided into the following six categories:
- Regular unemployment – 26 weeks.
- First tier – 20 weeks.
- Second tier – 14 weeks.
- Third tier – 13 weeks.
- Fourth tier – 6 weeks.
- State extended benefits – 20 weeks (in some states it’s 13 weeks).
With a stagnant economy, a decline in individuals receiving unemployment benefits generally correlates to a 99 week cycle (almost two years). Unsurprisingly, most layoffs occurred nearly two years ago in late 2008 and early 2009, as the chart below from the Labor Department shows.The surge of layoffs in late 2008 and early 2009 resulted with a surge in the amount of new claims for unemployment benefits. Since this time period is about two years ago, many of these individuals maxed out their benefits and are no longer eligible for benefits, which shows why the number of individuals receiving unemployment benefits has decreased.
With fewer individuals receiving benefits, the federal government will spend less on unemployment in the current fiscal year. During fiscal year 2010, the federal government spent $162 billion on unemployment benefits, which is more than any previous year. Fortunately, this amount will decrease in 2011 and even further in 2012, due to fewer and fewer individuals who will be eligible for benefits.
While fewer unemployment claims indicate an eventual decline in expenditures on unemployment benefits, it does not necessarily indicate an improvement in the unemployment rate. The unemployment rate is currently 9% and has been at this point or higher for 21 consecutive months.
Despite the fact that the unemployment rate has declined 0.8% in the last two months, this decline has not been a result of job gains. During December and January, there were 139,000 jobs created. The unemployment rate usually moves 0.1% for a fluctuation of 200,000 jobs. Since the 0.8% decline in December and January does not correspond to a gain of 1.6 million jobs, other factors explain how the unemployment rate recently declined. Statistical methods of the Labor Department largely explain the recent decline, particularly a growth in the amount of “marginally attached workers,” who are excluded from the unemployment rate.
Since the recent improvement in the unemployment rate is a result of statistical methods, this also shows how the decline in the overall amount of individuals receiving benefits is a result of the 99 week pattern, not individuals returning to work. A troubling implication of this 99 week pattern is that most individuals who were laid off during the great recession have not found work. If these individuals cannot find a job, the eventual result will be a rise in the poverty rate. The national poverty rate has risen four consecutive years and will grow for a fifth and sixth straight year, unless there’s a shift in the domestic demand for labor.