U.S. budget cuts hitting long-term unemployed hard

WASHINGTON Tue Aug 13, 2013 3:50pm EDT

1 of 10. Phyllis Kennedy, 57, who has been unemployed for over a year is pictured at her home in Little Falls, New Jersey August 9, 2013.

Credit: Reuters/Andrew Kelly

WASHINGTON (Reuters) - Phyllis Kennedy is facing a bleak future. U.S. government budget tightening has slashed her weekly unemployment check by more than a fifth, and her prospects of finding a job are grim after over a year of unemployment.

Kennedy, 57, from Little Falls, New Jersey, had her $380 weekly unemployment check cut by $85 at the end of June. Just when she was coming to terms with the blow, she learned her benefits would end altogether in three weeks, more than two months earlier than she had anticipated.

She is among the 4.3 million in the United States who are officially counted as being unemployed for more than six months. According to the U.S. Labor Department, only 37 percent of that group received benefits in July compared with a peak of 93 percent in February 2010 when there were 6.2 million long-term unemployed.

The economy's slow recovery and federal and state cuts to unemployment insurance programs have slashed the numbers receiving benefits.

"For people that are on their own, like me, a cut like this is devastating," said Kennedy, who lost her job as a mental health center administrator, and a $32,000 salary with it, more than a year ago. "I have very little emergency money left."

Thousands of miles away in Las Vegas, John Payne is also reeling from benefit cuts, which reduced his weekly check by a third to about $250. The 55-year-old commercial glass installer has not had regular work since late 2009.

"Not even when I moved out of the house as a teenager did I struggle this much," said Payne, who plugs the gaps between sporadic construction projects with unemployment insurance. "I was stunned. I knew the cuts were coming, but I never imagined it would be that much."

Benefit reductions like those suffered by Kennedy and Payne, part of the federal budget cuts known as sequester, have hammered those who have struggled the most to find jobs in this listless recovery.

The $2.4 billion cut in emergency unemployment benefits, which began to go into effect on March 1, are part of a wider push to reduce the federal government's budget deficit.

EMERGENCY AID IS SHORTENED

Even before sequester, benefits had dropped in most states as jobless rates fell below levels that allow the jobless to claim for additional weeks. In July, the unemployment rate dropped to a post-recession low of 7.4 percent.

Before the 2007-09 recession states would pay at least 26 weeks of benefits. Since 2008, federal emergency benefits have provided additional weeks of aid based on each state's unemployment rate.

States can receive up to four tiers of these benefits, with all tiers except the first requiring a certain level of unemployment in the state.

Only three states currently qualify for the 10 weeks of tier four emergency benefits, for a total of 47 weeks: Illinois, Mississippi and Nevada. On Sunday, California and Rhode Island became the most recent states whose residents will lose access to those extra weeks, meaning more than 100,000 of the long-term jobless population will soon lose assistance.

Emergency benefits offered a maximum of 53 weeks before Congress scaled back the program last year. The program will expire on December 28 without a renewal by Congress, leaving only state benefits.

New Jersey's average unemployment rate fell to 8.7 percent in June, below the tier four threshold, so Kennedy will not receive the extra 10 weeks of benefits once her already trimmed checks end.

"I might have to sell my home," said Kennedy, who has a $1,200 monthly mortgage payment and owes $115,000 on a house worth about $250,000.

Kennedy said she has considered moving to another state where the cost of living is cheaper. "It would kill me to leave my children, but I might just be pushed out," she added.

Her three grown children also live in New Jersey.

STATES ALSO TARGET BENEFITS

Though the recession ended four years ago, the pace of economic growth has been too slow to generate sufficient employment, leaving millions of workers unable to find jobs before their benefits run out.

Adding to the squeeze, eight states have cut their weeks of state benefits to between 18 and 25 from the standard 26.

North Carolina not only reduced the initial number of weeks residents could receive aid to 20, but slashed state jobless benefit checks by more than one-third.

This violated a provision of emergency unemployment aid that prohibits states from reducing average weekly benefits, according to the Department of Labor.

After June 28, emergency benefits ended in North Carolina and 65,000 immediately lost assistance. The move allows the state to pay back $2.6 billion to the federal government three years earlier, said North Carolina commerce department spokesman Josh Ellis, sparing businesses from higher unemployment insurance taxes.

CALIFORNIA 'PIPE DREAM'

In Nevada, where the unemployment rate is 9.6 percent, Payne is contemplating moving to northern California, but the lack of money makes it a challenge. He has been unable to fix his car and often takes public transport, to go to temporary jobs, while carrying heavy tools.

"My ability to move to northern California is a pipe dream because I don't even have the money for that," said Payne.

Sharon Williams of Newark, New Jersey is also feeling the pinch after the 22 percent cut to her weekly unemployment check.

"I don't sleep well at night because I don't know what utility will get shut off next," said the 62-year-old licensed practical nurse.

Her license is limited to New Jersey and she did not update it with currently required skills.

Lisha Fields, 36, a single mom laid off a year ago after 10 years with Verizon Wireless in Chicago, has only received minimum wage job offers that amount to less than her unemployment benefits. Accounting for child care costs, these offers are not feasible, she said.

The risk is that the longer she and the others remain unemployed, the less the chances of them finding jobs.

A study by the Boston Federal Reserve Bank released earlier this year found that callback rates dropped precipitously for those unemployed longer than half a year.

"There's this concern that you have all these workers who might become a permanent class of the unemployed," said Kory Kroft, a professor of economics at the University of Toronto.

"People think we're unemployed because we want to be," Fields said. "No."

(Reporting By Paige Gance, additional reporting by Lucia Mutikani; Editing by Dan Burns and Leslie Gevirtz)

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