Emergency unemployment benefits might help unemployed individuals, but they create a curious statistical quandary for those who follow the weekly continuing jobless claims report.

The Labor Department’s weekly jobless claims report has traditionally served as a timely snapshot of the state of the U.S. labor market. However, the recent enactment of an emergency unemployment compensation program might affect the report’s helpfulness.

The Emergency Unemployment Compensation Program [EUC], which was signed into law on June 30 as part of the Supplemental Appropriations Act of 2008, allows individuals who have exhausted their previous state-supplied unemployment benefits to continue receiving benefits for up to an additional thirteen weeks assuming they satisfy several requirements. 

“The purpose of [Emergency Unemployment Compensation]…is to maintain consumption of the unemployed -- maintain their living standard and that of their family,” said Daniel Hamermesh, a professor of economics at the University of Texas at Austin in an e-mail.

Individuals that receive EUC often represent the segment of those filing for unemployment insurance that are in a direst situation. Moreover, the need for emergency unemployment compensation tends to have sweeping implications about the state of the labor market at a given time. 

“Historically [and we've done this in recessions starting in 1954] we adopt emergency unemployment insurance policies because a increasing fraction of recipients of regular benefits find themselves exhausting [finishing up 26 weeks] of regular benefits during recessions,” Hamermesh said.

Indeed, the Congressional Budget Office released a report on a very similar program, estimating 3.2 million people will collect $11.7 billion of emergency unemployment compensation between 2008 and 2009. Notably, for the week ended July 4, the Labor Department reported 3.12 million continuing unemployment claims. 

Despite receiving federally funded unemployment benefits, these individuals are not counted in the Labor Department’s weekly continuing jobless claims report.

“The weekly claims report draws data from the regular Unemployment Insurance Programs and is meant to describe new and emerging spells of unemployment,” according to a spokesperson for the U.S. Department of Labor. “Beneficiaries who exhaust their benefits and receive additional benefits do not reflect new or emerging unemployment and should not be reported as such.”

This implies that instead of being counted as continuing to receive unemployment insurance, the individual that receives EUC will be counted as a reduction in the continuing jobless claims number. This odd statistical anomaly is seen by some market participants that analyze these statistics regularly as strange, if not misleading.

“I didn’t know they did that – that’s weird,” said Ramachandra Bhagavatula, a partner and co-portfolio manager with Combinatorics Capital, managers of a global macro hedge fund.  

“You have people receiving unemployment benefits that means that they are still not working and they are having a difficult time finding jobs, when you drop them out of (the weekly claims report), it gives the impression that job availability has improved in the economy.” 

Economists familiar with labor statistics, however, note it is important to not include individuals receiving emergency unemployment compensation in the continuing claims report because including them would create issues with the long-term integrity of the data.

“This practice makes the count of jobless claims more valid in the sense of being more consistent over time,” said Gary Rand Solon a professor of economics at Michigan State University. “By consistently using claims for regular benefits as the measure, it makes the measure comparable between periods when emergency extended benefits are available and periods when they are not.”

These minor statistical nuances raise a question of how the weekly continuing claims report should be interpreted.  Many economists suggest that in addition to reading the report as an indicator of how many people are unemployed in the nation, the report should be viewed as an indicator of the prospects of reemployment within the labor market, a surrogate for hiring.

“The increase in claims data may reflect the fact that it is harder for unemployed workers to find new job, therefore, more of them are filing for unemployment insurance,” said Howard Rosen an economist with the Peterson Institute for International Economics. “When the economy slows down, it is harder for people who lose their jobs to find new ones.”