Posted by Brad Plumer
December 2, 2013 at 11:42 am

Our story so far: Some 1.3 million out-of-work Americans will lose their unemployment insurance unless Congress extends an emergency aid program that’s set to expire Dec. 28. (Another 800,000 or so workers will fall out of the program in the months after.)

So, what will happen to all those workers? There’s a real possibility they will just drop out of the labor force entirely.

That’s the conclusion of a new research note from JP Morgan chief economist Michael Feroli, who argues that many of those 1.3 million workers may simply give up looking for jobs once their benefits lapse. That, in turn, could reduce the “official” U.S. unemployment rate by between 0.25 and 0.5 percentage points. But it won’t mean the economy is getting any better.

A quick refresher: In normal periods, states offer unemployment insurance to laid-off workers for a maximum of 26 weeks. During the last recession, however, Congress passed an “emergency” program that provided four “tiers” of extended benefits for a maximum of 99 weeks. That program has injected about $225 billion into the economy all told. It has also been shrinking slowly over time as the economy recovers:

Come Dec. 28, however, those emergency programs will disappear entirely unless Congress renews them. About 1.3 million people will lose their benefits immediately, and another 800,000 or so will see their benefits lapse in the first few months of 2014.

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