Unemployment Insurance and Employment

Yesterday, the U.S. Senate rejected the Unemployment Insurance Stabilization Act of 2010 that would have continued unemployment benefits until January 2012. Evidently, Republicans first want the Bush era tax cuts extended for their wealthy constituents.

Aside from the naked class-based motivation for not also extending unemployment insurance (UI), what are the likely consequences of the Senate's action?

The graphic on the right summarizes the arguments (read more here, here, here, here, here, and here). The Great Recession created our current unemployment problem by reducing GDP growth. UI, enacted during the Great Depression, is one of the built-in stabilizers in the economy that allows employees to ride out brief economic downturns. UI also provides an immediate boost to consumption since the unemployed immediately spend what they receive in benefits.

The right-wing criticism of UI is that it reduces job search. Granting that there might be some small reduction in search activity due to UI (the data, however, show that UI actually increases job search), if the jobs are not there, it doesn't matter how hard one searches. Until the Great Recession is over, employment will continue to be depressed. And, the failure by the Senate to extend UI will only serve to prolong the Great Recession through a reduction in consumption.