As unemployment forces more people to rely on benefits, states are looking to limit payouts.

AT 52, John Harris did not expect to be living with his parents. But nearly two years after he lost his $150,000 a year job at a chemicals company, he moved home to New Hope, a small town on the Pennsylvania-New Jersey border, to save cash.

Even with a bachelor’s degree in electrical engineering from Penn State, he has struggled to find work.

“Most of the jobs I see I know I can do, I am qualified to do,” he says.

“It’s the employers, they just aren’t hiring.”

Life is about to get even more difficult. For the past two years he has received unemployment insurance, regular payouts from the multibillion-dollar joint state and federal programme that has kept many unemployed people afloat since the recession.

But late last month he received his last payment.

With the unemployment rate at 9.1 per cent in August, about 7.3 million US workers collect some form of unemployment insurance benefit, according to the National Employment Law Project (NELP), with the average weekly benefit just under $300. This compares with 2.8 million in December 2007.

Typically, state bodies pay 26 weeks of payments of benefits and federal government pays up to 73 weeks more.

But as rising unemployment has forced more people to rely on the benefit, state and federal government increasingly want to limit payouts.

Payouts totalled $159.4 billion in the year to June 30th, 2010, up from $31.1 billion in the 12 months to June 30th, 2006, in line with rising unemployment. Now legislators intent on cutting spending have the payments in their sights.

“I think that everybody is concerned that this drumbeat about how people aren’t actively looking for jobs is going to impact the programme,” says Jane Oates, assistant secretary of employment and training at the Labor Department.

Already this year six states have instigated unprecedented cuts to unemployment insurance programmes, trying to reduce the length of payouts from the standard 26 weeks. Michigan, Missouri and South Carolina have all cut the maximum duration from 26 weeks to 20, while Florida has enacted a sliding scale which can be as low as 12 weeks.

Many states have also capped the maximum amount of money they will provide through unemployment insurance. Florida’s maximum weekly rate has been set at $275.

“Unemployment claims skyrocketed during the period from 2008 to the present,” says George Wentworth, an analyst at NELP.

As a result, 30 states’ unemployment trust funds – the money that employers pay as a tax on wages and from which unemployment insurance is paid – have become insolvent.

“Most states did not save for a rainy day,” says Ms Oates. “When they had a few dollars in their trust fund they eliminated the business tax, for example.”

Federal extensions to state unemployment benefits are also under threat. During periods of high unemployment, Congress usually extends the number of weeks of unemployment insurance after state obligations finish. There is a maximum of 99 weeks of benefits, though it can vary from state to state.

The high rate of long-term unemployment has forced Congress to appropriate general revenues to cover payments.

The federal extension will be voted on again on December 31st, and analysts predict a fight to maintain the 99-week maximum.

“Choosing now to cut away at the benefit, it could not be a worse time,” says Mr Wentworth.

“With the threat of federal programme cutback, the financial hit the unemployed are going to take could be devastating.”

Advocates of unemployment insurance argue that it has an important effect on the US economy during downturns, calling it a sort of “working man’s bailout”. For every dollar spent on the benefit, the economy gets a $2 boost, the Labor Department estimates. “People receiving benefits aren’t putting the money in their mattress; it’s pumped right back into the local economy,” says Ms Oates.

For Mr Harris that view may seem optimistic.

“It’s very hard. I don’t spend money on anything,” says Mr Harris, who has two children in college.“Things will now get worse, but when I have a bad day, I just think about all the people around the country who are less fortunate than me.” –– (Copyright The Financial Times Limited 2011)