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A Gaping Hole in the Safety Net

by | November 20th, 2008 | 12:43 pm

Congress will leave town this week without passing another stimulus package or deciding what to do about the failing auto industry. The only thing Congress could agree on was a second temporary extension of unemployment insurance. This extension and the extension passed earlier this year are mere band-aids on a program with serious problems. Given the prospect of a long and deep recession, it will only be a matter of time before Congress will need to take further action.

Only a minority of unemployed workers actually receives assistance under the program. Currently less than 4 million of the more than 10 million unemployed receive unemployment insurance. The daily drumbeat of massive layoffs suggests that this gap will widen further over the next year.

To add insult to injury, the average amount of assistance received by unemployed workers is currently less than $300 per week, hardly enough to keep a family of four out of poverty. And more than a third of recipients exhaust their assistance before finding a new job. Currently 2 million workers have been unemployed for more than 6 months, the standard duration of unemployment insurance.

Unemployment insurance suffers from numerous immediate problems—restrictive and out-of-date eligibility criteria, an inadequate amount of assistance, and ineffective triggers initially designed to automatically extend unemployment insurance during periods of economic downturn. The program has numerous additional structural problems, including the regressive payroll tax used to finance it.

Although necessary, extending the duration alone of unemployment insurance would benefit only a tiny minority of workers, i.e., those eligible workers who remain unemployed for more that 26 weeks. Congress needs to encourage states to liberalize eligibility criteria, beginning by including recently hired and part-time and temporary workers, in order to help more unemployed workers.

Increasing coverage from one-third to one-half of unemployed workers would cost an additional $20 billion a year. This expansion could be financed by either federal grants to states or by allowing states to borrow against their trust funds.

The nation’s unemployment insurance program is in desperate need of its own rescue package. The existing program is inadequate to meet the needs of workers, especially in light of current economic conditions. Congress needs to move beyond superficial assistance and modernize the program to meet the needs of a 21st century workforce. Congress should start by immediately providing better assistance to more unemployed workers.

Listen to related interview with Howard Rosen, “Challenges for the American Workforce.

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