Photo: Tom Pennington/Getty Images
In December, with time running out on extending unemployment insurance for the long-term jobless, the House passed its version of how to transform a system that dates from the 1930s and no longer meets the needs of America’s employers or workers.The bill required every person filing for unemployment insurance to have at least a high school education and pass a drug test. It also called for 10 states to experiment with unspecified pilot projects that would be cancelled after three years if they didn’t cost less than traditional unemployment insurance.
It’s too bad they didn’t check with Gov. Haley Barbour off Mississippi for a few other ideas to put in their bill. During the depths of the downturn, the former chairman of the Republican Party used a special incentive program created by President Obama’s much vilified American Recovery and Reinvestment Act to subsidise employers who hired the unemployed.
The costly wage subsidy in Barbour’s Subsidized Transitional Employment Program and Services (STEPS) program started at 100 per cent and was phased out over six months.
“Mississippi STEPS is unique in that it is a program specifically designed to benefit both the employee and employer,” Barbour said at the time in a press release.
“The STEPS program will provide much-needed aid during this recession by enabling businesses to hire new workers, thus enhancing the economic engines of our local communities.”
Time is running out on extending unemployment insurance. Though Republicans in both the House and Senate are grumbling, Congress will likely reach some kind of compromise before the March 6 deadline. Cutting off extended benefits for the estimated five million people who have been unemployed for longer than six months would not only be bad economic policy according to economists, it would be extremely bad politics in an election year.
But hopes are fading that the last-minute political manoeuvring in the House-Senate conference committee will include many of the reforms that experts say the program needs. Devised for an era when workers temporarily lost jobs and quickly returned to the same employer, today’s unemployed are almost always permanently severed, are older, suffer longer bouts of unemployment, and often need new skills. They can also be well-educated, yet in need of help in making the transition to a new job or career.
The existing system, which is operated by the states, is woefully underfinanced to provide any of those services. In fact, its systemic cash shortfall – the feds require that states tax employers a minimum of $42 per worker per year, and about a third of states are at or near that minimum – left most states severely undercapitalized and unprepared for what turned out to be the worst unemployment crisis since the Great Depression.
As of mid-January, 27 states and the Virgin Islands have borrowed $38.1 billion simply to maintain their basic programs, which provide an average of $296 per week in benefits for 26 weeks. The extension to a maximum of 99 weeks for the long-term unemployed is entirely federally funded.
President Obama’s dead-on-arrival jobs bill introduced last September called for a series of reforms to modernize the U.S. system. They included a “Bridge To Work” program that would allow laid off workers to continue receiving jobless benefits while receiving on-the-job training. modelled after the Georgia Works program the president visited, critics say a national program would need better guarantees that employers don’t use the program as a source of no-cost workers who would be let go once the insurance expired.
The Mississippi program gets higher grades from the same critics.
The president also called for an expansion of work-sharing programs, which now are authorised in 21 states but are poorly utilized. Under work-sharing, if an employer chooses to reduce the hours of a group or all employees to save jobs, the amount normally paid in unemployment benefits to those laid off would instead be spread among those on reduced hours, thus making up for some of the lost wages. Many European firms rely on work-sharing to maintain continuity in their workforce.
“Germany’s work-sharing program is a substantial proportion of unemployment claims – a third,” said George Wentworth, the former general counsel to Connecticut’s labour commissioner and now a senior counsel for the National Employment Law Project. “Studies there have shown that even though there was a comparable decline in GDP (gross domestic product), their unemployment rate didn’t get anywhere near as high. The workers remained attached to an employer, and when things got better, they were able to go back to full-time work.”
The president’s plan also called for greater one-on-one reemployment assistance for displaced workers, which has largely disappeared from the nation’s 50 state-based unemployment service agencies. Since the mid-1980s, the amount of money the federal government doles out for state labour agencies has remained stagnant at about $700 million a year, which in inflation-adjusted dollars amounts to being halved.
To cope with the cuts, the states moved to electronic or telephone monitoring systems, where laid-off workers simply call in or go online to register for unemployment benefits and attest that they have been looking for work. To the extent states provide services, they are usually in the form of groups sessions that teach how to write a resume, how to interview or how to use a computer to search for jobs.
It’s a far cry from the employment services offered in most states in the 1970s, where workers showing up at local unemployment bureaus for their benefits were interviewed by specialists who knew the local job market. “That system has basically been shrinking from neglect for over 20 years,” Wentworth said. “But studies show that if some unemployed workers actually get hands on counseling and job search assistance from a trained employment specialist, it actually helps them get back to work faster.”
While rebuilding that system would save money in the long-run, it requires an upfront investment and the recognition that the ageing of the workforce and the changing nature of unemployment may require a small increase in taxes on employers to finance the transition. The tax on employers for unemployment insurance in the U.S. is a third or less of what European firms pay, according to Wayne Vroman, an economist at the Urban Institute.
That may have been understandable when labour markets were flexible and expanding. U.S. workers historically faced shorter unemployment stints than their European counterparts.
But in this downturn, the average duration of unemployment rose from 20 weeks to 27 weeks and the share of people unemployed for six and 12 months are at historic highs. Moreover, only 11 per cent of workers are on “temporary” layoffs from firms where they expect to get called back, which is no different than before the recession. “The U.S. is now older and older people have longer unemployment durations,” said Vroman. “What we have now is a much larger group that is permanently unemployed.”
What we don’t have is an unemployment system to serve their or society’s needs – especially if we are going to expect them to be working long past the age that we used to consider time for retirement.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.