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Three Things Worth Remembering About Unemployment Insurance

February 23, 2012 at 1:00 PM

Despite the recent deal to extend emergency federal unemployment insurance (UI), the two parties hold very different views of unemployment insurance, as my blog post this week for US News & World Report notes.  I highlight three points to keep in mind in future UI debates:

  • UI is a safety net, not a hammock. House Budget Committee Chairman Paul Ryan has warned of “a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.”  Research, however, mostly supports the view that UI helps people through tough times rather than turning them into lazy slackers.
  • UI is a cost-effective way to increase demand in a weak economy. The Congressional Budget Office (CBO) recently said that “Slack demand for goods and services . . . is the primary reason for the persistently high levels of unemployment and long-term unemployment observed today.”  CBO also found (see Figure 4 of the study) that UI is the most cost-effective policy for boosting slack demand of the 13 policies that it examined.  Moreover, emergency federal UI programs add little to long-term deficits because they are temporary; policymakers have always let them expire once the unemployment rate has fallen significantly — though not until it is much lower than it is now (see chart).
  • Reforms should help the UI system meet its goals, not undermine it. As the bipartisan, blue-ribbon Norwood Commission stated in the 1990s, “The most important objective of the U.S. system of Unemployment Insurance is the provision of temporary, partial wage replacement as a matter of right to involuntarily unemployed individuals who have demonstrated a prior attachment to the labor force.”  The commission recommended several reforms that would strengthen the UI system while continuing to meet that primary purpose.  But some other recent “reform” proposals — to impose an education requirement on UI recipients and allow states to divert UI funds for other purposes, for example — would weaken the UI system.