February 22, 2002
RELIEVING THE RECESSION
Nineteen Ways States Can Assist Low-Income Families During the Downturn
edited by John Springer and Heidi Goldberg
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Over the past year, millions of families have lost jobs, income, and health insurance as a result of the recession, which formally began in March 2001 and intensified as a result of the events of September 11.
- Unemployment rose from 3.9 percent to 5.8 percent between October 2000 and December 2001, an increase of 2.7 million people. The service industry, which employs a high percentage of low-income workers, has been particularly hard-hit by this downturn as compared to past recessions.
- In January 2002, the employment rate (a broad measure of labor demand) fell to its lowest level since the summer of 1994.
- Two million unemployed workers are likely to exhaust their regular weeks of unemployment insurance benefits in the first six months of 2002.
- The Kaiser Commission on Medicaid and the Uninsured has estimated that each 1 percent increase in unemployment increases the number of Americans who lack health insurance by about 1.2 million.
While some recent economic indicators suggest that the recession may have bottomed out, low-income families seeking employment are unlikely to feel the benefits of a recovery soon. Unemployment is generally a lagging indicator of economic health. The Economic Policy Institute predicts that overall unemployment during the current downturn will peak at the end of 2002 and that minorities and female heads-of-household will suffer the greatest job losses. And in the past three recessions, the unemployment rate did not return from its peak to pre-recession levels until about five years after the recession technically ended.
States can mitigate the recessions harsh effects on low-income families by re-examining the policies they have adopted for various low-income programs. These programs play two critical roles during an economic downturn: they provide relief to families whose income falls as a result of job loss or reduced work hours and help stabilize the states economy by bolstering spending among low-income families. Yet low-income programs can be effective in these roles only to the degree that they reach the families in need.
State policies restricting eligibility for low-income programs, which may be appropriate during an economic expansion, may become inappropriate during an economic downturn because they erect barriers to helping newly unemployed or underemployed families. For example, strict work requirements and time limits for welfare recipients make little sense if families are unable to find work because of high unemployment. Similarly, restrictive asset limits in public assistance programs can bar newly jobless families from needed benefits such as food stamps and health insurance because these families own a car they will need to find and retain a new job. Policies such as these should be re-examined and, in many cases, revised.
A recession also may create new opportunities and incentives to improve low-income policies. For example, the growth in public assistance caseloads during a recession (and the additional administrative burdens that result) increase the value to states as well as low-income families of simplifying these programs application and re-certification procedures. Also, state budget constraints may increase the attraction for states of taking greater advantage of federal funding sources for low-income assistance.
The Scope and Structure of This Report
This report considers an array of measures that states can adopt to meet the needs of families adversely affected by the economic downturn. It consists of 19 short policy briefs that are grouped into two categories:
- Program modifications designed to assist more low-income families harmed by the recession and to improve benefits for those already being assisted.
- Fiscal strategies designed to help states devote adequate resources to low-income programs while addressing budget shortfalls created by the recession.
Many states indeed face severe funding constraints: the National Governors Association estimates that state budget deficits for the current year already exceed $40 billion due to falling revenues and increased spending pressures. However, the initiatives outlined in this report have only modest costs and can be paid for at least partially with federal funds. (One of the programs discussed, food stamps, is wholly federally funded.) Funding issues are examined at the end of each policy brief; greater detail about various funding streams can be found in the Appendices.
This report does not present an exhaustive list of states options to assist low-income families during a recession. Nor would every proposal be suitable for every state. Instead, this report shows the range of measures that are open to states.
Because the reports format does not allow for an in-depth examination of the proposals, readers interested in learning more about them should consult the list of resources in Appendix I. Further information and technical assistance are available from the Center on Budget and Policy Priorities.
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