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off the charts

Obama Budget Modernizes Policies for Unemployed Workers

The President’s budget includes a very welcome suite of proposals to modernize assistance for workers who lose their jobs through no fault of their own.  The proposals recognize that today’s labor market is vastly different from the one for which unemployment insurance (UI) was designed in 1935 — when the typical job loser was a married male breadwinner laid off from a full-time job to which he could expect to return when business picked up.

These days many more job losers have little prospect of returning to their old job, which may no longer even exist.  The budget proposes federally funded “wage insurance,” administered through state UI programs, for experienced workers who’d been displaced from their jobs and took new jobs at lower pay.  To encourage and ease that transition, displaced workers taking a new job paying less than $50,000 would be eligible for payments equal to half their lost wages, up to $10,000 over two years.

Wage insurance would supplement, not replace, traditional UI, which provides bedrock financial support to help tide workers over a spell of unemployment.  But UI needs strengthening and modernizing.  Toward that end, the Obama budget would:

  • Expand coverage to more workers whose employers have paid UI taxes on their behalf but aren’t eligible for UI due to outdated requirements that exclude people such as part-time workers and those who left work for compelling family reasons, like caring for an ill family member.  While incentive funding in the 2009 Recovery Act encouraged many states to adopt some long-discussed modernization measures, the new proposal would make such measures the national standard.
  • Restore 26 weeks as the standard maximum duration for basic UI benefits by requiring all states to provide at least that many.  Nine states have cut their maximum below this longtime standard in the last several years (one has since restored it), even though long-term unemployment (27 weeks or more) was becoming more prevalent even before the Great Recession.
  • Create a more responsive Extended Benefits program to automatically provide more weeks of benefits to workers who exhaust their regular state benefits in states with high or rapidly rising unemployment.  Design flaws have prevented the existing program from responding rapidly and effectively in recessions, leading lawmakers to enact temporary UI extensions on an ad hoc basis.  The revamped program would provide as many as 52 weeks of benefits in states with very high unemployment.
  • Restore the solvency of state UI trust funds by ensuring that the taxes collected to fund UI are adequate to build up reserves in the UI trust funds in advance of economic downturns, and by penalizing states that don’t maintain a large enough trust fund reserve to provide benefits for at least six months of an average recession. 

The budget also includes grants and other incentives to expand work-sharing programs, in which companies avoid layoffs during economic downturns by instead modestly cutting back hours for a broader group of workers.  UI payments would supplement some of the resulting lost pay.  Results in other countries, where work-sharing substantially reduced layoffs and mitigated unemployment during the Great Recession, suggest that the United States would benefit from making it more widely available in the next recession.

Finally, the budget includes proposals to encourage retraining and provide career counseling to those struggling hardest to find a new job.

Whatever these proposals’ legislative prospects, the President deserves credit for recognizing that a 21st century labor market needs a 21st century UI system.