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Three Things Worth Remembering About Unemployment Insurance

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.