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As the House returns from its holiday break today, a key early task for it and the Senate is to agree on extending the payroll tax cut and federal unemployment insurance (UI) through the end of 2012. House negotiators may seek to include a provision the House passed in December, which would allow the federal government to authorize up to ten states each year to use UI funds for purposes other than paying benefits.
As we explain in a brief new paper, that would undermine UI’s fundamental purpose since its creation in the 1930s: providing “temporary, partial wage replacement as a matter of right to involuntarily unemployed individuals who have demonstrated a prior attachment to the labor force,” as a bipartisan, blue-ribbon commission put it more than a decade ago.
States already have considerable flexibility over the design of their UI programs. Federal law just lays out a few basic requirements, principally that states use UI funds only to pay UI benefits and not impose excessively burdensome “methods of administration” that block access for otherwise eligible individuals.
These requirements ensure that all states maintain programs that offer a basic level of protection to workers with a sufficient employment record who lose their jobs through no fault of their own. States are free to choose and adjust employer tax rates, benefit levels and duration, and eligibility criteria.
Letting states divert UI funds for other purposes would start the UI system down a slippery slope, even if those other purposes might benefit some unemployed workers, such as providing additional job training. Among other things, states could replace state or local funds now used for job training or other such purposes with diverted UI funds and then shift the withdrawn funds to other uses, including tax cuts. The net result could be a reduction in unemployment benefits with little or no offsetting increase in employment services.
Similarly, waiving the prohibition against excessively burdensome administrative obstacles would enable states to reduce UI benefit costs and tax rates by making it harder for eligible people to participate in the program — a less overt way to cut costs than shrinking benefit levels or the number of weeks of benefits.
Finally, the House provision could also allow states to impose new eligibility requirements not directly based on workers’ employment history, such as requiring UI recipients to have a high school diploma or GED.
Job training, adult education, and other such services are important, but they should complement UI benefits, not replace them. These programs are heavily oversubscribed in many areas and often have waiting lists; they have also been hit hard by state and federal funding cuts. If policymakers want to enable more unemployed workers to participate, they should invest in these programs to ensure they are effective and more widely available.