Big UI Idea #1: Using the Unemployment Insurance System to Subsidize Employment and Create Jobs
One of the persistent complaints about Congress during the Great Recession was that it did not do enough to create jobs. To be fair it was often the loudest complainers in the political realm who actually provided obstacles for government-sponsored job programs. Because the political opposition argued that only tax cuts and deregulation were necessary to cut jobs – and that public workers should be fired and social programs cut – there appeared to be little political appetite to expand government programs for job creation (as opposed to expanding funding of existing programs, which is largely what the American Recovery and Reinvestment Act of 2009 did – in addition to tax cuts). One area that could – indeed, should – be retooled for the needs of our current political economy is the unemployment insurance (UI) system. Rooted in a view of work and the economy from an industrial, mid-20th Century perspective, the UI system is still oriented as a system for temporary layoffs rather than permanent separations.
The unemployment insurance (UI) system was designed 75 years ago to deal with workforce separations in an industrial economy. In the current post-industrial economy, the needs of laid off workers are very different from their counterparts in, say, the 1950s. Layoffs today are largely permanent work separations. The workforce development system was likewise developed to fill a need in the industrial economy. It was primarily concerned with providing job training services to folks who were outside the labor force. It was not principally designed to retrain existing workers for new occupations. The workforce investment act (WIA) was created in the 1990s to better address this need, but funding levels and stronger decentralization have compromised the efforts.
The problem of long term unemployment associated with the Great Recession is now commonly acknowledged. UI federal extensions have been in place now for three years. All states already allow work and have some form of an earnings-disregards. Also, work sharing is in place in several states as a method of stabilizing employment through low demand times in specific firms. ARRA provided for additional WIA moneys for group training and reemployment services. Subsidized employment through TANF emergency funds have been utilized in places like San Francisco. The components of this proposal are already implemented in pieces in different places in the country.
The proposal is to use UI benefits to subsidize employment by (1) allowing work while collecting benefits, (2) establishing an “earnings-disregard” to at least 100%, (3) in situations where either (a) claimants (i.e., those persons collecting UI benefits) are enrolled in a program that links rapid response, group training, and reemployment services or (b) claimants are enrolled in a local make-work program. Budget crises have reduced or eliminated the provision of some public services in municipalities (like parks, libraries, and streetscape sanitation); a make-work project may be able to act as a bridge for both the provision of services and the employment needs of residents until local budget and employment situations improve.
(1) Allowing UI claimants to work while collecting benefits. Federal law allows states to permit claimants to work while collecting benefits. All states currently allow this, and should continue to do so.
(2) Raising the earnings-disregard to at least 100%. In the cases where states permit claimants to work while collecting benefits, there is an earnings-disregard that allows a portion of one’s earnings to be disregarded by the UI agency in determining the weekly benefit. This allows the claimant to keep some of the earnings from the job without losing his or her benefit. Actually, it works the other way around – the claimant keeps all of the income earned at the job. But the UI benefit is held harmless up to a certain amount of income after which the benefit is reduced. For example, in Massachusetts it works like this: One can earn up to one-third of one’s benefit without reducing that benefit. For every dollar over that one-third threshold, the benefit is reduced dollar-for-dollar until it hits zero.
So, if one were collecting a weekly benefit of $600, that person could earn up to $200 and still collect the $600 benefit. This makes the maximum total compensation that person could collect – while still collecting some UI benefit – to be $800. If that person earned $300 in a week, her benefit would be reduced to $500. She could make $801 or more, but by that time she would collect no UI benefit for that week. A 100% earnings-disregard would allow her to earn $600 per week with no reduction in her benefit. As a result, she could collect $1,200 per week between pay and benefit.
An earnings-disregard of more than 100% may be desirable in states where the maximum benefit is unusually low or where an individual claimant is collecting so little benefit compared to the pay scale of the job that the subsidy prevents rather than incentivizes a job hire. This is something to be considered state-by-state according to needs and capacity of each.
(3) The program should not, however, be allowed to simply subsidize work. A goal should be to provide short-term subsidies that eventually allow claimants to remain employed without the subsidy. So, the program should be nested in either an enhanced job training or reemployment program or in a local or state make-work program. This will allow not only provide supervision to prevent abuse, but will focus the effort on making sure that claimants get the training and experience they need to continue employment with the same or subsequent employer.
(a) Enhanced job training program: Components include focused case management and enrollment in a training program that is relevant to work being performed. Additional components might include a connection between rapid response to mass layoffs and working with groups of laid off workers on group training and reemployment services.
(b) Make-work program: Components include the creation of local programs by cities, counties, single-purpose governments, or non-profit organizations (such as a “friends of” type organization) that could place workers into jobs that address a needed public service. The programs would have to match the UI benefit with income, but that money could come from the state.
Supervision of either of these options – as well as maintenance of the limited duration of the subsidy – can be facilitated by states adopting the training benefits provision of the UI Modernization Act (which was included in ARRA as an option for the states) and link it directly with this program. As of 2010, fifteen states had some form of training benefits provision. In addition to providing a framework for supervision for the program, this provision would excuse the claimant from the job search requirement while participating in the approved training regimen (i.e., either the enhanced job training or make-work program).
This program would accomplish several goals. First, it would provide an incentive for employers to hire unemployed persons into jobs. It is now well-established in the media that many employers are refusing to hire unemployed persons. Second, it would provide an incentive for employers to hire positions that they are reticent to fill due to economic uncertainty. This program will allow employers to see the value these new workers provide them. Third, it would help unemployed claimants to gain job experience and skills training that many will need after long periods of unemployment. This will allow claimants to learn and maintain relevant job skills and experience for the current and future job market. Fourth, it would better approximate the full wage these claimants had before they were unemployed (while UI may represent 50% of lost wages, due to fairly low maximum benefit caps most claimants receive a benefit that is closer to 30% of lost wages). Fifth, if the state embarked on make-work projects the program would additionally create public services that are temporary or permanently lost due to the recession.
However, there are at least two areas of concern that must be addressed in crafting and implementing such a program: (1) the unintended consequence of providing incentives to layoff incumbent workers; (2) additional costs to the state unemployment compensation fund (and perhaps other state costs associated with enhanced job training or make-work projects).
(1) The state must demonstrate that the program is not undermining current employment and unnecessarily subsidizing employers. This is a bona fide challenge – the program should not be used to undercut existing employment or labor standards. This may be more difficult in practice than it sounds, but it is possible to put in place protocols that will prevent its abuse. One important way to do so is to have review processes that include representatives of organized labor.
(2) The way UI is structured, the employer who lays off is responsible for the costs of that worker’s UI benefit. The costs are pooled and socialized as this is an insurance system. However, those employers who cause more cost to the system are charged higher taxes (which in this case may be thought of as insurance premiums). Adopting a 100% earnings-disregard will increase the costs to the state’s unemployment compensation fund and thus to all employers (as costs are shared) and to specific employers (as charges – again, think “premiums” – are calculated). The actual costs of such a program would be determined by how big a program it is, but one way to fund this is to establish a modest charge to all UI covered workers. Except in a handful of states (3, I believe), workers do not pay into the unemployment compensation fund. I am hoping to discuss the pros and cons of this issue in a later post, but an average charge of one dollar per worker per month would raise a lot of money and could be earmarked to special job creation programs such as this one. It would be important to earmark the money (and it can be done legally, but it has to be done in a certain way) for these programs so that it does not simply become a way to subsidize employer premiums.
This is an outline of a program that can be implemented fairly quickly by a state to create new jobs for unemployed workers. The details would likely vary by state according to local needs, customs, and state law. But, every state can implement a program like this one – and do it quickly – if there is the political will to do it.
Published by this author at The Big Idea.