Working Poor Need Jobless Benefit Change
Congress killed President Clinton's universal health-care plan in 1994. It passed a welfare-reform bill this year. Next year, Washington may tackle unemployment insurance.
"I hope and expect that when Congress meets again, it will consider some of the recommendations of the Advisory Council on Unemployment Compensation," says Janet Norwood, former chairman of that now-defunct body.
Mr. Clinton has commented on the need for changes in the program, which pays a portion of the wages of many individuals who have been laid off. Outgoing Secretary of Labor Robert Reich had an unemployment-insurance reform package on his agenda. But whether his yet-to-be-named successor will want to deal with the issue is unknown.
Mrs. Norwood, now at the Urban Institute, maintains that changing the UI system will become more important as this year's welfare reforms kick in. Many welfare mothers or others forced into going to work will have had little experience in the labor force. This will make them more vulnerable to being laid off. They may find work only at the minimum wage, or part time. This means, notes Norwood, that many may not qualify for UI benefits under regulations set by state governments. To her the system in many states is unfair, discriminating against those with low wages or working part time. The individual making $10 an hour is covered; the person earning the minimum wage at a fast-food restaurant is not. "You want to encourage the working poor," she says. "It's tremendously important with the devaluation of the welfare program."
About 2 million Americans a week have been filing this month for unemployment insurance (UI). On a seasonally adjusted basis of 2.4 million, that number is as low as it has been in this 5-1/2-year-old economic recovery. Altogether 6.6 million people are jobless, but only some of them have the work records that qualify them for unemployment benefits.
The UI program, a joint federal-state operation financed by taxes on employers, costs more than $20 billion a year. It is far less expensive than Medicare or welfare, but to the 10 million or so Americans who receive unemployment benefits each year, it is highly important.
The council, which issued reports in 1994, 1995, and early 1996 but was denied further funding by Congress last year, also would like states to provide benefits equal to at least half the wage paid by the previous employer. In some states, such as Louisiana and Missouri, benefits average 30 to 40 percent.
The 11-person body also suggested that states do more to build up state trust funds that are drawn down in a recession when unemployment increases and benefit costs rise. At present, several states, including North Carolina, Kansas, and New Mexico, have put so much money in their trust funds that some are considering lowering taxes. But most trust funds are inadequate.
One issue the Council decided not to make any recommendations on is what is termed "experience rating." The United States has a system unique among industrial countries in that it taxes industries and employers at higher rates if they frequently lay off workers. But according to research by economists Bruce Meyer and Dan Rosenbaum, both at Northwestern University in Evanston, Ill., the system needs improving: It does not take sufficient account of layoff patterns. The result is that firms in certain seasonal industries, such as agriculture, forestry and fishing, mining, construction, food, apparel, and transportation equipment get huge subsidies, in effect, from more stable industries. The retail trade, financial, insurance, real estate, services, and the public sector have relatively low rates of repeat layoffs.
The construction industry, says Professor Meyer, gets a subsidy of $1.2 billion a year. Manufacturers get $800 million a year.
Often companies in the performing arts, such as ballet or theater, will keep their crews working just long enough to qualify for unemployment insurance. Many such companies find UI more important to them than the National Endowment for the Arts.
Unemployment benefits enable firms in seasonal industries to keep a more qualified, faithful work force available than they might otherwise manage. But Meyer argues that taxing them more adequately would improve economic efficiency. The companies would work harder to find ways to keep workers on the job, or hire fewer workers. Prices might rise in sectors like construction or lumber. Prices in more stable industries would fall.