From the New York Times:
The nation’s unemployment insurance system, which has hardly changed since its inception in 1935, should be revamped to aid more workers displaced by a transforming economy, economists said this week as they released overhaul proposals.
Currently, because of tight state eligibility requirements and because a growing number of workers do not have long-term, full-time jobs, unemployment insurance is paid to just over a third of those who are laid off, government data show, and coverage is less likely among the lower-income workers who most need it.
“The nation’s unemployment insurance program is seriously out of date, given the changes over the last 70 years in the U.S. labor market,” said Lori G. Kletzer, an economist at the University of California, Santa Cruz. Dr. Kletzer and Howard Rosen of the Institute for International Economics in Washington are the authors of one of two proposals for revamping the system that were released on Tuesday by the Brookings Institution in Washington.
The system was intended to provide workers with half their former wages during temporary periods between jobs, though it seldom reaches that level today. In 2004, some 8.8 million workers who qualified received an average weekly benefit of $262, often for up to 26 weeks, though benefits varied by state. The costs, which totaled $41 billion that year, are paid by federal and state payroll taxes paid mainly by employers.
Benefits are seldom available to the self-employed, to those working intermittently or to many of the lowest-paid workers.
At the same time, Dr. Kletzer and Dr. Rosen said, the nature of unemployment is changing. In the last six years, despite lower overall rates of unemployment, the average period of joblessness for laid-off workers was 16 weeks, compared with 12 weeks in the 1970’s.
Because of globalization and changes in the economic structure, more workers are forced to change industries and a significant minority take jobs paying less than before, indicating a trend “from temporary layoff to permanent displacement,” according to the paper by Dr. Kletzer and Dr. Rosen.
They propose stronger federal guidelines to end the wide disparities in eligibility and benefit rules among the states and to extend coverage to a broader group of workers.
They call for a new system of personal accounts for self-employed workers, allowing them to contribute pretax money, with matching grants from the federal government up to $200 a year, to help cushion income drops or pay for job training and searches.
They also propose a wage insurance program to help offset declines in income for a period of years when workers switch to jobs paying less than they had been making. This would apply only to workers making $15 an hour or less.
To help pay some $13 billion in added costs for these programs, Dr. Kletzer and Dr. Rosen suggest raising the federal unemployment tax, which for 22 years has been levied on only the first $7,000 of each worker’s income. After tax credits are counted, employers now pay a maximum of $56 a year for each covered worker, the scholars said.
In the second paper, Jeffrey R. Kling, an economist at the Brookings Institution, proposed a more radical overhaul. Dr. Kling would scrap the existing unemployment insurance system and replace it with personal accounts and loans to help people through short-term joblessness and a large program of wage-loss insurance to help low- and moderate-income workers when they are forced to take new jobs at lower salaries.
By curbing government payments to those who experience only short-term joblessness, he said, this new plan could operate with the same total money as the current system but would provide more help to the neediest.