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A better way for jobless pay—A Commentary by Theodore R. Marmor and Jerry L. Mashaw

The following commentary was published in The Philadelphia Inquirer on July 30, 2008.

A better way for jobless pay
By Theodore R. Marmor and Jerry L. Mashaw

Unemployment is not only increasing in a weakened American economy, but many long-term unemployed face the ending of their unemployment insurance (UI) benefits.
Congress recently has provided the usual fix - authorization for states to extend benefits for an additional period. This legislative extension is helpful for those battered by the current slowdown. But it does not scratch the surface of the structural problems with the unemployment insurance program that has made it a hollow promise for many workers.

Consider the following state of affairs: Although most workers are nominally covered by unemployment insurance, only about 35 percent actually receive UI payments when unemployed. In some states that figure is less than 20 percent. Pennsylvania's rate is comparatively high at 47 percent, but still less than half the state's unemployed.

Unemployment insurance also provides only modest benefits - less than 50 percent of prior weekly wages in half of the states. Lower-wage workers are less likely to qualify for benefits than higher-wage workers.

The reasons for the broken promises of unemployment insurance are many. Chief among them is its poor initial design. Although portrayed as a federal program, it is instead a peculiar mix of state and federal rules.

Constitutional concerns and the resistance of Southern Democrats generated an odd statute in the 1930s: a federal tax on employers to finance unemployment insurance that would not be collected, if the employers' states adopted their own qualifying unemployment systems.

All states did so because the federal tax was set much higher than was needed to fund the system. We thus got national coverage without actually having a federally administered program. But the result has been a continuous race to the bottom.

States have limited their benefit levels and increased eligibility standards as they compete with one another to improve business climates. Beyond that, reducing unemployment insurance expenditures is often necessary to prop up state budgets which can't run a deficit.

The American economy and workforce have also changed dramatically since the 1950s, when a majority of laid-off workers received unemployment insurance benefits. An industrial economy providing relatively high-paying, long-term employment has shifted to a service economy creating not only many lower-wage but also relatively impermanent jobs.

Workers losing these jobs often fail to qualify for benefits because they didn't have high-enough earnings to meet state requirements.

Women, who generally bear the burden of child care and elder care, have entered the labor market in large numbers. But the part-time work or interrupted work histories that characterize the careers of many women workers also tend to disqualify them from unemployment insurance benefits. And in most states, including Pennsylvania, quitting for urgent personal reasons disqualifies a worker from receiving benefits.

There is more to the story, but the basic point is clear: Unemployment insurance in the United States is a seriously incomplete protection against involuntary unemployment, and its current structure inhibits reform.

Power and responsibility are divided and are distributed to different levels of government. While the federal government controls the money supply, immigration policy, and trade policy, the states are fiscally responsible for unemployment insurance.

And of the options that states have to improve local business prospects, providing lower UI taxes on employers by constraining unemployment benefits has prevented programs from responding to changes in the economy and in the workforce. Over the last half century, the unemployment insurance program has changed from a generally available protection against unemployment risks to a false promise for many workers.

As the presidential candidates make promises to American workers, willingness to vote for extended UI benefits will surely be a test of candidates' concern for working Americans and their families. But we should also ask the candidates whether they intend to try to do anything serious about the structural problems of an unemployment insurance program that helps many Americans, but disappoints almost as many as it assists.

E-mail Marmor, a professor emeritus at the Yale School of Management, at theodore.marmor@yale.edu. E-mail Mashaw, a professor at the Yale Law School, at jerry.mashaw@yale.edu.