Forecasters who have been counting on the recession to melt away with the sunny news from the Persian Gulf got a rude surprise from the Labor Department last Friday. Unemployment reached 6.5 percent in February, the highest rate in four years and a sobering three-tenths of a percentage point higher than a month earlier.
The prospect of a slow recovery is likely to focus attention on a subject that almost everyone in Washington would like to ignore: unemployment benefits. For while there is wide agreement that the safety net for jobless workers has been weakened in the last decade, a fix would cost money.
States bear the primary responsibility for unemployment insurance, setting eligibility rules and compensation levels and then taxing employers to finance the first six months of each worker's jobless pay. Last year the states spent $17 billion on some 8 million claimants, with the average beneficiary taking home $154 a week for 13 weeks.
Once workers run through 26 weeks of ordinary benefits they become eligible for 13 weeks of extended benefits partly paid for by Washington, provided the insured jobless rate in their state exceeds 5 percent.
In truly hard times, Congress usually stretches eligibility for many more months. From 1982 through 1985, workers in the hardest-hit states received benefits for 55 weeks at a cumulative cost to Uncle Sam of $12 billion.
Six months of benefits . . . three months of extended benefits in high-unemployment states . . . an extra three or four months beyond that if job prospects turn extra grim. . . . Where's the problem?
Wayne Vroman, an economist at the Urban Institute in Washington, points out that the proportion of unemployed workers who collect benefits has fallen sharply since the 1970s. In part this reflects tougher state eligibility requirements, in part a shift in unemployment patterns toward states that discourage claims. But whatever the cause, the fact that roughly three unemployed workers in five slip through the net is disquieting.
Then there is the issue of the extended benefits. With a majority of unemployed workers ineligible for ordinary benefits or unwilling to claim them, it takes very high unemployment among those who do make claims to get federal financing to kick in.
Broadening basic coverage for workers who have lost their jobs in this recession would require state action. And with most states facing severe budget problems, the prospect of expensive reforms requiring higher taxes on employers seems remote.
Congress might lower the threshold for extended benefits, or use the more relevant total unemployment rate rather than the insured employment rate to determine eligibility.
It might extend coverage for everyone who exhausts state-financed benefits as long as the national unemployment rate remains high. Alternatively, it might stretch jobless benefits for those who are poor -- a fundamental departure for a program that has never had a means test. Or it might extend benefits solely for those who had held the same job for many years.
The catch, of course, is the cost. The simplest reform, 13 weeks of extended benefits for everyone receiving regular benefits, would add $5 billion to the federal budget next year.
Washington is deeply reluctant to make an end run around the budget accord by declaring a temporary economic emergency. And it is hard to imagine Congress financing jobless pay at the expense of entrenched interests.
Perhaps the least painful alternative is the one suggested by Isaac Shapiro and Robert Greenstein, analysts at the liberal Center on Budget and Policy Priorities in Washington. They point out that the federal unemployment insurance tax on employers now applies only to a worker's first $7,000 in income, a small fraction of the $53,400 Social Security tax base. If the unemployment insurance base were simply made equal to the Social Security base, the current tax rate (a not insignificant 0.8 percent) could be cut sharply, even as billions in revenue were raised to finance extended benefits.
None of this seems likely in the current political climate. But for every jobless worker there must be five who worry about pink slips and foreclosed mortgages. And it is a fair guess that the political climate will change if the recession lingers.