Unemployment insurance needs to be overhauled

Robert Kuttner

September 16, 1991|By Robert Kuttner

UNEMPLOYMENT compensation is fast becoming a mere relic of what was once a comprehensive system of social insurance. Recently, the Washington-based Center on Budget and Policy Priorities, using Labor Department figures, reported that an all-time record number of jobless people -- 334,000 -- exhausted their unemployment benefits this July.

In every previous postwar recession, Congress added temporary, emergency programs to extend benefits beyond the standard 26 RobertKuttnerweeks. This time, the Democratic Congress belatedly moved in early August to extend benefits up to an additional 20 weeks in states with high rates of unemployment.

But this extension would have busted last October's budget deal by $5.8 billion, and President Bush refused to certify that an economic emergency existed, which is necessary to override the budget ceiling. As a result, extended benefit legislation is now on the books, but there is no money to pay for it.

This latest wave of benefit exhaustion is part of a gradual erosion of unemployment insurance generally. During the Bush-Reagan years, benefits have been steadily cut back, to the point where only about one jobless person in four now gets benefits at all.

The Democrats, normally staunch defenders of the welfare state, are gun-shy about fighting for unemployment comp, on two grounds: First, Democratic leaders are still trying to live down the party's reputation as big spenders, forgetting that this brand of spending traditionally has enjoyed broad popular support.

Second, the Democrats keep being advised that they have to regain the trust of the middle class; unemployment benefits in this context seem suspiciously like handouts. But this premise overlooks the fact that you have to have a work history in order to collect unemployment compensation. Far from going to the "undeserving poor," the vast majority of unemployment benefits go to people who were part of the hard-working middle class -- until they were abruptly laid off in a recession.

Still, there is something about unemployment insurance that seems a throwback to the 1930s (when it first became a national program). The original theory of unemployment compensation presumed an economy largely made up of industrial workers.

In boom times, people would pay into an insurance fund. When downturns came and factories began laying off, unemployment comp would tide workers over until the next recovery came and the plant began hiring again. While there are still some people in this situation -- in auto, steel and textile plants and in construction work -- this no longer describes how most of the economy works.

In today's more dynamic economy, most people who get laid off do not end up returning to their old jobs. When industries "downsize," they tend to stay downsized. That helps explain why the old brand of unemployment comp has lost some of its political constituency; the model does not resonate with the way most people actually work and live.

To be sure, some remnant of unemployment insurance is necessary for industries such as construction which are genuinely seasonal or cyclical, and to tide people over while they look for new jobs. But the greater need, in the 1990s, is to redesign the entire system to reflect the actual needs of the modern economy and its workers.

One need is to target spending to facilitate the transitions that are so characteristic of the new economy. When an old job is lost, what the worker needs most is new marketable skills. Yet we still spend more money paying people not to work than we do paying them to learn new skills. That surely has it backward.

A second vital area of unmet need is school-to-work transition. Other nations have comprehensive apprenticeship programs, which give non-college educated young people practical skills, work experience, as well as a predictable career ladder. Promising counterparts initiated in the Carter years were killed by the Reagan administration.

Unemployment insurance should not be allowed to wither, but it should be overhauled and folded into a more ambitious general labor market system that would serve a broader public by making it easier for people to move from one field to another and continuously upgrade their skills throughout their working lives. Government would not pay the entire cost, but would share costs with private employers, as is done in several European nations.

Sadly, this vision is not coming to pass, because of a characteristic political gridlock. Republicans are skeptical of social insurance generally. They don't want to spend the money, and think the free market will do the job. Democrats support social insurance, but are on the defensive and seeking to preserve a program from another era that serves only a minority of workers.

Here is yet another area that cries out for political leadership. It is another indicator of how remote politics and government have ++ become from the lives of ordinary Americans, and both parties can share the blame.

Robert Kuttner writes on economic matters.

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