|
More than two million Americans have lost their jobs during the current slowdown of our economy. The percent of the unemployed who have remained jobless for
more than six months has risen, and is likely to continue to increase. While the recession officially ended many months ago, business spending remains depressed and few firms plan to increase hiring. State and local
governments are reeling from an unprecedented fiscal crisis that is forcing them to lay-off workers and increase taxes at precisely the wrong time (Wray, 2002). And American consumers are starting to feel the burden
of mountains of debt run-up during the 1990s. It is only a matter of time before consumption runs out of steam, the economy double-dips back into recession, and job loss accelerates.
Provisions of HB 2881
It is in this context that we examine the provisions of HB 2281 introduced by Representative Dale Swenson. This bill would increase the maximum weekly benefit to 100% of the statewide
average weekly wage (up from 66%), repeal the waiting week, add a $30 weekly dependent’s allowance, change the base period, repeal the offset of Unemployment Insurance (UI) benefits when Social Security retirement
benefits are received, and provide that domestic violence and sexual harassment are justified causes for leaving a job. We will describe the major economic benefits that would result from these provisions.
This bill would significantly reduce the loss of income that results from qualifying unemployment by increasing maximum
benefits, repealing the waiting period, and adding a dependent allowance. The median weekly wage in Kansas is $575. When a worker loses her job, that $575 is lost from the economy. Actually, the loss is likely to be
larger, because other business spending associated with employing her will fall. While it is true that Kansas will not bear the full brunt of this loss of income and spending (since much of the spending would have
gone to purchase products made outside the state), it must be recognized that job loss is occurring throughout the nation, lowering demand for products made in Kansas. As the newly unemployed worker and her employer
cut back their spending, sales, employment, and income fall further in a vicious cycle. Fortunately, a number of private and public sources kick-in to break this cycle. The unemployed worker might receive benefits
from her employer or union. She may be able to draw-down savings and liquidate wealth. Perhaps relatives can provide relief. And, if her employment qualified, she may be able to collect UI benefits. Together, these
resources prevent the job loss from reducing income and spending by the full amount of the lost wages.
UI = Economic Stimulus
Estimates show that the UI program alone provides significant relief to the newly unemployed and that it accounts for a large and important countercyclical force to prevent job losses
from snowballing. Careful study by Corson, et al. (1999) found that during the recession of the early 1990s, without UI benefits, over 70% of UI recipients would have fallen into poverty. Other studies find that
without UI benefits, workers would spend 22% less on food and 23% less on rents and mortgages, and more of them would be forced to sell homes and go further into debt. Chimerine, et al. (1999) has shown that UI
saved an average of 131,000 jobs during each of the previous five recessions, and the drop of GDP was reduced by 15% in each downturn. There can be little doubt that UI reduces suffering and helps to dampen economic
fluctuation—preventing recessions from deteriorating into something much worse.
HB 2281 will increase the amount of income restored by UI by raising benefits and reducing the waiting period. Gruber (2001) has shown that the average worker only had sufficient
financial assets to cover an average of 5.4 weeks of unemployment. It makes no sense to force a worker to use up nearly one-fifth of her resources waiting for UI benefits to start. Hence, we support the provisions
of HB 2281 that would eliminate the waiting period. Raising benefits, especially for those households with dependents, will help to alleviate pressures on families, and will help to maintain demand and thereby limit
the spread of job losses.
HB 2281 would allow payment of UI benefits if a worker is forced from her job due to domestic violence or sexual harassment. No worker should have to choose to remain in an abusive
condition simply because she could not qualify for benefits if she left her job. Another important provision concerns the receipt of Social Security retirement benefits.
Over the past decade, our nation has successfully reduced the barriers to working that used to keep those of retirement age out of the workforce. In the long run, one of the best ways to reduce the burden of caring for our aging population is to encourage healthy seniors to continue to work. As such, we support recent changes that have allowed many Social Security retirees to work without reducing their Social Security benefits. HB 2281 would continue to reduce barriers to participation in the labor force by allowing Social Security retirees to collect UI benefits should they lose their jobs—without facing a reduction of UI benefits as an offset to Social Security benefits.
Benefits to Labor Market Flexibility
The final point we want to make about the UI program concerns the contribution it makes to maintaining and enhancing labor market flexibility. From the perspective of employers, many
features of the UI program provide for greater flexibility. Many states allow employers to retain workers while cutting back hours when sales are slack, with UI benefits compensating for some of the lost wages. This
reduces costly turnover and helps preserve labor skills. UI also helps to keep workers attached to the labor force when they lose their jobs (or face reduced hours of work). The UI program makes it easier for
employers to put workers on temporary lay-off as necessary to adjust to market conditions. Since the pioneering work of Larry Summers and others in the early 1980s, we have known that most workers who lose their
jobs do not show up in official unemployment statistics (Wray and Pigeon, 2000). Rather, they leave the labor force. UI benefits as well as the program requirements that encourage job search help to keep job losers
in the labor force. When market conditions improve, it is easier for firms to locate good employees from among the pool of job seekers. Further, the UI benefits received by unemployed workers allow them to look for
good job matches, rather than being forced out of economic necessity to take unsuitable jobs. All of these considerations lead to the conclusion that the UI program actually increases labor market efficiency.
The improvements to UI embodied in HB 2281 will enhance the program’s ability to prevent severe economic deprivation that can result from job loss. The provisions will also improve
equity and reduce disincentives to work currently experienced by retirees. And the increased benefits will reduce the negative impacts that job loss has on our local communities. Thus, HB 2281 is an important first
step in helping to put our nation back on track toward renewed long-term economic growth.
Before concluding, let us indicate some additional concerns we have. By its very nature, the UI program is limited in its scope and in its ability to solve the unemployment problem. UI
benefits must be temporary and must be kept modest in order to avoid undesirable disincentive effects on working. If generous and permanent UI benefits were offered to all workers, too many would avoid serious
search for employment. At the same time, many workers see their UI benefits expire before they find a job even if they do look hard to find one—especially in an economic downturn. And because UI benefits cannot
fully substitute for lost wages, aggregate demand, sales, income, and employment fall whenever jobs are lost. For these reasons, UI is only a partial solution.
Need to Rethink the Unemployment Problem
Our nation needs to rethink its approach to the unemployment problem. We are committed to developing a solution to unemployment that does not have the undesirable features of
compensation for unemployment alone. First, it is important to recognize the value of work. Any general and permanent solution must emphasize payment for working over payment for unemployment. It must recognize that
when unemployment rises in the nation as a whole, the problem is a general lack of jobs—not a problem of inadequate job search, low levels of education or training, excessive wage demands, or inadequate incentives.
It must accept that business cycles are a normal feature of our economy and that the private sector, alone, cannot provide exactly the right supply of jobs all through thick and thin market conditions. When ten dogs
are sent out to find nine bones, it is certain that at least one dog will come home boneless. No amount of punishment, training, or motivational seminars will improve the result—the only solution is to ensure there
are at least ten bones for every ten dogs. When the economy loses two million jobs in a matter of a few months, it does no good to tell job seekers
to be more diligent in their search unless we restore those lost jobs.
Unemployment is costly and wasteful, both for the individual and for the society as a whole (Forstater, 2002). Unemployment insurance helps to reduce the cost and might even alleviate
some of the waste. But employment is the real solution. We would be happy to meet with you to work toward a proposal that would ensure that the supply of jobs equaled the number of job seekers (Wray, 1998; 2000).
With such an employment program in place, UI could focus on meeting the need for a temporary safety net. We have been working out the details of such a program for the past eight years, and would like to share our
ideas with you, at your convenience.
|
|
Notes on Sources
Chimerine, Lawrence, Theodore Black, and Lester Coffey (1999) “Unemployment Insurance as an Automatic Stabilizer: Evidence of Effectiveness Over Three Decades,” Unemployment
Insurance Occasional Paper 99-8, U.S. Department of Labor, July.
Corson, Walter, Karen Needels, and Walter Nicholson (1999) “Emergency Unemployment Compensation: The 1990’s Experience,” Unemployment Insurance Occasional Paper 99-4, U.S. Department of
Labor.
Forstater, Mathew (2002) “Unemployment,” C-FEPS Working Paper No. 20, Kansas City, MO: Center for Full Employment and Price Stability, University of Missouri—Kansas City,
February.
Gruber, Jonathan (1997) “The Consumption Smoothing Benefits of Unemployment Insurance,” American Economic Review, Vol. 87, no. 1 (March), pp. 192-205.
Gruber, Jonathan (1998) “Unemployment Insurance, Consumption Smoothing, and Private Insurance: Evidence from the PSID and CEX,” Research in Employment Policy, 1, pp. 3-32.
Gruber, Jonathan (2001) “The Wealth of the Unemployed,” Industrial and Labor Relations Review, Vol. 55, no. 1 (October), pp. 79-94.
Wray, L. Randall (1998) Understanding Modern Money: The Key to Full Employment and Price Stability, Cheltenham, U. K.: Edward Elgar Publishing.
Wray, L. Randall (2000) “The Employer of Last Resort Approach to Full Employment,” C-FEPS Working Paper No. 9, Kansas City, MO: Center for Full Employment and Price Stability,
University of Missouri—Kansas City, July.
Wray, L. Randall (2002) “The Perfect Fiscal Storm,” C-FEPS Policy Note 02/05, Kansas City, MO: Center for Full Employment and Price Stability, University of Missouri—Kansas City.
Wray, L. Randall and Marc-Andre Pigeon (2000) “Can a Rising Tide Lift All Boats? Evidence from the Clinton-Era Expansion,” Journal of Economic Issues, Vol. 34, No. 4, pp. 811-845.
|
