Modernizing Unemployment Insurance As Part Of The New Social Compact

As progressive thinkers and prudent business leaders increasingly recognize the need to strengthen the basic safety net and social contract, it is important that no one forgets the importance of including in that effort the need to modernize and expand our unemployment insurance (UI) and re-employment system.

Rising income instability, technological disruption, and the changing nature of work only furthers my belief that our nation must highly prioritize devising a universal, well-funded, and comprehensive re-employment system for all workers looking to move back into, or move up in, our labor market. Yet, while bold thinking on a new re-employment system should be encouraged, our current UI system is too vital to our economy and millions of workers to not take every practical step we can now to modernize and expand our UI system – and in doing so, gather more learning and evidence about what might come next.  Fortunately, a thoughtful and comprehensive report on modernizing our existing UI system was recently released by the Center for American Progress, Georgetown Law’s Center on Poverty and Inequality, and the National Employment Law Project. The joint report is entitled, “Strengthening Unemployment Protections in America: Modernizing Unemployment Insurance and Establishing a Jobseeker’s Allowance ,” and is authored by Rachel West, Indivar Dutta-Gupta, Kali Grant, Melissa Boteach, Claire McKenna and Judy Conti.

UI plays three critical roles: 1) as an automatic macroeconomic stabilizer; 2) as vital income security and a safety net for people at a time when job loss can be more unpredictable than the past; and 3) as the helping hand to assist the unemployed in taking the next step in finding a path to re-employment and new careers. The CAP/Georgetown/NELP report details how UI currently serves these goals, as well as the large gaps that must be strengthened going forward.

First consider UI’s macroeconomic impact. As the report notes, according to one in-depth study , UI benefits reduced the shortfall in real GDP by 18.3 percent from 2008 to 2010. Other research has shown that UI saved 2 million jobs during the recession. And as the nonpartisan Congressional Budget Office noted in 2010 , unemployment insurance has among “the largest effects on output and employment per dollar of budgetary cost.” Yet, UI’s ability to stabilize the economy has been weakened in recent years by policy decisions, including state cutbacks and erosion of reserves to pay benefits, leaving the system less resilient when the next downturn hits.

Given this, and other evidence, the CAP/Georgetown/NELP report rightly makes the case that expanding UI is crucial for it to fulfill its automatic stabilizer role, especially looking forward to any future downturn in the business cycle. Thus, we need to make emergency extensions of UI beyond 26 weeks, during major hits to the labor market, a built-in part of a newly reformed UI program. While I am proud of the success of the Obama budget team in getting emergency UI extended, against all odds, for three additional years from 2011 to 2013 as well as expansions of UI work-sharing and self-employment options – the program was still terminated too early, and it should never have taken dramatic budget negotiations just to get emergency extensions of an automatic stabilizer with such proven macroeconomic impacts.

With respect to UI’s role as a safety net, the paper summarizes key data from recent research. A new National Bureau of Economics Research paper found that UI helped 1.4 million people keep their homes and avoid foreclosure, while other studies have found that UI lifted 5 million out of poverty in 2009 and kept 2.7 million Americans above the poverty line in 2012.

Yet, this crucial part of our safety net has gaping holes due in part to the fact that our current system is still wedded to an old-fashioned assumption that unemployment means waiting for a temporary downturn to subside and then returning to your old job. Now, unemployment often means finding new jobs and even new careers with the need for new credentials and skills, and frequently requiring a move to a different part of the country. Combined with the strict qualifications to verify past employment, the system each year leaves out more and more of the workers in our economy in need of new employment. The report shows that while two in three American households will experience unemployment during their working years, only one in four jobless workers today receive any unemployment benefits.

Among workers left behind are many low-income workers who can’t meet UI’s work history requirements; the long-term unemployed whose benefits have expired; young people on the fringes who have sought, but failed, to establish a firm attachment to the labor market; and those returning to the labor market after a caregiving responsibility. Moreover, our system leaves out not only the on-demand workers who get increasing attention, but also many workers who were never covered long before anyone had heard of Uber — such as: contract construction and janitorial workers, self-employed women working from their homes or working part-time in order to care for their families, and others many have called the “1099 economy.” Existing eligibility requirements for UI do not fit the needs of our full labor market now, and recent trends will only make it worse in the future as our labor market continues to shift.

Finally, our failure in this country to help people match to jobs goes way beyond the UI system, and solutions must go beyond UI. Nonetheless, UI has great potential as a vehicle to connect the unemployed to critical re-employment services. When fully-funded, re-employment services provided through the UI system can help the unemployed start the job search, get targeted help, receive encouragement to keep going and not spiral into isolation and depression, and even save money for the government. Disappointingly, most Americans have little idea of where to go to get individualized job matching assistance — something we tried to improve in the Obama Administration by re-branding all government re-employment centers as American Jobs Centers.

While no one doubts there is lots of room to more effectively and consistently design and implement existing re-employment services, the report cites a 2010 NBER review of 97 evaluation studies that finds positive impacts of job search assistance. One study of Nevada’s efforts to combine early re-employment eligibility assessments with individualized assistance found the interventions saved $877 per participant by quickening their job finding efforts — literally paying for itself. In addition, the study provided further evidence that this type of intervention program has the potential to expedite participants’ ability to obtain employment and improve participant employment rates and earnings.

But even with stronger and more effective re-employment services, these services will have limited impacts if they remain so significantly underfunded. As the CAP/Georgetown/NELP report notes, “total [re-employment services] funding per participant was just $46 in 2014, which is too low to provide the individualized attention many jobseekers need. On average, each year only slightly more than half of UI claimants receive at least one staff-assisted service through [re-employment services].” We need enough funding to expand what is working, continue new well-evaluated pilots, and ultimately ensure enough funding so that every person on UI can effectively take advantage of essential re-employment services.

So where do we go from here? In the long run, we need to move toward a universal re-employment system with a single, easily-identifiable system with the funding to provide those in need of new employment the early assessments, job-search assistance, support for achieving new skills and credentials as well as income support for those who require long-term training — something now offered only through Trade Adjustment Assistance.

This universal system must also work proactively with employers to develop widely-accepted credentials while effectively matching companies looking for workers with specific skills with unemployed workers who fit that description, providing support for hiring and on-the-job training where justified.  Our country is going to have to realize that the national imperative of increasing job matching: connecting people who need jobs with those who have job openings offering real assistance in understanding and achieving the necessary skills and credentials. We’ve made such large strides in the way we match people romantically – more than a third of relationships now start online – and we need to equal this success when it comes to job matching.

While, at some point, creating a universal re-employment system may call for a major overhaul of existing programs, the report recommendations show there is substantial progress that can be made towards that broader vision by smart and thoughtful modernizations and expansions of the current UI system. Many of the recommended reforms could provide the lessons and evidence that could help build support for a bolder overhaul.

While people will differ on details and the means of financing, the recommendations of the CAP/Georgetown/NELP report certainly deserve serious consideration, including:

• Expanding UI eligibility requirements to capture a new generation of workers and old job categories that were never adequately covered;

• Providing a “Job Seeker Allowance” to those who have exhausted traditional UI benefits, who are self-employed, are independent contractors, or have no recent work history;

• Ensuring that the macro-economic and safety-net benefits of UI are fully realized through greater resources and standards for state UI systems; and

• Significantly expanding resources for modernized re-employment services with more innovation for job opportunities for UI recipients, including: entrepreneurship, work sharing/subsidized employment, apprenticeships, and national service.

Millions of lives are affected by the quality and availability of UI — and even more will be affected when the business cycle lands us in the next recession. The timing could not be more critical for us to examine reforms to our re-employment system, within the confines of UI, in order to expand protections and reemployment services and to gather evidence for broader reforms. For those who, like me, have argued we need a stronger economic compact and safety net through universal re-employment services and expanded retirement savings , as well as those who thoughtfully searching for more expanded portable benefit structures (from union leader and venture capitalist Rolf and Hanauer to Senators Warner and Warren ), this valuable and comprehensive report serves as a strong reminder that UI modernization must be a critical component of any effort to strengthen our re-employment and social compact efforts going forward.