Most state unemployment insurance systems have had to borrow money from the federal government to make benefit payments, were unprepared for burdens imposed by the sharp economic downturn that began in 2008, and need to be reformed to meet the needs of laid-off workers who are experiencing longer durations of unemployment.
Those were key messages from a recent forum on unemployment insurance sponsored by the Urban Institute in Washington, D.C. Several experts addressed major problems facing unemployment insurance and provided ideas for how to overhaul the system.
Pamela Loprest, director of the Income and Benefits Policy Center at the Urban Institute, moderated the forum.
Unique Unemployment System
Wayne Vroman, a senior fellow at the Center on Labor, Human Services, and Population at the Urban Institute, noted that 35 of 51 unemployment programs have accepted loans from the U.S. Treasury to make benefit payments. He argued that states with indexed taxable wage bases were more successful in surviving recessions without borrowing to stabilize their UI funds.
Vroman is working a paper comparing how unemployment insurance works in the United State versus other countries worldwide. The U.S. employment insurance is unique in many ways, he said.
First, the U.S. system is the only one that uses experience rating in determining insurance rates. Second, the U.S. is one of the few countries that does not have an employee contribution to the unemployment fund. Third, unlike the unemployment insurance system in most other countries, there is no national law for unemployment insurance in the U.S., with our system mix of state and federal laws.
Vroman suggested states index the taxable wage base for unemployment and increase the amount that employers pay into the unemployment fund. He also said the U.S. should include an employee contribution to unemployment insurance.
Strained by Extensions
Hal Bergan, a consultant and former administrator at the Wisconsin Unemployment Insurance Division, provided a perspective from someone who’s been on the front lines of the state unemployment offices and on the phones with people looking for help.
Bergan said many of the problems faced by the state unemployment programs were created by the last-second extensions of benefits by the federal government. The automated systems used by the states could not easily handle the increased demand for unemployment benefits. It took a great deal of time and effort to create both the staff and the IT capability to handle the increased workload.
One issue that needs to be addressed soon, Bergan said, is the optimal length of time for unemployment benefits. He argued that 99 weeks was too long and that more information is needed on why an individual is unemployed. He recommended surveying benefit recipients.
Bergan suggested combining the Emergency Unemployment Compensation and Extended Benefits programs, as they duplicate some services and could work more efficiently combined. He also favors an increase in the federal wage base for unemployment insurance and the implementation of a clear system of triggers for the different tiers of unemployment benefits.
Need for Core Principles
Matt Harvill, vice president for unemployment compensation at Kelly Services Incorporated, discussed unemployment insurance from an employer’s perspective. Kelly Services employs 550,000 temporary employees and unemployment compensation is their largest expense next to payroll, Harvill said.
He focused on the creation of a set of core principles for unemployment insurance. He said the different parties with an interest in unemployment insurance all come with a list of reforms, most of which do not get to the root of the problems as they often focus on a particular group of stakeholders.
Harvill argued to achieve real reform, the discussion needs to move away from stakeholders and toward stewardship. Harvill’s first core principle argues that the unemployment insurance system is a vital safety net for the involuntarily unemployed who are looking for work. This essential point must be considered at the heart of any reform.
Second, Harvill stressed that ensuring solvency of state unemployment funds should be the primary goal of any reform program.
Solvency will never be achieved by cutting benefits, Harvill argued, and tax increases will need to be part of the solution. He said employers are willing to consider solvency and taxes increases but want to know the taxes are well spent.
Sharper Focus on Reemployment
Rick McHugh, a senior staff attorney at the National Employment Law Project, said not enough funds are being provided to state unemployment agencies, and there is no appreciation at the federal level for the problems with the infrastructure of the U.S. unemployment insurance system. One of the biggest problems, McHugh said, is that no additional resources were given to states to fund the federal extensions.
More emphasis on reemployment is needed as well, said McHugh. He noted funding for reemployment programs has not been increased since the early 1980s. He saidd one of the most effective ways to help people move out of the unemployment program is one-on-one meetings with an employment expert. This helps people find jobs and brings costs down by moving recipients out of the system more quickly.
More cooperation between the private labor market and unemployment offices should also be a goal of any new reform, he said.
Matthew Glans joined the staff of The Heartland Institute in November 2007 as legislative specialist for insurance and finance.
