Fix Unemployment System, Don’t Break It   by Mike Hall, Sep 19, 2006

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The nation’s unemployment insurance (UI) safety net system could use some major improvements. Eligibility should be expanded so more laid-off workers can qualify for benefits. And the weekly benefits, which vary widely by state and average a little more than $260 a week, should be increased. No surprise: The Bush administration has opposed both proposals.

Now come two recent “think-tank” papers offering a pair of changes that masquerade as improvements but actually could make workers pay for their own UI benefits and take low-paying Wal-Mart and McDonald’s jobs.

Both those ideas—individual UI accounts and so-called “wage insurance”—mirror proposals by the Bush administration and the conservative Heritage Foundation.

In a paper prepared for a think tank called the Hamilton Project, founded by investment banker Robert Rubin of Citigroup, economist Jeffrey R. Kling calls for shifting the burden of financing UI benefits from employers to workers by requiring workers to fund individual accounts through a payroll deduction. Currently state and federal employer payroll taxes finance the UI programs.

According to Kling, workers also could voluntarily make even higher payments into these accounts, invest in stocks and bonds and keep any remaining balance when they retire. But if they use up the money in their accounts when they’re unemployed, they would have to borrow any additional money against their future income to make up the difference. If this sounds a lot like privatized Social Security accounts and Bush’s plan for workers to fund their own private health savings accounts, that’s because it is.

Kling touts individual UI accounts because workers would be less likely to use jobless assistance if they have to pay it out of their own savings account, especially if they have to borrow money when their account runs dry. The great thing about that, supposedly, is that it would encourage workers to jump at the first job opening available, even if it’s in an unrelated field.

The flip side, though, is that this financial pressure could force skilled workers, such as nurses or electricians, to settle for flipping burgers instead of searching for work for which they are trained and qualified. Or it might discourage them from getting the training they need to qualify for a good-paying job with decent benefits.

That might be good for the owners of McDonald’s and Wal-Mart, but it’s not necessarily good for workers. So it’s no surprise that this idea comes from the conservative Heritage Foundation and the Bush administration. What’s really surprising is that this radical, conservative idea is now being pitched to Democrats.

While Kling proposes private UI accounts for all workers, economists Lori G. Kletzer and Howard F. Rosen in another Hamilton Project paper, offer up the idea as a voluntary option for the self-employed. But all three propose a so-called “wage insurance” program, which UI experts also say could force jobless workers into taking low-wage jobs while displacing workers who otherwise would fill them.

Kling’s wage insurance scheme works like this: Money from the current UI system would be diverted to subsidies for jobless workers who agree to take low-paying jobs at, say, Wal-Mart. The subsidy would make up part of the difference between what they might earn at Wal-Mart and what they made in their previous jobs.

At first glance, that might sound like more money for workers. But look carefully at the fine print. This is money that would be taken away from the current UI system. In other words, in order to receive benefits from the current UI trust funds, jobless workers would now have to take lower-paying jobs.

Like individual accounts, the wage insurance program also would discourage workers from using publicly funded training programs for improving their skills or gaining new ones—not to mention subsidizing low-wage employers and providing them with a pool of coerced workers. So, again, it’s no surprise that the Bush administration has proposed using the UI trust funds to pay for wage insurance or that the conservative Heritage Foundation has proposed replacing the current assistance program for trade-impacted jobless workers with wage insurance.

Both private accounts and wage insurance programs would force workers to take jobs they otherwise wouldn’t want because those jobs would mean downward economic mobility. The AFL-CIO and other worker advocates say the nation’s UI system should not be turned into a government-backed program to promote downward mobility.

Instead, they say, the focus of the UI system should be on creating and maintaining good jobs with good wages and benefits, matching qualified workers with those jobs and helping workers qualify for good jobs through training and education assistance.

For more information, visit the AFL-CIO’s unemployment website, which includes links to an unemployment checklist, the AFL-CIO booklet When the Paycheck Stops, a layoff survival kit for union leaders and more information and resources.

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