Helping the Jobless Helps Us All

The Central Role of Unemployment Insurance in America's Economic Recovery

SOURCE: iStockphoto

By Maurice Emsellem, Andrew Stettner, Lisa Donner, Alexandra Cawthorne | November 14, 2008

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Introduction and summary

The first line of defense in a recession for workers and their families is our nation’s unemployment insurance program. The anticipated severity of the economic downturn now facing employers and employees alike will test the UI program after years of federal neglect. The federal government’s ability to boost the economy and support jobless families, as intended when the program was created during the Great Depression, will depend largely on the decisions of Congress later this month and the new Congress and President-elect Obama. The new national leadership will have an opportunity to implement necessary reforms and build on the best of what’s working in the states to create a strong and vibrant unemployment insurance system.

Immediate action and fundamental reform are needed if the unemployment insurance system is to work as intended. This report will detail the critical role that the unemployment insurance program can and should play in helping our country cope with a likely deep and prolonged recession. An unemployment rate of 6.5 percent in October, a 14-year high, means that more people are collecting unemployment benefits than at any time in the past 25 years, yet economists estimate unemployment could rise to eight percent or more in the coming year. This is sure to strain the unemployment insurance program as never before.

The challenges facing the program are many, but two top priorities for reform would significantly boost the economy in those communities hardest hit by layoffs while also investing in a 21st-century economic security system. First, the current Congress and President Bush should significantly expand the limited extension of jobless benefits passed in June. According to the latest estimates prepared for this report, if no action is taken by the end of this year, 1.16 million workers will exhaust all their federal benefits before they are able to find new work. By June 2009, when the current program expires, 2.12 million struggling U.S. workers will have run out of their federal jobless benefits.

Second, Congress and President Bush should enact the Unemployment Insurance Modernization Act—the House of Representatives has already passed the bill—but if this is not accomplished this year, then the new Congress and the incoming Obama administration should do so as soon as possible. The reason: Under current law only an average of 37 percent of unemployed workers actually collect benefits at all, with low-wage, part-time, and female workers particularly harmed by outdated state eligibility rules. Passage of the Unemployment Insurance Modernization Act would provide $7 billion in incentive funding for states to cover more than 500,000 workers who now fall through the cracks of the unemployment program and to support those states already doing a better job with coverage. Also, significantly, the measure provides all states with $500 million to address the administrative demands of properly serving the growing number of workers applying for and collecting unemployment benefits.

Download the full report (pdf)