Unemployment benefits not reflecting today's reality

from Marketwatch

By Ruth Mantell,

WASHINGTON -- Too many out-of-work Americans are being left out of the unemployment insurance program, the government's safey net which replaces a portion of a worker's lost earnings, and critics say the program needs a comprehensive overhaul to meet contemporary workforce needs.

A myriad of problems are showing up in the government program: Low-wage earners - for a variety of reasons - are collecting unemployment benefits much less frequently than higher earning workers. Those who leave work to take care of sick loved ones often don't qualify for benefits. Part-time working mothers frequently find themselves ineligible for the program. And unemployed workers are having a harder time getting rehired and are exhausting their benefits.

Established in the middle of the Great Depression when most workers were men with full-time jobs, critics contend that the unemployment insurance program now is inadequate to meet the needs of today's workforce, which includes more women, and part-time workers.

Running out of financial support in the best of economic times is difficult. But in the case of a recession, slow hiring and greater competition for available job slots can make finding work even more difficult. In past recessions, Congress has extended the length of time allowed to receive federal unemployment benefits in response. Such an extension did not make it into the recently passed economic stimulus plan, to the chagrin of some analysts who say it's an easy and efficient move to boost the economy.

Monica Halas, an attorney with Greater Boston Legal Services who helps low-income clients appeal if they have been denied unemployment insurance benefits, said there's no shortage of people who need help.

Halas's low-income clients face an additional hurdle to gain benefits because of the minimum income requirement. Many states do not count the most recent earnings toward the minimum needed to qualify for the program. Earnings from the most recent quarter are excluded in many states because programs were designed years ago when there was cruder technology and a lack of access to the most recent data, according to the Center on Budget and Policy Priorities.

"For low-wage workers with sporadic work histories, this restriction can make it more difficult to achieve the earning level necessary for eligibility," according to the Government Accountability Office.

Some states are more flexible, enabling workers to receive benefits based on the most recent quarters worked, or even during partial quarters. Yet, nationally only about 37% of unemployed workers in June 2007 were receiving benefits, according to CBPP. In 2003, according to the GAO, 13.6% of unemployed low-wage workers received benefits, compared with 37.1% of higher wage earners.

Another major hole in the system is that many states don't recognize illness and disability as a compelling reason to leave work, preventing those who want to act as caregivers from collecting weekly unemployment checks, thereby ratcheting up the financial stress for families with an ill or disabled member.

Jared Bernstein, senior economist with the Economic Policy Institute, noted that some states have reformed eligibility guidelines, but that more should follow suit.
"We absolutely need a less porous safety net," Bernstein said. "Folks who are typically hardest hit by a recession have absolutely no wealth to fall back on."
Last year the House passed a bill that would modernize the unemployment insurance system by offering states incentive payments to cover more workers through steps such as including a worker's most recent wages to determine eligibility and allowing people looking only for part-time work to be eligible. There are also unemployment insurance reforms under consideration in the Senate.

More benefits needed for a longer period

Halas has noticed that clients are having a tougher time finding a job.
"We feel that it's disastrous that extended unemployment benefits are not included in the stimulus package," she said. "The stakes are really, really big for people because they don't have any other source of income."

Given rising prices for food and fuel, and declining home values, analysts say strapped consumers could use some support. Mark Zandi, chief economist of Moody's Economy.com, commented recently that extending unemployment insurance and expanding food stamps are the "most effective ways to prime the economy's pump."

"People who receive these benefits are very hard-pressed and will spend any financial aid they receive within a few weeks," he wrote. "These programs are also already operating, and a benefit increase can be quickly delivered to recipients."
A $1 increase in jobless benefits, Zandi wrote, generates an estimated $1.64 in near-term gross domestic product.

The National Employment Law Project has estimated that three million workers will run out of jobless benefits this year unless lawmakers extend benefits.

"It's unfortunate that Congress is delaying extending benefits because it undermines the stimulative effect of the program," said Maurice Emsellem, NELP's public policy director. He added that the administration's response "conspicuously ignores the severity of long-term unemployment today compared with prior recessions."

Labor market urgency

Trouble in the labor market is adding a sense of urgency to reform the unemployment insurance program.

Pointing toward a recession, grim government statistics recently showed the number of new jobs actually fell in February, with nonfarm payrolls tumbling by 63,000, the biggest monthly decline in almost four years. The unemployment rate dipped to 4.8% from 4.9%, but that was due to a 450,000 decline in the labor force, suggesting that those were discouraged workers who had given up the job hunt, according to some analysts.

Treasury Secretary Henry Paulson recently told lawmakers that it would be "unprecedented" to extend benefits at the current unemployment rate, and that it's never been extended when unemployment is below 5.7%. "And it would send a message to the world, which I think is the wrong message here," Paulson said.

Yet, data indicates that it's taking a long time for folks to find new jobs. In February, the average length of time people were out of work was 16.8 weeks, according to the Labor Department. Just prior to the recession that stretched between March and November 2001, the average length of unemployment was 12.8 weeks. And just before the recession beginning in 1990, the average weeks unemployed was 11.6.
"Many economists debate whether we're in a recession or on the verge of one," said Ken Goldstein, labor economist at the Conference Board. "What's important is that people are behaving as if a recession is already here."

Here's an even grimmer fact: Benefits typically run out after 26 weeks, and almost 18% of those unemployed in February had been out of work for more than that time period. That level is up from just under 12% in February 2001, the month prior to the beginning of the last recession.

The canary in the coal mine for Halas is that she is seeing more and more of her clients evicted.