Modernizing unemployment insurance for a 1980s economy

There's immediate help for out-of-work people collecting unemployment in the massive stimulus bill President Obama signed into law this afternoon: an extra $25 dollars a week, an exemption from income tax on the first $2,400 collected, a 65% subsidy for staying on your old employer's health insurance.

Then there is the part that looks to update the whole system by paying states $7 billion in incentives to do things like extend benefits to part-time workers and use a different calculation for figuring out if a worker is sufficiently "attached" to the labor market to receive benefits—a formula which should add a fair number of low-paid workers to the unemployment rolls.

Many states have made such updates over the past decade. The idea for bringing the rest in line is that the older way of determining eligibility doesn't reflect the realities of the contemporary job market. For instance, back in the 1930s, when unemployment insurance was being set up, we didn't have a whole lot of working mothers putting in 20 hours a week to make ends meet. Certain requirements a person has to meet in order to collect unemployment, like looking for full-time work (even if the job lost was part-time), no longer make sense. Outdated eligibility rules are part of the reason why more than half of all unemployed people don't collect unemployment insurance. (Though you can certainly argue that some aspects of the revamp go too far.)

This morning I was talking to Beth Shulman, who chairs the National Employment Law Project and is the senior work and economy analyst at the Russell Sage Foundation, thinking she'd be pretty happy about these changes. But she made the argument that we need to do even more—that the real trick will be moving from a system of unemployment insurance to one of re-employment insurance. She held up as examples the federal programs that help retrain workers who lose their jobs to foreign competition. The stimulus bill boosts funding for those initiatives, but Shulman thinks we need to have that sort of program for people laid off for other reasons, too.

Our conversation made me think of this research that a couple of New York Fed economists put out a few years back. It argues that the reason we've had "jobless recoveries" the past two recessions (1990-91 and 2001) is because when the jobs do come back, they're different ones, and it takes longer to sort that out. In the 1980s and earlier, the companies and industries that laid people off in downturns hired them back once the rebound came along. Now we're looking at recessions as times of secular change in the workforce. When the economy slows down, certain companies shrink—permanently.

Which is why retraining is so important. About half a dozen states give additional unemployment benefits to people who are retraining themselves for work in a new industry. That idea is in the stimulus law, too. Having a retraining program set up can help qualify a state for its slice of the $7 billion—but its not a hard-and-fast pre-condition. Even if it may have to be the future.

Barbara!