Unemployment Insurance
and Employment Training

Unemployment Insurance

The unemployment insurance (UI) system has been alternately neglected and subject to attack for many years. State legislatures, often more concerned with cutting employers’ state UI taxes than in meeting the needs of laid-off workers, have failed to improve their state systems. On the federal level, the Bush administration and congressional Republican leaders have backed efforts to diminish or eliminate the federal role in the program. Recently, even some of our Democratic allies have called for replacing the UI system with a dangerous “wage insurance” proposal.

The UI system is a joint federal-state system. Payroll taxes paid into state unemployment funds are used to pay unemployment benefits to laid-off workers. Payroll taxes are also paid into a federal UI trust fund and this money is used to pay extended benefits (EB) in times of recession and to make loans to states when they run out of funds to pay benefits.

For decades after the creation of the UI system as part of the Social Security Act of 1935, the federal government required all states to meet certain minimum unemployment benefit and eligibility criteria. But during Republican administrations these requirements were weakened so much that there is no longer much of a “federal floor” left. The result has been an uneven patchwork of state UI programs, some fairly reasonable and many woefully inadequate. This, in turn, has led states to compete to be more “business friendly” by cutting rather than improving their UI programs.

The UI system has been in need of modernization for many years. Since the early 1980s, fewer than 40 percent of jobless workers have actually collected unemployment benefits and their benefits have replaced only about one-third of their lost income. Many low-wage workers, disproportionately women and people of color, have been unable to collect UI because many states still use an antiquated system that does not count their most recent earnings. And many workers who are otherwise eligible for UI – mostly women – are disqualified because they are seeking part-time, not full-time, employment.

To correct these and other deficiencies in the UI system, Sen. Edward Kennedy, (D-Mass.) and Rep. Jim McDermott, (D-Wash.) introduced the Unemployment Insurance Modernization Act (S. 1871, H.R. 2233). While not identical, both bills would use federal UI funds to provide incentives for states to make their unemployment programs more worker-friendly.

Under this UI modernization legislation, all states would receive an immediate infusion of federal funds for the administration of their UI programs. States would receive one-third of the incentive money if they currently use or in the next five years move to an “alternative base period” method of determining eligibility that would count the most recent earnings of low-wage and other workers. States would receive the other two-thirds of the incentive money if they currently have or adopt within the next five years one of several worker-friendly provisions, such as: permitting workers seeking part-time work to receive UI; providing UI to spouses who are forced to quit because of a spouse’s relocation; or providing UI to workers who are forced to quit to take care of a seriously ill or incapacitated family member.

With the support of the UAW and other unions, this UI modernization legislation was included in a broader legislative package to reform and expand the trade adjustment assistance (TAA) program. This broader legislative package was passed by the House. However, at the time this paper was written, it was unclear whether it would be approved by the Senate or would be blocked by Republicans. If this broader package is not approved, during 2008 the UAW will continue to urge Congress to pass the UI modernization legislation.

Instead of supporting improvements to the UI program, the Bush administration and the Republican leaders in Congress have sought to dismantle the program. They have pushed proposals to “devolve” the UI program to the states, that is, to remove the federal government from its historic role in the UI system. The UAW strongly opposes all devolution proposals because they would inevitably worsen the already unacceptable disparities among the state systems, resulting in fewer benefits for fewer laid-off workers.

For several years, the Bush administration has pushed a proposal for personal re-employment accounts (PRAs). These are an unworkable hybrid of unemployment and job training benefits. The PRA proposal, currently being tested through pilot projects in several states, offers a flat amount of money (but no more than $3,000) to a laid-off worker to use both as jobless benefits and for job training. It allows recipients to keep the unused money in their account as a “bonus” if they find a job within a short period of time. While this proposal might sound good to a laid-off worker, it is actually less generous and less stable than the UI and job training programs already available. PRAs encourage workers to take the first job that comes along, rather than to search for or to train for a more skilled, higher-paying job. The UAW has opposed PRAs in the past and will continue to oppose them and variations in the future.

More recently, think tank policy-makers, including former Clinton administration Cabinet members Robert Reich and Robert Rubin, have joined the corporate lobbyists’ call for a so-called “rapid re-employment” policy. They assert that traditional UI benefits are a “disincentive” for laid off workers to find a new job. They argue instead for a wage insurance program, which would provide a time-limited, partial wage subsidy to jobless workers who accept lower paying jobs, in order to shorten the duration of UI benefit payments.

The UAW firmly believes that UI is not a disincentive to re-employment. In 2006 the average UI benefit in the United States was only $277 a week (about $1,200 a month). A 2004 study of longer-term jobless workers by the Congressional Budget Office found that when UI recipients lost their jobs, household income – including UI benefits – dropped by about 40 percent. The CBO found that one-quarter of UI recipients who remained without work for four months or more fell into poverty despite the receipt of UI benefits.

In other words, unemployed workers getting UI benefits are already under intense financial pressure to return to work. The UAW opposes wage insurance as a substitute for UI benefits because it will encourage displaced workers to take low-wage, dead-end jobs instead of seeking employment with decent wages and benefits. Moreover, it will serve as a subsidy for low-wage employers like Wal-Mart.

Action

Job Training Under the Workforce Investment Act (WIA)

The Workforce Investment Act of 1998 (WIA) established the current structure for federal employment and job training programs. It was designed to bring together a variety of job training and workforce development activities under a nationwide system of one-stop career centers. Some other federal programs, such as unemployment insurance (UI), are also required to make their services available through local one-stop centers.

WIA had a legislative life of five years and was scheduled to be renewed or “reauthorized” in 2003. Reauthorizing WIA has proven contentious, however, because the Bush administration has proposed a restructuring of the program that would: merge funding for the three main training programs; block grant federal funding to the states; privatize key components, and require TAA and UI programs to transfer funds for the operation of the one-stop offices. The UAW opposes any significant restructuring of WIA at this time, and instead urges Congress to increase funding for WIA.

In the last Congress, the GOP-controlled House of Representatives approved much of the administration’s proposals, including a block grant of adult training funds. The Senate passed a different, better version of the legislation to reauthorize WIA. But the two chambers were unable to reconcile their differences in conference, and the legislation died at the end of 2006. Efforts to reauthorize WIA are on the agenda again in the 110th Congress, but the prospects for accomplishing this are unclear.

WIA provides funding for job training programs for three principal groups of individuals: adult workers who have barriers to finding employment; dislocated workers who have lost their jobs due to mass layoffs, plant closings or relocations; and youth, both out-of-school and enrolled in high school. The Bush administration has proposed to merge these three streams so that dislocated workers would have to compete for limited funding with those seeking job training through adult or youth programs. The UAW opposes the consolidation of these funding streams; we urge Congress to keep the dislocated worker program separate and to fund it and other job training programs adequately.

Workers should be the principal customers of the WIA system. Instead, the Bush administration has placed employer interests – particularly those of large employers who pay low wages and poor benefits, like Wal-Mart – above the interests of workers. Congress should ensure that WIA programs pursue a high-road strategy of connecting unemployed workers to good-paying jobs, rather than a low-road strategy of steering workers into dead-end, low-wage jobs with exploitative employers.

Finally, the UAW believes that WIA should continue to be publicly administered, not privatized. WIA programs must be grounded in the honest brokers of the public sector so that WIA resources go to serving workers, not to the profit margins of private firms. The UAW opposes efforts to allow the privatization of state Employment Service programs funded by the federal Wagner-Peyser Act and to accomplish privatization goals through the back door by giving states broad waiver authority.

Action