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The Unemployment Insurance (UI) system was created as part of the Social Security Act of 1935 to provide a safety net for workers who become involuntarily unemployed. Since the Reagan administration in the 1980’s, it has been the object of criticism and attacks by right-wing ideologues and businesses that do not want to pay to support the program. During the current deep economic recession, the UI program has demonstrated its effectiveness in sustaining laid- off workers, their families and their communities. The Democratic Congress and President Obama have taken steps to improve the system. But the recession has put a strain on the system and exposed the weaknesses that are the result of years of neglect and attack.
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 in times of recession and to make loans to states when they run out of funds to pay benefits.
After the creation of the UI system during the Great Depression, for decades 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 not very much of a "floor" left. Instead, states compete with each other to charge employers the lowest UI taxes and to provide laid-off workers with low benefits. As a result, an uneven patchwork of state UI programs has developed, some fairly reasonable and many woefully inadequate.
The UI system has been in need of modernization for many years, and the UAW has been a leading advocate for legislation to improve it. In February 2009, we had a significant victory with the inclusion of the Unemployment Insurance Modernization Act (UIMA) into the American Recovery and Reinvestment Act (ARRA, aka "the stimulus bill."). The UIMA uses $7 billion in federal UI funds to provide incentives for states to make worker-friendly improvements to their unemployment programs.
Specifically, under UIMA, all states immediately received a badly-needed infusion of federal funds for the administration of their UI program. Incentive money went to states that already use, or adopt within five years, an "alternative base period" method of determining eligibility, one that counts the most recent earnings of low-wage and other workers. And states that have, or adopt within five years, one of several worker-friendly provisions receive a final tranche of incentive money.
Since enactment of UIMA in February 2009, an unprecedented wave of UI improvements have been made in states across the nation. Initially, opposition to the UIMA incentive funding was expressed by a small, but vocal, group of Republican governors, including those from Louisiana, South Carolina and Texas who wanted to refuse the money. But when the time came to debate the reforms, most governors and state legislators crossed party lines to support them. Twenty-five states have enacted laws to improve their state UI systems in order to qualify for the UIMA incentives, and legislation is pending in about 12 other states.
As a result of UIMA, in the first ten months of 2009, 15 new states adopted the Alternative Base Period, resulting in UI coverage for over 130,000 workers – mostly low-wage workers. Eleven new states enacted a measure authorizing part-time workers to collect benefits even if they are not looking for full-time work, resulting in an estimated 50,000 workers now qualifying for UI. Twelve new states now permit workers to be in training while receiving UI, and four states adopted new reforms that allow workers who can establish compelling family reasons for leaving work voluntarily to still qualify for UI benefits. Work will continue in state legislatures in 2010, and beyond, to use the UIMA incentive money to modernize the UI systems in all states.
In addition to the ground-breaking UIMA, the ARRA contained other important UI provisions. It continued the Emergency Unemployment Compensation (EUC) program, first enacted in June 2009, which provides federally-funded weeks of unemployment benefits for laid-off workers who exhaust their state benefits in states with high unemployment. It also provided that the federal government will pay the full cost of Extended Benefits (EB), instead of only half the cost, as provided in the UI statute. In addition, the ARRA set an important precedent by providing laid-off workers with a 65 percent federal subsidy to continue their health care insurance coverage through COBRA. Finally, it provided federal funds for an extra $25 a week in UI benefits and suspended federal tax on the first $2,400 of UI benefits received by a laid-off worker.
With the exception of UIMA, however, all the UI provisions in the ARRA were scheduled to expire on Dec. 31, 2009. Thanks to the efforts of the UAW, and our progressive allies, just before Congress adjourned at the end of the year it approved a two-month extension of most of the provisions. The UAW will be urging Congress to act early in 2010 to approve a longer extension of these provisions. This is essential to assure that millions of unemployed workers and their families continue to receive the extra help they need to ride out the worst economic recession since the Great Depression and to provide the economy a much-needed boost in spending to spur economic growth.
In the Second Session of the 111th Congress, the UAW will continue to advocate for improvements to the UI system. With state UI trust funds depleted due to unprecedented demands – by late 2009, 25 had requested loans from the federal government – we will work with our progressive allies to find legislative solutions to the solvency problem that do not encourage states to reduce benefits. For example, one solution is to raise the "taxable wage base" on which employers pay UI taxes. Only a portion of employee wages are subject to UI payroll taxes, and that portion is called the taxable wage base. Currently federal law sets the base at $7,000; a level that has not been raised in over 25 years. States may set the base at a higher level, but a majority of states have kept their taxable wage base at or below $10,000. The UAW and its UI allies support raising the taxable wage base and indexing it so that it changes annually as the average wage changes. This would provide a stronger financial footing for UI programs and for the workers they serve.
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. WIA had a legislative life of five years and was scheduled to be renewed or "reauthorized" in 2003. But Republican insistence on overly business-friendly proposals, and other controversies, blocked action since that time. We anticipate that WIA will finally be reauthorized in the Second Session of this Congress. The UAW and other unions are actively involved in pushing for changes to make the program more responsive to workers.
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 UAW strongly supports maintaining separate funding streams for these three programs so that dislocated workers do not have to compete with other groups for limited training funds.
The UAW believes workers should be the principal customers of the WIA system. Instead, under the Bush administration business interests dominated the system without balancing input from labor, the public sector or community-based organizations. Under WIA’s "work first" approach as implemented by the Bush Department of Labor, WIA participants were placed in low wage, dead-end jobs rather than receiving training for better paying jobs with opportunities for advancement. Displaced workers were discouraged from receiving training and encouraged to take the first available job, regardless of skills required or compensation offered. The UAW and our allies will lobby for a revamped WIA that places the interests of workers over the interests of employers – particularly large employers who pay low wages and poor benefits, such as Wal-Mart – and that emphasizes job training over pushing workers into any available job.
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 privatize state Employment Service programs funded by the federal Wagner-Peyser Act, or to accomplish privatization goals through the back door by giving states broad waiver authority.