Unemployment Insurance: Fix It or Start Over
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The Fiscal Times
February 7, 2012

In December, with time running out on extending unemployment insurance for the long-term jobless, the House passed its version of how to transform a system that dates from the 1930s and no longer meets the needs of America’s employers or workers. The bill required every person filing for unemployment insurance to have at least a high school education and pass a drug test. It also called for ten states to experiment with unspecified pilot projects that would be cancelled after three years if they didn’t cost less than traditional unemployment insurance.

It’s too bad they didn’t check with Gov. Haley Barbour off Mississippi for a few other ideas to put in their bill. During the depths of the downturn, the former chairman of the Republican Party used a special incentive program created by President Obama’s much vilified American Recovery and Reinvestment Act to subsidize employers who hired the unemployed. The costly wage subsidy in Barbour’s Subsidized Transitional Employment Program and Services (STEPS) program started at 100 percent and was phased out over six months.

"Mississippi STEPS is unique in that it is a program specifically designed to benefit both the employee and employer," Barbour said at the time in a press release. "The STEPS program will provide much-needed aid during this recession by enabling businesses to hire new workers, thus enhancing the economic engines of our local communities."

Time is running out on extending unemployment insurance. Though Republicans in both the House and Senate are grumbling, Congress will likely reach some kind of compromise before the March 6 deadline. Cutting off extended benefits for the estimated five million people who have been unemployed for longer than six months would not only be bad economic policy according to economists, it would be extremely bad politics in an election year.

But hopes are fading that the last-minute political maneuvering in the House-Senate conference committee will include many of the reforms that experts say the program needs. Devised for an era when workers temporarily lost jobs and quickly returned to the same employer, today’s unemployed are almost always permanently severed, are older, suffer longer bouts of unemployment, and often need new skills. They can also be well-educated, yet in need of help in making the transition to a new job or career.

The existing system, which is operated by the states, is woefully underfinanced to provide any of those services. In fact, its systemic cash shortfall – the feds require that states tax employers a minimum of $42 per worker per year, and about a third of states are at or near that minimum – left most states severely undercapitalized and unprepared for what turned out to be the worst unemployment crisis since the Great Depression.

As of mid-January, 27 states and the Virgin Islands have borrowed $38.1 billion simply to maintain their basic programs, which provide an average of $296 per week in benefits for 26 weeks. The extension to a maximum of 99 weeks for the long-term unemployed is entirely federally funded.

spent 25 years as a foreign correspondent, economics writer and investigative business reporter for the Chicago Tribune and other publications. He is the author of the 2004 book, The $800 Million Pill: The Truth Behind the Cost of New Drugs.