The Forgotten on Main Street: Who Will Bail Out the Unemployed?

With the economy in turmoil, job losses already high, and many more jobs clearly in jeopardy, the issue of unemployment compensation is of critical concern. And yet, while working on the Wall Street bailout at the end of last week, the Senate removed from its version of the bill a provision that would have helped the nearly 800,000 laid-off U.S. workers who ran out of unemployment aid Sunday. The Senate also ignored the possibility of helping these long-term unemployed by failing to address the need for an emergency extension of jobless benefits in a separate bill.

This failure to help those on Main Street should not come as a surprise. Our legislators have a history of looking at the unemployment insurance system only when it is in crisis, and even then all too many of them look at it with a degree of skepticism and cynicism. Here at The Century Foundation, however, it is an issue we have addressed frequently over the years. For example, in July 2006, Greg Anrig wrote in an issue brief,

The main line of protection in the United States for workers who lose their jobs is unemployment insurance. Created during the New Deal in 1935, unemployment insurance is financed by taxes collected by the federal government and administered by the states, which have wide leeway in determining who qualifies for benefits and the size of payments. In 1947, according to Michael J. Graetz and Jerry Mashaw, about 80 percent of workers in jobs covered by unemployment insurance received benefits when they lost their jobs; by 2001, only 43 percent of unemployed workers received unemployment insurance benefits.

He went on to say,

To better protect workers in the event of a job loss, the unemployment insurance system should be reformed so that uniform eligibility rules and compensation levels would be instituted across all 50 states; and a new wage insurance program should be created to encourage a quick return to the workforce.

This call to action, like so many others, went unmet. Now the system is once again facing a crisis, one that may well exacerbate the problems created by mortgage foreclosures, for while being jobless makes meeting mortgage payments difficult, for those who do not get or who run out of unemployment benefits, making those payments becomes impossible. The problem is critical because not only is the number of Americans out of work today growing, but they are out of work for longer periods.

The Bureau of Labor Statistics reported on October 3, 2008, that

over the past 12 months, the number of unemployed persons has increased by 2.2 million and the unemployment rate has risen by 1.4 percentage points. In September, the number of long-term unemployed (those jobless for 27 weeks or more) rose by 167,000 to 2.0 million, an increase of 728,000 over the past 12 months.  The long-term unemployed accounted for 21.1 per-cent of total unemployment in September.

On October 3, 2008, shortly after the House approved the $700 billion bailout bill, they also passed a bill sponsored by Representative James McDermott (D. WA), the Unemployment Compensation Act, by a vote of 368–28. The act extends unemployment benefits for an additional seven weeks in all states, plus an additional thirteen weeks in states with unemployment rates above 6 percent. The Senate, however, did not take action, and given it will not meet again until after November 17, and then in a lame duck session, the bill is likely to die.

If the Senate delays or does not pass the bill, the time may be ripe for careful study of the system and a chance to plan for the kind of changes that will prevent periodic unemployment insurance crises from developing. Those looking at the problem should keep in mind that the cost of not having dealt with the unemployment compensation system is that many states, already facing increasing pressure from the economic downturn and its accompanying rise in interest rates, do not have the reserves necessary to meet the demands on their unemployment funds. According to USA Today, “thirty-two state trust funds are below the federally recommended level of having cash reserves equal to a year’s worth of recession-level payments. A number of states will need federal assistance for jobless funds during this economic slowdown.” In the same article, Andrew Stettner, deputy director of the National Employment Law Project, noted, “We’re going to see many more states facing insolvency than in the past.”

The article went on to explain that

unemployment insurance is operated by states under federal guidelines. States set their own benefits and tax rates. Employers pay an average of 2.5% on the first $11,500 of wages. . . . [If the states run into trouble,] the federal government has its own unemployment insurance trust fund that will lend states money. If states don’t repay the bailout loans promptly, businesses in those states generally are required to pay higher federal and state taxes to restore the funds’ solvency.

Policymakers thinking about the issue also should be very aware that because of past inaction, the strain of paying these taxes may well result in businesses making job cuts and increasing prices. In other words, in the end every American citizen will pay the price for this program aimed at saving those on Main Street—in addition to paying for the bailout of Wall Street.

Comments

[Karen]

It's obscene that the Senate "cut and ran" home before making sure millions of unemployed Americans received extended benefits. I just hope that a majority of those in the Senate who voted down their own bill regarding this matter, find themselves unemployed the next time they are up for reelection.

I'm 55, college educated, white, and have been unemployed for almost a year. My 401K has come and gone. I just received my last UE check. You think either Obama or McCain is feeling my fright or pain yet?

[melissa]

Mine Unemployment ran out also. The business I worked for was sold and I lost my job last Dec. I am a single mom with 3 children(One whom has a brain tumor). I am hoping I can keep my home.

[Chris]

I applied for the federal 12-week extension and was approved. Now I feel like 'what am I going to do when this runs out' because it doesn't look like things are going to turn around anytime soon. With the way that the economy is heading and after watching the Zeitgeist Addendum movie (www.zeitgeistmovie.com) I wonder if our monetary system really is going to fail.

[Chuck Caputo]

I may be facing the possibility becoming unemployed due to the PNC bail out allocation and their subsequent pending National City Corporation purchase, oh sorry, my bad, merger. Was PNC hurting? Needing help?

[John Beck Tax Foreclosure]

The problem is critical because not only is the number of Americans out of work today growing, but they are out of work for longer periods.