Unemployment insurance reform: elements of a social provisioning approach

Journal of Economic Issues, June, 2008 by Janice Peterson

Declining UI recipiency rates may also reflect increases in the percentage of unemployed workers who remain unemployed after their eligibility for regular UI benefits ends (Stone, Greenstein and Coven 2007, 1-3). The increasing duration of unemployment is also reflected in the increasing rates at which UI recipients exhaust their benefits before finding work. The exhaustion rate for regular UI benefits, which averaged about 25 percent in the 1950s, currently exceeds 35 percent of those who collect state UI benefits. During the last recession, the UI exhaustion rate peaked at a record 44 percent and remained above 40 percent for a record 28 months (Emsellem, Stettner and Semidey 2007, 3; Vroman 2007, 6).

Concerns and Proposed Reforms

The fact that many workers who lose their jobs receive no UI benefits and that many others exhaust their benefits before finding a new job raises concerns that the UI program does not reflect the realities of work and family life today. Since the UI system was established, the characteristics of the workforce, and the nature of work and unemployment, have changed dramatically. When the UI program was created, the majority of the workforce consisted of men who were employed full-time in the manufacturing or trade sectors of the economy, and who were married and the primary bread-winners for their families. Since that time, manufacturing employment has decreased, the shares of low-wage and contingent jobs has increased, and a changing economy has produced more long-term unemployment. In addition, the labor force participation of women has increased, as has the number of single-mother and two-earner families (Chasanov 2007, 2; GAO 2007, 7; Nicholson and Needels 2006, 61; Stone, Greenstein and Coven 2007, 1).

Evaluating the UI program's ability to meet its social provisioning functions in light of these changes raises questions about the current appropriateness of a number of program features, including: 1) the monetary eligibility standards--particularly the choice of base year ; 2) the non-monetary eligibility standards--particularly the extent to which part-time work is allowed and family circumstances are recognized; and 3) the availability of extended benefits for workers who remain unemployed and exhaust their regular UI benefits.

To be eligible to receive UI benefits, an unemployed worker must have a record of recent earnings and have at least a specified amount of earnings in a base period. The base period has traditionally been defined as the first four of the most recently completed five calendar quarters. For example, if a worker lost their job in mid-June, earnings over the 12-month period ending the previous December would be counted; all amounts earned from January through June of the current year would be ignored (Stone, Greenstein and Coven, 2007, 5). (8) The exclusion of earnings in the most recently completed quarter makes it more difficult for low-wage workers with sporadic work histories, workers who have recently entered or re-entered the workforce, and workers in nontraditional employment situations, such as temporary work, to qualify for UI benefits (GAO 2007, 25; Lovell 2007, 3; Nicholson and Needels 2006, 51). (9)