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Group: Unemployment System needs expanded federal role

03.31.11

APRIL 2011, Allentown/Bethlehem/Easton edition of The Union News

Group: Unemployment System needs expanded federal role

BY PAUL LEESON
THEUNIONNEWSABE@AOL.COM

REGION, March 2nd- According to the Center for American Progress, a left-leaning economic research and educational institute in Washington, DC., there is a need to expand the Unemployment Insurance System. The purpose of the unemployment insurance system, as Democratic President Franklin Roosevelt noted upon signing the legislation into law, is both to alleviate hardships for the unemployed and to counter recessions.

The rules are that to receive unemployment benefits, a worker must have lost their job through no fault of their own and be actively seeking re-employment. In the wake of the Great Recession, the unemployment insurance system has been effective in helping families hardest hit by unemployment. In 2009 alone, unemployment benefits lifted 3.3 million families out of poverty.

The second purpose of the unemployment insurance system affects everyone, whether unemployed or not.

The system is designed to act as an “automatic stabilizer” for the economy. The unemployment insurance system acts “countercyclically” pumping money into the economy when unemployment is high by paying benefits that replace lost wages to those involuntarily unemployed while they search for work. This boost economic growth just when the economy needs it most.

Some economists have estimated that during the Great Recession, unemployment benefits closed about one-fifth of the recession-caused gap in total economic output. The unemployment benefits are paid for through federal and state taxes on employers, which are highest when unemployment is high and thus not inorrdinately pulling down employment during recessions.

In the wake of the worst recession since the Great Depression, however, the nation’s unemployment insurance system is in a crisis that threatens both its hardship-alleviating and automatic stabilizer functions.

Most state unemployment insurance systems are now insolvent, including Pennsylvania’s, due to the lack of adequate payments into the system in the nonrecession years preceding the Great Recession and the subsequent tepid jobs recovery that has required many states to continue to pay benefits for an extended period of time. As a result, most states (32) have taken out loans from the federal government for this unemployment trust funds to the tune of over $43 billion.

The Center for American Progress laid out the key elements of a plan to accomplish the goal of shoring up the unemployment insurance system’s role as an effective automatic stabilizer, while addressing the solvency crisis in the states.

The first step is to clear the deck by forgiving the trust loans of insolvent states and rewarding states that maintained position trust-fund balances.

The state of Wisconsin enacted the first unemployment compensation law and established the nation’s first program in 1936.

The organization propose a set of conditions for what they called “deck clearing” that will improve the core functions of the unemployment insurance system by:

• Clearly delineating and separating the federal and state roles by increasing the role of the federal trust fund during times of high unemployment;

• Reducing the wide disparity in eligibility rules and benefits across states.

The Center for American Progress stated their proposal will reduce cost for states as their labor markets struggle to emerge from the Great Recession, improve benefits for the unemployed, and better stabilize the economy in future recessions.

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