Unemployment Insurance Reform: Elements of a Social Provisioning Approach
Peterson, Janice, Journal of Economic Issues
Unemployment Insurance (UI) is one of the largest and most important social protection programs in the United States) Established as part of the New Deal with the primary purpose of partially replacing the earnings of workers who had become unemployed "through no fault of their own," UI has played a critical role in efforts to provide economic security for American workers for over 70 years. Today, however, analysts from across the political spectrum argue that the UI system has not kept up with the needs of the changing economy and workforce, and reforms are needed to modernize the system. In this context, two broad approaches to UI reform can be identified--reforms based in the concepts of individual choice and market forces (market-oriented reforms) and reforms rooted in the concept of the economy as a system of social provisioning (provisioning-based reforms).
The trend toward market-oriented reforms--redesigning UI (and other social protection programs) to reflect the values and methods of the market--has been well documented across the industrialized world. Neil Gilbert (2004), for example, identifies the shift from protecting labor to promoting work as a fundamental trend in industrialized welfare states, with the emphasis of unemployment insurance programs shifting from the provision of income maintenance in times of economic hardship to a focus on rapid reemployment. This has meant, among other things, restricting the ability of individuals to receive benefits though stricter eligibility requirements and linking benefits more closely to behavioral requirements, such as participating in job search activities and reemployment services. Some market-oriented UI reformers have called for current unemployment insurance programs to be replaced with systems of individual accounts. In the United States, this approach is exemplified by Martin Feldstein's call for "unemployment insurance savings accounts" in his 2005 presidential address to the American Economic Association, "Rethinking Social Insurance." Proponents of individual unemployment insurance accounts argue that they will provide workers with greater choice and flexibility, and will increase incentives for more rapid reemployment and personal saving (Altstadt 2005). (2)
An alternative approach to UI reform--focused on increasing the share of unemployed workers who can participate in the program and on the adequacy of the benefits they receive--has also been articulated over the last two decades in the United States through the work of researchers and activists, the recommendations of a high-level federal government commission, and state-level UI reforms. While the particular reform proposals associated with this approach are varied, they are consistent with the holistic perspective of institutional economics, which views the economy as an evolving set of institutions engaged in the process of social provisioning. From this perspective, institutional arrangements that promote economic security are fundamental, as they are necessary to promote the full and meaningful participation of all individuals in economic society (Waller 1992).
Legislation recently introduced in both the United States House of Representatives and Senate--the "Unemployment Insurance Modernization Act" (3)--has focused new attention and debate on the elements of a provisioning-based approach to UI reform. While this proposed legislation and the discussion surrounding it raise many important issues concerning the financing and administration of the UI program, this paper will highlight issues of particular importance to the program's social provisioning function--the ability of different groups of unemployed workers to receive UI benefits and the UI system's provisions for the long-term unemployed.
UI Program Rules and Gaps
UI was established by Title III of the Social Security Act in 1935 with the primary purpose of providing temporary income support to workers who have demonstrated attachment to the labor force and lose their jobs "through no fault of their own. …