How the Unemployment Safety Net Sprung Holes

With her unemployment benefits about to run out, Lisa Williams was pleading for help. She stood outside the U.S. Department of Labor in Washington with many other people in the same fix and demonstrated for extended benefits.

The 28-year-old Baltimore woman had worked on the census for the U.S. Department of Commerce and before that had held a job with the YWCA. Now, no one seemed to be lhiring. Ms. Williamas, who is single, wondered how she'd make ends meet.


"Frankly, I really don't know," she said. "I'll use my savings. Hopefully my family will help me out until I find employment."

This recent protest wouldn't have been necessary in earlier recessions. Workers had received up to 13 additional weeks of benefits. But the unemployment insurance system isn't what it used to be.


Changes in federal and state laws during the 1980s, coupled with other factors, "have had a calamitous effect on the extended benefit program," said Gary Burtless, a senior fellow at Brookings Institution, testifying to Congress in June. There's more than $8 billion in a federal fund intended to pay extended benefits, but the system's peculiar rules have made the fund as impregnable as Fort Knox.

Congress rushed last week to try to write emergency legislation extending benefits. The Senate approved a bill which would allow up to 20 weeks of extra unemployment compensation for those who have exhausted the basic 26 weeks. But the legislation would provide only a quick fix for a troubled system.

The problems go beyond the inadequate extended benefits program. The basic unemployment insurance system, which provides up to 26 weeks of compensation in Maryland and most other states, doesn't help even half of the unemployed. Last year, the portion of jobless workers receiving benefits dropped to a record low of 37 percent nationally -- 32 percent in Maryland, according to the private Center on Budget and Policy Priorities.

And the value of unemployment benefits has declined: The average weekly payment is about $170, which when adjusted for inflation is less than it once was; in Maryland the maximum is $223. Since 1979 unemployment compensation has been subject to income taxes, depreciating it even more.

To understand how these problems arose, it helps to see how the system has evolved.

Unemployment insurance began in the Depression. Over time, it has become as sturdy an institution as Social Security, viewed by many citizens as an inalienable right. The system is intended to support workers during temporary unemployment and spur the economy with multibillion dollar infusions of cash.

In 1970, the government added an extended benefits program designed to kick in during periods of high unemployment. Like the regular benefits program, it is funded by a payroll tax on employers and run jointly by the states and federal government.

But in the 1980s, the system underwent profound change. In 1981, the first year of the Reagan Administration, Congress passed a law that made it much more difficult for workers to obtain extended benefits.


Among things, the law changed the unemployment rate at which extended benefits become available. It eliminated the national rate "trigger" of 4.5 percent and substituted a system in which benefits become available when a state's unemployment rate reaches at least 5 percent.

Does 5 percent seem low? Look again. For the purposes of paying extended benefits, the government has always calculated unemployment in a special way: Instead of using the total unemployment rate, based on all jobless workers, the government bases the rate on workers covered by the unemployment insurance system. (Divide the number of workers receiving benefits by the number of jobs covered by unemployment insurance.)

As a result, even though total unemployment tops six percent in many states and is X percent nationally (insert Friday figure), insured unemployment does not. Workers in only a handful of states have been able to get extended benefits. Maryland, where the total unemployment rate is X(insert Friday figure) but the insured rate is 3.1 percent, is not one of them.

The falling percentage of jobless workers receiving unemployment compensation has several causes. There are categories of people who are ineligible because they haven't worked -- new entrants to the job market and people returning after a long absence.

Also, a growing number of jobless workers aren't getting benefits because they have exhausted their 26-week allotment. They no longer are counted in calculations of the insured unemployment rate -- in the view of critics, a bizarre accounting twist.

Another important factor is that states have tightened eligibility rules for claimants. Just having worked for a company that pays into the system doesn't guarantee benefits. States have latitude in defining criteria such as how long a person must work. Many states were under pressure in the 1980s to restrict eligibility because their unemployment insurance trust funds ran out.


"Many of those whose benefits are running out, or who are unable to receive benefits in the first place, are people who worked for many years and paid their taxes," said Marion Nichols, co-author of the center's report last April on unemployment insurance for the Center on Budget and Policy Priorities, which is an advocate for low and moderate-income Americans. "Now when they face hardship due to circumstances beyond their control, the insurance protection they thought they'd earned isn't there."

In Congress, Rep. Thomas J. Downey, D-N.Y., introduced legislation this year to reform the system. But the bill went nowhere until late July, when Democratic leaders in the House and Senate decided to make extended employment benefits a top priority. Mr. Downey's bill was scaled back to focus on extended benefits; Sen. Lloyd M. Bentsen, D-Texas, fashioned a similar measure, with prodding from Sen. Paul S. Sarbanes, D-Md., that would provide benefits based on a state's total unemployment rate.

The bills came under close scrutiny by employers, who pay the tab. Many employers support payment of extended benefits so long as money already collected for this purpose is used and taxes are not raised. But they were dead set against Mr. Downey's original bill.

"We do not feel that basing an extension of benefits on the total unemployment rate is the proper mechanism, or proper threshold," says J. Eldred Hill, president of UBA Inc., a firm that researches unemployment and workmen's compensation issues for business. "The total unemployment rate has in it a lot of people who are not and cannot and will not ever be beneficiaries of the program," he says.

"Many people designated and counted as unemployed are new entrants in the labor force. Nobody has ever paid taxes for them. Ditto for individuals, and I guess this is particularly true for females, who are returning to work after a long period of absence."

The battle lines are drawn, should Congress ever decide to look closely at the insurance system. In the meantime, the number of workers who have exhausted their benefits and not found work will continue to rise for some months, according to many experts, even if the unemployment rate falls.


Mr. Sarbanes noted at a recent hearing that 2.3 million jobless workers have exhausted their benefits and another 1.5 million are within a few weeks of joining them. What that means for Jacqueline Newman and others like her is even more competition for work.

"You call for an interview and there are 90,000 people ahead of you," she says. "I've never had this problem before. I've always been able to get a job."

John Fairhall is Washington correspondent for The Evening Sun.