unemployment

4

EmploymentRearchAPRIL2003

whichhasbeenavailablesince1992,EB

activateswhenastate’stotal

unemploymentrate(TUR)reaches6.5

percentandisatleast10percenthigher

thanineitherofthetwopreviousyears.

(TheTURisbadontheCurrent

PopulationSurveyandpublishedbythe

rast,the

IURisbadentirelyonUIprogram

data.)

UnlikestandbyEB,emergencybenefit

extensionsareenactedbyCongressonan

adhocbasisratherthanbeingtriggered

avebeenven

suchextensions,fromtheTemporary

UnemploymentCompensationActof

1958throughtheTemporaryExtended

UnemploymentCompensationof2002

(TEUC),whichwanactedandbecame

effectiveinMarch2002,whenitbecame

evidentthatthelabormarketwouldnot

recoverquicklyfollowingtheterrorist

attacksofSeptember11,2001.2The

programhaxtendedexhaustees’

benefitsinallstatesby50percentoftheir

regularbenefitduration,upto13weeks.

Italsohasprovideduptoanadditional13

weeksofbenefitsinstateswherestandby

EBhadtriggeredonortheIURwasat

least4percentandatleast20percent

higherthanitsaverageinthesameperiod

of12

statespaidtheadditionalbenefitsunder

TEUCatsomepoint,althoughby

December2002,onlythree(Alaska,

Oregon,andWashington)weredoingso.

Theprogramisfinancedentirelyfromthe

federalExtendedUnemployment

CompensationAccount(EUCA).

TheoriginalTEUCprogramexpiredat

theendof2002,butCongresxtendedit

ult,

workerswithremainingTEUCbalances

attheendof2002couldcontinuetodraw

,new

exhausteesofregularbenefitscanclaim

TEUCthroughthelastweekofMay2003

andcandrawTEUCbenefitsthroughthe

r,theTEUC

extensiondidnotprovideadditional

benefitstoworkerswhoexhaustedtheir

TEUCbenefits.

Earlypredictionsthatthecurrent

recessionwouldbeshort-livednow

appeartohavebeenoverlyoptimistic.

Labormarketsrecoveredslowly

followingtherecessionoftheearly

1990s,andthisrecessionshowssignsofa

eptember2002,

over41percentofUnemployment

Insurance(UI)recipientshavebeen

exhaustingtheirregularUIbenefits,an

,inthelastyear,more

than20percentoftheunemployedhave

beenjoblessforlongerthan26weeks,the

firsttimethishasoccurredsince1994.

Theproblemoflong-term

unemploymentisriousatalltimesbut

typicallygainsattentiononlyduring

,wediscusstheabilityof

theUIsystemtoaddresslong-term

unemployment.

UnemploymentInsurancecanbe

“regular”benefitsthatarefinancedand

administeredbyeachstateconstitutethe

program’ondtierofthe

UIsystemisthepermanentor“standby”

extendedbenefitprogram(standbyEB),

standbyEBprogramisintendedto

activateautomaticallywhen

unemploymentris,extendingthe

potentialdurationofaworker’sbenefits

by50percent(upto13weeks).Thethird

tieroftheUIsystemismadeupofthe

“emergency”benefitextensionsthat

Congresshanactedineveryrecession

mergencyextensions

havevariedgreatlyintheirgenerosity,

financing,andeligibilitycriteria.

HowExtendedBenefitsWork

StandbyEB,thecondtieroftheUI

system,isapermanentextendedbenefits

WayneVroman,,

ry

ExtendedUnemployment

Benefits

programthatisintendedtoactivate

automaticallyinarecession—ratherthan

requiringcongressionaldiscretionand

action—andisfinancedhalf-and-halfby

thestatesandthefederalgovernment.

(RegularUIbenefitsarefinancedoutof

stateUItrustfunds,whereasmost

emergencyextendedbenefitshavebeen

financedoutofthefederalUItrustfund.)

WeeklybenefitsunderstandbyEBarethe

sameasweeklybenefitsundertheregular

stateprogram.

Originally,standbyEBwasactivated

inagivenstatewheneverthestate’s13-

weekaverageinsuredunemploymentrate

(IUR)reached4percentandwasatleast

20percenthigherthanitsaverageinthe

sameperiodoftheprevioustwoyears

(eTable1,whichsummarizesthisand

subquentextendedbenefittriggers).

Also,itwasactivatednationally

wheneverthe13-weekaverageofthe

r,

in1980and1981,Congresnactedthree

changesthatmadeitmoredifficultforthe

standbyEBprogramtoactivate—theIUR

neededtoactivateEBonastate-specific

basiswasincreadfrom4percentto5

percent,thetriggerthathadactivatedEB

nationallywaliminated,andthe

definitionofinsuredunemploymentwas

revidsoastoomitEBclaimantsfrom

thecalculation,reducingtheIURintimes

whenEBwasactivated.1

InadditiontothestandardIURtrigger,

statescurrentlyhavetheoptionof

choosingeitheroftwoalternativeEB

hefirst,whichhasbeen

availablesince1981,EBactivateswhena

state’his

IURtrigger,theIURneednotexceedits

levelinearlieryearsforEBtotrigger.

Underthecondalternativetrigger,

Vol.10,no.2

5

EmploymentRearchAPRIL2003

1990s(WoodburyandVroman2003;

WaltersandWenger2003).

However,thedemiofstandbyEB

,labor

marketshavebeenstrongersince1985

thantheywerebetween1970and1985.

Second,thefinancingofstandbyEBis

sharedbythestatesandthefederal

government,whereamergency

extensionshavebeenfederallyfunded.

WithCongresswillingtopasmergency

extensions,thestateshavenotpressured

CongresstorevithestandbyEB

triggerssothattheprogramactivates

,during2002

governorscould,anddid,terminate

standbyEBinstateswhereithad

triggeredonassoonasthecurrent

emergencyextension(TEUC)pasd.

Thisshiftedthefinancingofextended

benefitsfromthestatestothefederal

government.

Onecouldpossiblyarguethatthe

demiofthestandbyEBprogramisan

appropriateoutcome—ifunemployment

hasfallencularly,thenthedemandfor

unemploymentinsurancewouldalsofall.

However,Congresshascontinuedtopass

emergencybenefitextensionsineach

recession,esntiallyignoringthe

downwardtrendintheunemployment

rateandgaugingtheneedforextended

benefitswithaneyetothemedian

TrendsinExtendedBenefitsPayments

Intherecessionsofthemid1970sand

theearly1980s,thestandbyEBprogram

wasasignificantsourceofbenefitsfor

unemployedworkers,asshownin

r,standbyEBhas

activatedrarelysince1981andwasa

negligiblesourceofbenefitsduringboth

therecessionoftheearly1990sandthe

currentrecession.

Inamechanicaln,thereasonsfor

thedemiofthestandbyEBprogramare

,asmentionedabove,Congress

revidthetriggersin1981soastomake

policychoicewasbadonthebeliefthat

theexistingtriggersresultedinanEB

programwithworkdisincentiveeffects

,

insuredunemploymentrates,whichare

udtotriggerEB,haveshowna

downwardtrendoverthelasttwodecades

(Vroman2002).Evenifthetriggershad

notbeenrevidin1981,thestandbyEB

programwouldhaveactivatedless

frequentlyinthepast20yearsthanbefore.

Simulationswehaverunsuggestthat,

undertheoriginalstandbyEBtrigger(4

percentIURwitha20percentincrea),

EBwouldhaveactivatedinonly11states

during2001–2002,coveringevenfewer

unemployedworkersandUIexhaustees

thanitdidduringtherecessionoftheearly

durationofunemploymentandtheUI

exhaustionrate,bothofwhichhave

trendedupovertime.3AsFigure1shows,

thedemiofstandbyEBhasbeen

accompaniedbytheriofemergency

federalUIextensions.

PolicyAlternatives

Twoobviouspolicyoptionxistfor

firstistoexpandand/orextendthecurrent

emergencyextension(TEUC),which

provides13weeksofextendedbenefitsin

moststatesandisttoexpireinMay

,thereislittleevidenceof

improvementinthelabormarket,and

roughlyhalfofallTEUCrecipientshave

suggeststhatCongressshouldconsider

expandingTEUCtoprovideanadditional

10to13weeksofbenefitstoworkerswho

alsosuggeststhatanextensionofthe

existingTEUCprogramthroughtheend

of2003maywellbeneeded.

Acondoptionistorevivethe

standbyEBprogramandmakeita

significantsourceofextendedbenefits

tionwould

requirearethinkingofboththefinancing

financeextendedbenefits—whether

federallyorbythestates—hasbeena

sourceofcontentionfordecades

(Blaustein1993).However,theshared

state–federalfinancingofstandbyEBhas

beenthedownfallofstandbyEB,and

Congresshasbeenwillingrepeatedlyto

istimeforCongresstoacknowledgethat

thefinancingofbenefitsbeyond26weeks

isafederalresponsibilityandtomakethe

standbyEBprogramfederallyfunded.

RevivingstandbyEBwouldalso

requireCongresstolowertheIURtrigger,

lowerthealternativeTURtriggerand

makeitmandatoryratherthanoptional,or

adoptanewEBtrigger,suchastheUI

omatictriggering

ofstandbyEBhasthreeadvantagesover

,emergency

extensionsaresubjecttoa“recognition

lag”—ittakestimeforCongressto

recognizetheontofarecessionandto

enactlegislation,sotheremaybealong

Table1TriggersUdtoActivateStandbyExtendedBenefitsandTEUC

TriggerDescriptionWhenineffect

4%IURwith20%

increa

StateIURofatleast4%.Also,IURmust

beatleast20%higherthanitsaveragein

thesameperiodoftheprevioustwoyears.

EB,8/70to8/81

TEUC,3/02to5/03

5%IURwith20%

increa

StateIURofatleast4%;mustbeatleast

20%higherthanitsaverageinsame

periodoftheprevioustwoyears.

EB,8/81toprent

4.5%nationalIURNationalIURofatleast4.5%(noincrea

specified)

EB,8/70to8/81

5%IURStateIURofatleast5%(noincrea

specified)

EB,1976to8/81

(stateoption)

6%IURStateIURofatleast6%(noincrea

specified)

EB,8/81toprent

(stateoption)

6.5%TURwith

10%increa

StateTURofatleast6.5%;mustalsobeat

least10%higherthaninthesameperiod

ofoneoftheprevioustwoyears.

EB,6/92toprent

(stateoption)

NOTE:IURistheinsuredunemploymentrate;TURisthetotalunemploymentrate;EBisthe

standbyextendedbenefitsprogram;TEUCistheTemporaryExtendedUnemploymentCompen-

sationprogramthatcameintoeffectinMarch2002andisscheduledtoexpireinMay2003.

6

EmploymentRearchAPRIL2003

0.0

10.0

20.0

30.0

40.0

50.0

60.0

6820002002

B

e

n

e

f

i

t

s

p

a

i

d

i

n

2

0

0

2

d

o

l

l

a

r

s

(

i

n

b

i

l

l

i

o

n

s

)

RegularbenefitsStandbyextendedbenefitsEmergencybenefits

extensions,whichworkerswillrelyon

untilthelabormarketrecovers.

Notes

tion,morestringenteligibilityanddis-

qualifyingconditionswereimpodonEBclaim-

hangeswerepartofabroadereffortby

thethen-newReaganadministrationandCongress

toreduceexpendituresondomesticprograms.

mmaryoftheemergencyextensions

uptoTEUC,eWoodburyandRubin(1997).

xhaustionratepeakedat38.2percent

in1975,40.8percentin1983,40.1percentin1993,

and42.7percentin2002.

WayneVromanisanioreconomistattheUrban

Institute,Washington,isan

economistattheEconomicPolicyInstitute,Wash-

ington,ryisaprofessorof

economicsatMichiganStateUniversityanda

Institute

References

Blaustein,oyment

InsuranceintheUnitedStates:TheFirst

zoo,MI:

InstituteforEmploymentRearch.

President’sCouncilofEconomicAdvirs.

icReportofthePresident.

Chapter3.

Robins,PhilipK.,andRobertG.

Spiegelman,oyment

BonusintheUnemploymentInsurance

System:EvidencefromThreeField

zoo,MI:W.E.

UpjohnInstituteforEmployment

Rearch.

Vroman,Wayne.“LowBenefitRecipiency

inStateUnemploymentInsurance

Programs.”ofWorkforce

SecurityOccasionalPaper2002-2.

Washington,DC:mentofLabor,

EmploymentandTrainingAdministration,

UnemploymentInsuranceService.

Walters,Matthew,.

2003.“LevelsandThresholds:An

AnalysisofAlternativeFederal-State

ExtendedBenefitProgramTriggers.”

Draft,.

Woodbury,StephenA.,andWayneVroman.

2003.“AlternativeTriggersfortheFederal-

StateExtendedBenefitProgram.”Draft,

.

Woodbury,StephenA.,andMurrayA.

Rubin.1997.“TheDurationofBenefits.”

InUnemploymentInsuranceintheUnited

States:AnalysisofPolicyIssues,C.J.

O’r,eds.

Kalamazoo,MI:Institutefor

EmploymentRearch,pp.211–283.

lagbetweentheontofslacklabor

marketsandtheavailabilityofextended

,emergencyextensions

havebeenpoliticallydifficulttoshut

down;asaresult,theymaycontinueto

payextendedbenefitsbeyondthetime

whenlabormarketshaverecoveredand

whenworkerscanreasonablybeexpected

,emergency

extensionshaveusuallybeenmade

effectiveonthedateofenactment,

leavingUIadministratorslittleornotime

thereasons,emergencyextensionsare

likelytobelesfficientthanautomatic

extensions.

InJanuary2003,athirdpossible

optionwaspropod:theBush

Administration’sPersonalReemployment

Accounts(PRAs).ThePRAproposalhas

,certainUI

claimantswouldbeidentifiedas“likely

toexhaust”,

fortheclaimants,anaccountofupto

$3,000wouldbeestablishedtobuy

intensivereemploymentrvices,

training,andotherrviceslike

transportationorchildcare,atthe

claimant’,ifthe

claimantreturnstoworkwithin13weeks

ofreceivingthefirstUIpayment,heor

shewouldkeepwhateverbalance

stfeature

createsanincentiveforrapid

reemploymentandgivesPRAstheflavor

ofareemploymentbonus,whichhasbeen

extensivelystudiedinrandomizedtrials

(RobinsandSpiegelman2001).

Thesizeoftheworker-managed

account—$3,000—suggeststhatthePRA

isbeingputforwardasanalternativetoa

furtherextensionofTEUC(13weeksat

thenationalaverageweeklybenefit

amountof$230isroughly$3,000).

However,eligibilityforPRAswouldbe

restrictedtoabout12percentofnewUI

recipients(President’sCouncilof

EconomicAdvirs2003),whileUI

exhaustionratesarecurrentlyinexcessof

erthemeritsofPRAs

asareemploymentpolicyforworkerswho

arelikelytobenefitfromreemployment

assistanceandtrainingwhenlabor

marketsaretight,PRAscannotbeviewed

asasubstituteforextendedbenefitswhen

labormarketsareslack.

Long-termunemploymentisaproblem

thatisgenerallyneglecteduntilit

becomesacute,asitdoesinrecessions.

ThePRAisaproposalthathasthe

potentialtohelplong-termunemployed

workersthroughoutthebusinesscycle

andtoshortentheirunemploymentspells.

However,itshouldnotbeconfudwith

short-termmeasureslikebenefit

Figure1UIBenefits,byType,1970–2002