US Unemployment Benefits in International Context
Gary Burtless has an interesting paper reviewing the social safety net measures in the American Recovery and Reinvestment Act. If you read the paper you’ll see that even though these elements of ARRA have gotten less discussion than the state aid and infrastructure elements, boosts in safety net spending are actually the largest segment of ARRA spending. For blogging purposes, though, I really just wanted to reproduce this chart showing how relatively stingy unemployment benefits are in the United States:
In addition to being relatively stingy, unemployment insurance in many ways fails to protect people from the most salient economic risks. Older workers tend to earn more money than younger workers, in part because over the years they’ve acquired sector- and firm-specific skills that their younger colleagues lack. When they get laid off, however, these skills become devalued and even when recovery comes it’s often difficult to get a new job that’s as remunerative as the old one. This, in turn, encourages the political system to focus a lot of preservation of the status quo which winds up reducing long-run growth potential. Gene Sperling’s idea of comprehensive wage insurance would help solve this issue and do a lot of good.
19 Responses to “US Unemployment Benefits in International Context”
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July 16th, 2009 at 11:40 am
Why is the bar for South Korea outlined in a different color from the rest of the non-US countries?
July 16th, 2009 at 12:06 pm
No time to read the paper at the moment, but I wonder if the USA’s low score on this measure flows from the fact that a higher than-rich-country-average percentage of laid off workers don’t qualify for any unemployment insurance, period. Not that such a situation would excuse anything, mind you, but it might point us in the right direction as to how to most easily remedy the problem (namely, by expanding eligibility).
Undoing Bush-Reaganism is going to be a thirty year project, folks.
July 16th, 2009 at 12:09 pm
We have to finance our bloated military empire somehow.
July 16th, 2009 at 12:18 pm
Wage insurance is the sort of good idea you could see a lot of different people support (at least if not for political rivalries).
July 16th, 2009 at 12:26 pm
I have to laugh at how specific “married single earner with two children who earns average wage” is. What bets that it is by this particular metric that the US gets the lowest percentage relative to the other countries?
July 16th, 2009 at 1:01 pm
Jasper’s probably right. The fact that only about 46% of American workers actually get unemployment insurance would throw things off dramatically.
If we want to fix UI, I think that’s the first place to start: all workers in every state get covered, no ifs ands or buts.
And wage insurance bothers me, because I would see it as potential incentive for companies to fire their entire workforce, hire them back at lower wages, knowing that the government would pick up the difference, while workers face a slow decline in wages (wage insurance only covers 50% of the difference, after all) and recurring unemployment. I do not like the idea of Speenhamland for all workers over the age of 50.
July 16th, 2009 at 1:18 pm
Jasper (#2) and StevenAtwell (#6) raise a very good point. The percentage of the unemployed in the US receiving benefits is lower than almost anywhere else in the world.
But the 52% income replacement rate shown for the US is the replacement rate *for those receiving benefits.* So for the (roughly) half of the unemployed who receive benefits, those benefits are (roughly) half of their pre-tax earnings. The other (roughly) half of the unemployed get nothing. So UI benefits in the US replace (roughly) one-quarter of the lost income of the unemployed.
Oh. And UI benefits are taxable income in the US. I do not know if that’s true in other countries.
July 16th, 2009 at 2:56 pm
What’s this comprehensive wage insurance nonsense? The idea that because you had a job that paid you a lot of money at one point, you should be entitled to more money in the future? If someone from Goldman Sachs gets hired flipping burgers, he ought to be entitled to $407.25/hour?
July 16th, 2009 at 4:07 pm
Anthony:
Wage insurance is basically a way to acknowledge that wages are stagnating without trying to fix the problem, because fixing the problem would apparently be bad for economic growth.
It shows up a lot in places like the Hamilton Project, where they tacitly acknowledge that free trade is killing a lot of high-wage jobs and that new jobs are predominantly low wage, for example.
July 16th, 2009 at 4:13 pm
The rugged individualist in me thinks a 52 year old worker (from Sperling) should self-insure themselves at that point from the travails of life. They only have a decade or so left of earnings. As Suze Orman harps on her callers, sometimes bad things happen to good people. If you prefer to not rely on charity, you can already buy wage insurance. I’m not sure what the government has to do with this.
July 16th, 2009 at 4:24 pm
Gus writes
Who can I buy wage insurance from? What are the rates? Fair rates for wage insurance would be big news to me…I cannot see any entity but the government imposing this.
July 16th, 2009 at 4:24 pm
The question is, does the people who are not covered under UEI currently want to be covered under UEI with the current funding mechanism?
The self-employed and independent contractors are always moaning about paying both sides of FICA taxes. Imagine having to listening them moaning about paying for UEI on top of that.
Since those people don’t pay into the pool for UEI, I don’t see why it’s a problem that they are not covered.
July 16th, 2009 at 4:34 pm
Kanchou (@#12):
The coverage rates apply to workers employed in jobs on which their employers pay UI taxes. That is, 46% of the employees on payrolls (which excludes the self-employed) who become unemployed are eligible for UI benefits. Most of the ineligibles either haven’t been employed enough weeks in the prior year or are new entrants or re-entrants to the labor force who haven’t been laid off (but who might have been eligible, had they found work). I don’t think anyone is arguing for extending UI taxes to the self-employed (at least I haven’t read anything like that). Not least because to be eligible for UI, you have to be laid off from a job for reasons other than “cause” (stealing from your employer, for example, or getting into fights at work, would count as “cause,” and make you ineligible for benefits), and it’s difficult to see how someone who is self-employed could qualify…how do you lay yourself off?
July 16th, 2009 at 4:44 pm
Kanchou -
I would say at the very least that temporary and part-time workers could really, really use UI. And the 54%-less them who are employees without coverage.
Personally, I would make UI automatic, in the sense that you shouldn’t even have to go down and apply for the damn thing.
July 17th, 2009 at 1:57 am
This post prompted me to write my own blog post about what would really be needed to reform UI – and it isn’t wage insurance.
July 17th, 2009 at 7:26 am
Re: Not least because to be eligible for UI, you have to be laid off from a job for reasons other than “cause” (stealing from your employer, for example, or getting into fights at work, would count as “cause,” and make you ineligible for benefits)
A lot of employers are getting very creative about “cause” these days. In some cases simply objecting to some workplace policy is cause to be laid off and denied UI. IMO, UI should be automatic and the only valid causes for denial should be voluntary quitting and legally actionable offenses (e.g., theft). There should even be a few cases where people who quit voluntarily should be eligible, for example if someone has to move out of the area because a spouse or domestic partner has gotten a job elsewhere.
Another issue with the current system: While most states in principle pay 66% of previous income, most states also cap this somewhere in the neighborhood of 1200$ (pre-tax) a month, which was originally modest but decent but now is poverty-level income. Thus people with middle class incomes take a huge hit when they are laid off.
July 17th, 2009 at 10:11 am
“Just Dropping By” asks “Why is the bar for South Korea outlined in a different color from the rest of the non-US countries?”
There is a simple explanation. The paper was commissioned by Korea’s Institute for Health and Social Affairs and originally presented at an international conference on the financial crisis held in Seoul, Korea. I thought Koreans attending the conference would be interested in seeing how their country, as well as the United States, ranked in benefit generosity. Researchers and public officials from other countries were also in attendance, but given the venue of the conference, Korean attendees were the most numerous.
July 17th, 2009 at 11:38 am
JonF – your point about fraudulent firings is very on point; it’s a huge problem, especially in food service/retail jobs with high turnover. Usual practice is to offer people shifts they can’t take, and less shifts than they need to make ends meet, then call their termination “voluntary.”
July 18th, 2009 at 4:08 pm
I think the stats for UI overstate the US’s
safety net. Almost all the countries listed (not sure of Belgium), have public funded health insurance.That means no COBRA or out of pocket medical expenses are necessary to survive as in the US.Furhter, housing cost and energy are a smaller part of other countries’ household budgets.Our social safety net is dismal compared to other developed countries. Although Greenspan said we have more TV’s per household than
any other country. Just what a homeless person needs. (appllogies for the sarcasm)
Unless we start looking at the bigger picture,
we will continue to move backwards as a nation.