With some 2 million people added to the ranks of the unemployed over the past year, it's hardly surprising that joblessness looms as a major fear besetting many American families. And the fact that unemployment compensation, the major safety net for workers experiencing temporary spells of joblessness, is in considerable disrepair doesn't make things any easier.
"It seems indisputable," says economist Gary Burtless of the Brookings Institution, "that Americans who lose their jobs today are more at risk than they would have been in earlier decades."The most worrisome trend is the sharp decline in the percentage of unemployed receiving jobless benefits. In the 1970s, this figure averaged over 50%, and it hit 75% at the trough of the 1973-75 recession. By contrast, the proportion drawing benefits averaged just 45% during the deep 1981-82 recession and a mere 33% during the subsequent expansion. At last count, in the current recession, it was still below 41%.
Several factors lie behind the erosion in coverage. Today's jobless are more likely to have worked in service industries, which use part-timers or contingent workers and often are not well-covered by unemployment insurance. Also, more Americans now live in the South and West, where eligibility requirements are stricter than in the East and Midwest.
At the same time, states generally have been tightening eligibility rules. Because many unemployment-insurance trust funds were depleted in the early 1980s, a number of states actually cut benefits during the 1981-82 recession, even as unemployment woes were rising. Under pressure from President Reagan, Congress also tightened the criteria triggering 13 added weeks of extended jobless benefits to those who exhaust the 26 weeks of regular benefits. And tax reform during the 1980s made unemployment benefits fully subject to income tax by 1987--a move that effectively reduced their value to unemployed workers by 16% to 20%.
Burtless estimates that the percentage of the unemployed now receiving jobless insurance is about 20% below levels that were typical before the 1980s. Moreover, he says, the extended-benefit program "has virtually ceased to operate," with only eight states now offering such benefits, compared with all 50 states during the depths of the 1973-75 recession.
While such developments imply more pain and less protection for unemployed workers, their macroeconomic implications are also troubling. They undercut unemployment insurance's critical function as an automatic stabilizer.
"By lessening the ability of jobless workers to sustain consumption," says Burtless, "the decline of the UI program raises the risk of a prolonged recession." And if hard-pressed state legislatures also act to reduce benefits and raise payroll taxes once more to shore up their eroding trust funds, the risk will be that much greater.