The Untimely Death of Unemployment Insurance
In 1934, one year before signing the bill that created a national system of unemployment insurance, President Franklin D. Roosevelt voiced an American sense of what a safety net should and shouldn't be. “We must not allow this type of insurance to become a dole through the mingling of insurance and relief,” Roosevelt said. “It is not charity. It must be financed by contributions, not taxes.”
The U.S. has never been enthusiastic about redistribution, but it has always understood that bad things happen to good people. That's why Roosevelt drew a line between “insurance” (which you pay for) and “relief” (which you don't).
To cover the cost of unemployment benefits, businesses pay premiums of about 1 percent of total wages. Every state government manages its own system, setting requirements for contributions and conditions for benefits. Three states -- Georgia, Florida and North Carolina -- have now decided they've had enough of this social-insurance thing.
Georgia began last year to cut off its unemployed at 19 weeks. As of this July, it’s 18. Florida and North Carolina now stop at 19 weeks. In a few years, as unemployment rates fall, Georgians who lose their jobs will get no more than 14 weeks of support, and Floridians and North Carolinians just 12, according to new “sliding-scale” systems passed by their state legislatures. That’s less than the 15 weeks all three gave in 1938, the year the program fully launched. Wisconsin may follow their lead. Six other states have cut their unemployment benefits, though not below 20 weeks. Other states have tightened eligibility.
States have long been expected to cover 26 weeks, in good times and bad, with the federal government stepping in to cover additional weeks during recessions. That supplement varies between states, but until recently the unemployed could expect at least 40 weeks of benefit in every state.
Last month North Carolina decided to forfeit federal funding for extended unemployment benefits by cutting not just the duration but also the maximum weekly amount from $535 a week to $350. In doing so it went beyond all other states -- and afoul of a “nonreduction rule” in the 2008 law that established federal funding. The state’s average weekly benefit had been a princely $299, near the national average of $306.
It's partly Washington's fault, as President Barack Obama's administration ignored the state’s request for cooperation so it could keep federal support. In all three states, as elsewhere, the recession has strained state finances and put unemployment-insurance funds under particular stress: North Carolina’s is $2.8 billion in debt, Florida’s $1.6 billion and Georgia’s $721 million. But the three chose to cut benefits rather than, as in the past, raise premiums on businesses.
Roosevelt would have seen the cuts as an attack on the principle of social insurance. He would have been right. In all three states, local chambers of commerce led the effort to cut unemployment benefits. Businesses never enjoyed paying the premiums -- but this is the first time they've been able to undermine the programs. Once this might have been seen as reneging on the implicit contract between workers and employers. Now it’s a matter of “tax relief” for “job creators.”
Sequestration has already cut the federal weekly payment by 11 percent, and the federal extension of benefits expires at the end of the year. Unemployment is still high at 7.4 percent, and there are three unemployed workers to every posted job opening. State benefits have already run out for three-quarters of the unemployed; when the federal support stops, they'll be on their own. It isn't what FDR had in mind.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)