Today's record-high long-term unemployment shows that there simply aren't enough jobs to go around due to a lack of demand. According to the RSQE Michigan forecast, released on May 27, 2010, it expected that the unemployment rate to sit in the high 13s for the rest of this year before gravitating to 12.9 percent by the end of 2011. It appears that the high-unemployment-rate environment is here to stay awhile .
One of the government policies to overcome the unemployment excess is by providing unemployment benefits. Workers who lose their job through no fault of their own can apply for unemployment benefits which are calculated based on earnings. Unemployment benefits have both positive and negative impacts for long-term unemployment. The positive impact is it provided fresh money for the jobless to survive while seeking another job. From the unemployment benefit program, the maximum weekly benefit for an unemployed Michigan worker is $387. It is equal to a salary of $11 a day, for working 7 hours/day, and 5 days/a week. However, the unemployment benefits program also creates hidden problems. It makes the jobless people depend on the unemployment benefits. Some of the unemployment benefits recipients choose to stay home and collect a check from the state, rather than work outside for a full week and spend money for gas, taxes and other expenses. According to Amy Frankmann, members of the Michigan Nursery and Landscape Association, landscaping companies are finding some job applicants are rejecting work offers so they can continue collecting unemployment benefits. It, thus, raises questions about whether extended unemployment benefits give the jobless an incentive to avoid work.
Congress has extended the EUC program four times already in this economic downturn. Each time, the program is temporary and expires within a relatively short time frame. The first extension was in June 2008, the second in November 2008, the third as part of the American Recovery and Reinvestment Act in February 2009, and finally, the fourth in December 2009, which expires in February 2010. Apparently, politicians in Congress are still debating about the merit of extending the federal unemployment benefits bill and other emergency stimulus measures. As we know, the federal unemployment benefit extension is part of a larger bill, HR 4213, the American Jobs and Closing Tax Loopholes Act, or House Resolution 4213, a $23 billion bill to extend federal unemployment benefits and other emergency stimulus measures. The bill is facing opposition from fiscal conservatives who are concerned about the $132 billion it would add to the federal deficit. Senate Republicans (Sens. Olympia Snowe (Maine), Scott Brown (Mass.) and Susan Collins (Maine)) in particular have said they will try to block the measure if its costs are not offset. Additionally, Sen. Ben Nelson (D-Neb.) has signaled that he might not vote for the bill as it ups deficit spending.
Time is running out. If the bill does not pass, eligibility for federal unemployment benefits will expire June 2. Michigan has 500,000 people receiving unemployment benefits and without an extension, 300,000 of them will be cut off from benefits by the end of the year, which will put them on the street. Moreover, without the extension, 15 million Americans will exhaust their unemployment benefit by the end of the year. According to the National Employment Law Project, 1.2 million people have already lost some benefits and by the end of July, that number will double without congressional action. The delay may wind up being temporary, but it is infuriating advocates for the unemployed. Against this backdrop of contentious fighting over deficit spending, President Obama has renewed calls for more stimuli to battle sky-high unemployment rates, as he called unemployment a "crisis" and asked the congressional leaders to pass Medicaid funding as well as a new provision to save local workers' jobs.
In thinking about a policy agenda to address long-term unemployment, there are some key principles to keep in mind. First, there is a new face of the long-term unemployed, who have new and potentially different problems from prior recessions. Second, at this point in the economic recovery, the costs of inaction far outweigh the cost of action. Government will face another problems is still depending on the current Unemployment Insurance (IU) system. As the Cascade Policy Institute notes, IU has several problems such as a limited source of protection, workers pay for unemployment insurance, unemployment insurance is not economic stimulus, unemployment insurance discourages reemployment, and unemployment insurance increases lay-offs and delays rehiring. One of the policy alternatives that the Cascade Policy Institute has proposed is to convert UI into a hybrid of IAAs (Individual Asset Accounts). The IAA has been inspired by Chile's innovative UI system of Individual Unemployment Savings Accounts. In the Chilean system, employees pay 0.6% of their wages into the accounts, while employers pay 2.4%, which is split between the worker's individual account (1.6%) and a joint account to help subsidize low-balance accounts (0.8%). Upon unemployment, workers can draw 30 - 50% of wages, for up to five months. In contrast to the current U.S. system, the worker receives benefits regardless of whether he or she quit or was fired. After all, it is the worker's own money.