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The Economic Case for Strengthening Unemployment Insurance Jason Furman Chairman, Council of Economic Advisers Center for American Progress Washington, DC July 11, 2016 Challenge #1: Declining Labor Force Participation Percent 68 Labor Force Participation Rate, 1948-2016 66 Jun-16 64 62 60 58 56 1948 1958 Note: Shading denotes recession. Source: Bureau of Labor Statistics, Current Population Survey. 1968 1978 1988 1998 2008 1 Challenge #2: Less Space to Address Future Recessions Real 10-Year Benchmark Rate in Selected Countries Percent 8 7 6 France 5 4 Germany 3 2 2015 Japan 1 United States 0 United Kingdom -1 -2 -3 1985 Source: National sources via Haver Analytics. 1990 1995 2000 2005 2010 2015 2 Challenge #3: The Changing Nature of the Employment Relationship Alternative Work Arrangements, 1995-2015 Percent of Employed Who Worked During Survey Week 20 18 15.8 16 14 12 10 9.3 10.1 8 6 4 2 0 CPS, Feb-1995 CPS, Feb-2005 RAND, Oct/Nov-2015 Note: Alternative work arrangements include independent contractors, on-call workers, temporary help agency workers, and workers provided by contract firms. Source: Katz and Krueger (2016). 3 Why UI is Economically Important • Provides households with income when it is needed most • Acts an “automatic stabilizer,” reducing the depth of economic downturns • Helps improve the functioning of labor markets by keeping workers attached to the labor force who would otherwise drop out • Provides liquidity and, in turn, helps workers form better job matches (Nekoei and Weber 2015) 4 The Downsides of UI Have Been Overstated Job Finding vs. Unemployment Exit Probabilities: 20-Week UI, Austria Weekly Hazard Rate 0.20 0.18 0.16 0.14 Unemployment Exit Probabilities 0.12 0.10 0.08 0.06 0.04 0.02 0.00 Job Finding Probabilities 0 Source: Card, Chetty, and Weber (2007). 10 20 30 40 50 5 Shortcoming #1: Declining UI Coverage Percent 80 Share of Unemployed Workers Receiving UI Benefits, 1972-2015 Regular programs 70 Federal programs 60 50 40 30 20 10 0 1972 Source: West et al. (2016). 1977 1982 1987 1992 1997 2002 2007 2012 6 Shortcomings of the Current UI System—and Reforms to Address Them 1. Declining Coverage • Require State programs to cover part-time workers, newer labor market entrants, certain lowincome and intermittent earners, and workers who leave work for compelling family reasons • Require that all State programs provide at least 26 weeks of coverage 2. Insolvency of State Programs • Broaden FUTA taxable wage base from $7,000 to $40,000 while cutting rate from 0.8 percent to 0.167 percent and require States to broaden taxable wage base 3. Ineffective Countercyclical Triggers • Establish new, permanent, 100-percent Federally funded Extended Benefits Program to provide 52 additional weeks of benefits to States experiencing high or rapidly increasing unemployment 4. Incentives to Reduce Employment, Not Hours • Provide incentives for States to create work-sharing programs 5. Insufficient Support for Job Search • Provide incentives for States to create temporary work-based training programs and to allow workers to continue receiving UI benefits while participating in an apprenticeship or on-the-job training 6. Insufficient Insurance Against More Adverse Job Prospects • Establish new wage insurance system to replace up to 50 percent of lost wages for qualifying workers who take new, lower-paying jobs earning less than $50,000 7 The Economic Case for Strengthening Unemployment Insurance Jason Furman Chairman, Council of Economic Advisers Center for American Progress Washington, DC July 11, 2016