MORE PEOPLE are now depending on unemployment insurance benefits than at any time in the system's history. Yet the federal-state system is itself in dire condition with scant prospect for a speedy recovery.
As an article in this paper yesterday pointed out, the severity of the recession has forced states to borrow record amounts from the federal Treasury to cover benefit payments. Accumulated debt is rapidly approaching $9 billion. Even so, only 45 percent of the unemployed are getting benefits -- a far lower proportion than in the last deep recession in 1975 -- and the extra 10 weeks of federal benefits Congress enacted last summer will soon run out for many workers.
To make things worse, budget cuts have forced states to close some unemployment-insurance offices and to cut back staff in others. The unemployed get longer lines and poorer service, while money is wasted through less careful checking of eligibility. And just when their resources are lowest, borrowing states face new penalties for failure to repay federal loans.
Things didn't get this bad all at once. In theory, states should run their unemployment insurance systems on a countercyclical basis, building up reserves in good times and drawing them down in bad. But many states haven't mustered the political will to raise enough taxes from employers to provide an adequate cushion -- a propensity encouraged by the availability of federal loans that were previously interest free. States also failed to take adequate account of the fact that inflation was pushing up benefits while limits on taxable wages stayed frozen at very low levels.
Not all hard-hit states are in trouble. Of the 10 states with the highest insured unemployment rates, only five are in debt to the federal Treasury. That suggests that some correction should come from states' making hard decisions to bring their revenues and benefits more in line.
It is neither realistic nor fair, however, to expect a handful of states to bear the burden of the structural changes that the economy is weathering. Recent changes in the law have already raised the minimum wage base for the unemployment tax and imposed needed discipline on state borrowing. With business failures mounting, adding new burdens to payrolls in hard-hit states is an especially unattractive option.
The lame-duck Congress will face pressure for another quick injection of federal aid. Putting the unemployment benefit system back on its feet for the long-run, however, requires a more careful look at its structure, including a better definition of federal responsibility for helping the jobless adjust to the changing fortunes of the economy.