THE WORST RECESSION since World War II is over for most Americans and the recovery is in its second year. But unemployment is unlikely to return to the relatively low levels of the 1970s, tens of thousands are underemployed and many of our basic industries continue to decline, even as some experts foresee a new recession ahead.
Disagreeable as all this may be, it does provide us with a unique opportunity. We still have time to correct the weaknesses in America's unemployment-insurance program before the next economic downturn. In place of a program that now provides only temporary cash benefits, we should install a long-term employment system that encourages employers to retain workers during economic slowdowns and provides incentives for the unemployed to be retrained and reemployed.
Still-idle auto workers in Michigan and laid-off steelworkers in Pennsylvania might be surprised to learn of the help people like themselves receive in countries with far better unemployment-insurance systems than our inadequate one.
If they lived in West Germany or one of nine other western nations, they might not have lost their jobs at all, despite hard times. Employes in those countries do not face the harsh choice ours do between full-time work or full-time unemployment. Firms facing economic downturns can put workers on short weeks knowing that their pay will be supplemented by unemployment insurance that is available to part-time workers.
In Sweden and several other western countries, unemployed workers with long work histories are eligible not only for unemployment insurance, but also for government-supported retraining programs to enhance their future as workers and to make them productive taxpayers, rather than recipients of government aid. Japan will extend benefits for up to two years if the unemployed individual is in a retraining program.
Canada also provides unemployment benefits during training courses, and for six weeks thereafter, so newly proficient persons have time to acquire a job. And in the Netherlands, individuals can retain their benefits even after finding a job, if they are part of an on-the-job training program.
If they are handicapped or older and live in Japan, they qualify for even more help, through an allowance that helps them pay for necessary clothing and transportation when they first find a job.
And if they had been laid off in countries as disparate as Socialist President Francois Mitterrand's France or Conservative Prime Minister Margaret Thatcher's England, they might be eligible to receive up to six months of their unemployment benefits in a lump sum, to help them start their own business, with added technical assistance to provide budding entrepreneurs with a better chance of success.
In America we have used unemployment insurance simply as an income-support program for the unemployed. But with permanent changes in the structure of our economy now creating a new class of unemployed or underemployed blue-collar workers, it is time to adopt the approach of our western allies and use unemployment insurance as a practical tool to help keep people at work or retrain them for new jobs.
The oil price shocks of the 1970s, the recessions of 1974-75, 1979-80 and 1981-82 and our shift from a manufacturing to a service-and-information economy have had a devastating impact on the American work force. High unemployment rates are likely for the foreseeable future, despite recent declines in the rate. This means the nation can look ahead to an extremely expensive benefits program. During the 1974-75 recession alone, the unemployment-insurance system had to borrow $19 billion from the federal treasury to pay those eligible.
Nearly 2 million manufacturing jobs have been lost in the past decade. Most are permanent losses because automation and foreign competition have eroded job opportunities in basic industries. The new unemployed deserve more than temporary relief provided by a government check during an often desperate effort to find jobs.
Unemployment insurance in America has gone largely unchanged since its enactment in 1935 at the depth of the Depression as a program to provide the unemployed with income during periods of temporary unemployment.
It is really 50 individual systems, not one. Firms channel a percentage of their payrolls into state trust funds. The states finance the basic 26 weeks of coverage and set their own rules for eligibility, duration and benefit levels. The federal government has helped pay for extended benefits up to 65 weeks.
Unemployment insurance has been a prompt and useful anti-recession weapon, and a model of Keynesian economics. As a recession begins, more unemployment insurance mo flow into the economy. In better times, state trust funds are replenished. For many, this system works. Fully half of those on unemployment find another job within nine weeks and nearly 75 percent do in six months -- within the basic 26-week program.
But for many of the rest, the cash benefits become an end in themselves -- a source of income that ends abruptly when coverage finally ceases. This system does not prepare today's unemployed steel, auto, coal and rubber worker for the jobs of tomorrow.
From its creation until the mid-1970s, unemployment insurance's history under Democratic and Republican presidents, was one of steadily expanding coverage. Benefits were extended to additional workers, for longer periods of time -- although even today only about half the unemployed are eligible because a history of steady work is a precondition to receiving benefits.
Congressional support for unemployment insurance waivered under the financial stresses imposed by back-to-back recessions in 1980 and 1981-82. Critics said the system discouraged low-income workers from seeking a new job because it gave them as much as three-quarters of the amount they would have earned, after taxes, from a job.
The system was also faulted for providing tax-free benefits for second workers in high- income families -- benefits that were almost as much as their after-tax earnings from regular employment. Critics noted that unemployment insurance could encourage layoffs, rather than shorter work weeks, during a recession, because employers felt it was more humane to make their workers eligible for full unemployment benefits rather than reduce their wages.
Under both Presidents Carter and Reagan, restrictions were imposed, cutting many people off the roles and making benefits for some taxable. Congress refused to pass a proposed expansion of unemployment insurance while unemployment was rising during the summer of 1980. President Reagan's 1981 cuts left hundreds of thousands ill-protected against the worst recession of the post-war era. There is no longer a strong bipartisan coalition supporting our existing benefits system. All the more reason to introduce reforms.
The key is to connect unemployment benefits to an expanded employment and training effort.
In West Germany, the Federal Employment Institute coordinates unemployment insurance with vocational education, training and job placement. Out-of-work West Germans can take advantage of a national data network run by the institute that collects information on all jobs available. West German law requires that job vacancies be listed with the service, which is a national monopoly. Unemployed Americans rely primarily on the weak and ineffectual placement system of the U.S. Employment Service. This prolongs the period that they depend on unemployment benefits.
In Sweden, only a fraction of total expenditures go to pay unemployment insurance; the bulk is channeled to vocational training and payments to industry for hiring and training workers.
In both countries, labor, management and government together direct the employment and training systems to assure their relevance to the actual needs of the workplace -- and to sustain broad political support for the effort.
The Europeans provide job training and other employment benefits to all who need them, regardless of their income level, much like the original New Deal programs for the unemployed. But our experiments with employment and training programs such as the Comprehensive Employment and Training Act (CETA) and the Jobs Corps have been restricted to very low-income people.
Many nations, notably Sweden and Japan, rely heavily on incentives to private companies to keep workers employed, to train and retrain workers and, in Japan, to provide incentives to firms to hire workers from declining industries. As its shipbuilding industry declined during the last decade, Japan successfully retrained 50,000 workers. We can do no less for the hundreds of thousands of workers in our declining basic industries.
Many nations also use public employment, especially to ease the desperate situation of young workers. Despite its current unpopularity here, jobs provided by government as a last resort are still preferable to welfare or hunger.
We should discourage the out-of-work from spending long periods of non-productive time on unemployment compensation, and emphasize putting people back into the labor force as quickly as possible. As in Japan, cash benefits should be used initially to stabilize the lives of the suddenly unemployed. But the emphasis should then shift to job retraining, not just to government checks. After a worker exhausts the basic 26-week benefit, further help should be conditional on participating in an organized search for a job or joining a job-training program.
The fact that each of the 50 states runs its own unemployment insurance program creates an opportunity to experiment with what works best in our country. Experiments such as these have promise:
States could permit workers to use their extended unemployment-insurance payments to help pay potential employers to train them on the job.
As the Congressional Budget Office recommended in 1981, unemployment insurance could be paid to those forced onto shorter work weeks, without requiring -- as present rules do in many states -- that any income earned at all must be deducted, dollar for dollar, from an individual's unemployment benefits.
California now has such a program. It saves businesses the cost of rehiring and gives workers greater job security and higher incomes than they would receive from straight unemployment insurance if they were unemployed.
States could make lump-sum payments, along the lines of the French and British systems, to help the unemployed start a business or seek work in more promising areas of the country.
States could copy California, which is using a small increase in its state payroll tax to finance training programs for those unemployed covered by unemployment insurance. Each program is approved by a panel that includes representatives of industry, labor and government.
States could create the type of employer-employe fund used in Japan to pay for workers to upgrade their skills while still on the job to lessen the likelihood of future layoffs.
The new "dislocated worker" provision of the 1982 Job Training Partnership Act provides a model -- but a greatly underfunded one -- on which to connect unemployment- insurance payments and the training of displaced workers. Local councils with representatives from business and labor provide training opportunities in the private sector. Training funds are available to anyone caught in plant closings or facing long periods of unemployment, regardless of their previous income. A continuation of benefits could be linked to an individual's receiving retraining.
Reforms in unemployment insurance and needed improvements in training programs are not a panacea for unemployment. Sound fiscal and monetary policy and a growing economy are central to curing the malady. But more is needed to help American workers adjust to the tremendous changes in our economy. That is why a reformed unemployment program should be a top priority for Congress and the next president, whoever he may be.