THE RIGHT way to manage an unemployment insurance system is to plump it up in good times so that it can serve as a cushion in bad. In the more than eight years of economic expansion now ending, neither elected branch of the government followed that rule. Only now, in the face of recession, are many in Congress considering strengthening the federal-state structure.
That's a laudable goal, but the advocates need to be careful on two counts. Under the terms of the budget agreement, whatever they do must be paid for. With a deficit above $250 billion a year, fiscal policy is already stimulative enough -- too stimulative -- and the rising unemployment rate should not become the basis for making it more so.
The legislators must also make sure they are solving the right problem. The traditional way of strengthening the system in the face of recession has been to extend benefits beyond the basic 26 weeks or six months in the law. In the Reagan years, for both fiscal and philosophical reasons the trigger for extended benefits was raised; it takes a higher unemployment rate than previously to turn them on. Proposals exist to ease the device, perhaps by letting a high local unemployment rate turn the extended program on in less than a full state. That will help even if, as administration and many other economists predict, the official recession is short. In certain regions and industries it will be longer; in some parts of the country -- the Northeast, for example -- it may already be six months old.
But the greater problem with unemployment insurance is not the exhaustion of benefits but the inability to qualify. In recent years coverage has declined; by the latter 1980s, fewer than a third of the unemployed were making it onto the rolls. Partly this reflects changes in the work force -- not so high a share of the steady primary workers for whom this countercyclical program was designed -- but partly also it reflects a change in the program. Mainly for budgetary reasons, states have narrowed eligibility, even as Congress has put a knife to benefits by (rightly) making them taxable as an offshoot of tax reform.
Though it varies from state to state, unemployment insurance has thus become a much chancier safety net closer to the ground. The easiest way to fix it would be to set new minimum national eligibility and benefit standards; the dedicated tax would have to be raised to match. Congress in recent years, not entirely with state support, has put new floors beneath two other federal-state programs, requiring that Medicaid be extended to more of the poor while Aid to Families with Dependent Children include a new effort to make welfare mothers self-supporting. No comparable partial federalization has been proposed or seems likely to be in this case. Having waited this long, Congress is much more likely to put a patch on the insurance system than to restructure it.