For Louis Rose, who worked at a Chrysler parts plant in Ohio, the recession began last winter. He lost his $320-a-week job in January because of slack auto sales.
But Rose isn't hurting for money that much. He's getting $193 a week in unemployment benefits from the state of Ohio, plus about $30 in federal "trade adjustment" benefits for workers made jobless by imports. Both checks are tax free.
With these two payments, Rose's weekly income is almost as much as he used to take home after tax when working.
Although not every out-of-work American will do as well as Rose, millions of jobless workers in the forthcoming recession will be kept off the breadlines and saved from despair by unemployment insurance and the many other federal and state programs that now exist to cushion the impact of job loss.
These programs were enacted mainly in the New Deal and Great Scienty eras. In the last recession in the mid-1970s, they pumped tens of billions of dollars into the hands of jobless workers, protecting them from destitution.
The Congressional Budget Office estimates that whenever the unemployment rate goes up 1 percentage point, programs like unemployment insurance and food stamps automatically pour out $5 billion to $7 billion a year in additional payments to unemployed workers and their families.
And this doesn't include special additional antirecession programs, like public service jobs and "countercyclical" revenue sharing, for which Congress voluntarily voted added billions in the mid-1970s recession.
The basic federal-state unemployment insurance system, established as part of the Social Security Act in 1935, is by far the most important cushioning mechanism for workers thrown out of jobs.
It is financed by payroll tax paid by employers but not workers. Over the years it has been expanded to cover more than 90 percent of the labor force, inlcuding federal workers and ex-members of the military, with special extra benefits for those made jobless as a result of international trade agreements.
Each state sets its own benefit level and tax rates to pay for it. Workers usually get some percentage of previous average weekly wage -- generally one-half. But states have maximums, which range from $90 a week in Mississippi and Alabama to over $200 in Ohio. (The D.C. maximum is $181; Maryland's $106; Virginia's $122).
Benefits are paid according to the jurisdiction in which the worker is employed, not where he lives. Distribution, however, can be made by the state of residence, which in turn is reimbursed by the state of employment.
Actual average payments are lower, because many workers don't make enough to get the maximum. For example, in 1979 the Ohio average was $114.59; D.C.'s $114.49, and Mississippi's, $63.81.
Although the payments differ, the system basically works like this: if a worker loses his job, he gets unemployment insurance payments based on his former salary and the state formula for 26 weeks -- more in a handful of states. This gives him up to a half-year to look for a new job.
Under a 1970 amendment, if unemployment nationally or in the state is especially severe, the worker may be eligible for 13 more weeks, for a total of 39. And under a special emergency law passed when unemployment was climbing to a May 1975 peak of 9.2 percent, the United States decided to finance a further (temporary) extension to 2 weeks and then 65 weeks for workers who had exhausted all entitlements and still hadn't found work.
Moreover, another law, passed in the early 1970s, and financed solely by the U.S. government, guarantees workers unemployed as a result of trade agreements a benefit level equal to about 70 percent of former pay -- substantially higher than normal unemployment benefits -- for up to two years. Auto workers now are qualifying for this program, and it is imposing a heavy burden on the federal unemployment accounts.
Benefits for all public unemployment programs were $4.2 billion in 1970, with about 6.4 million people receiving funds at some time during the year.
However, during the subsequent recession, recipients jumped to 11.2 million in 1975 and benefits to a total of $19.4 billion in 1975. This gradually dropped as employment improved -- by 1979 benefit totals dropped to $10 billion, despite inflation, as the number of claims waned.
But the system is still there as a safety net for unemployed workers as the country faces a new recession. The basic 26 weeks of benefits, plus the 1970 law extending for 13 weeks, plus the trade adjustment provision are still in place.
The special 1974 law providing extensions up to 6 weeks, however, has elapsed.
Unemployment today is 7 percent. If it were to reach the same levels as in 1975 and the same types of benefits were granted, total outlays in a year could mount as high as $27 billion in current-day dollars.
There is one problem: many of the states have never imposed taxes high enough to fund their unemployment systems adequately to face a severe recession. As a result, the states during the 1970s borrowed $5.5 billion from the Treasury to meet payment demands; and the federal unemployment (kept separate and financed by an employer payroll tax primarily) accounts had to borrow over $8 billion from the Treasury to pay the various extensions of eligibility weeks.
Very little of that money has been repaid. The federal accounts still owe the Treasury nearly $8 billion and the states still owe $4.2 billion. Big industrial states, hardest hit by the last recession, owe the most: Pennsylvania, $1.3 billion; Illinois, $946 million; New Jersey, $651 million; Connecticut, $371 million; Michigan, $235 million; and Massachusetts, $231 million. (The District of Columbia, though tiny by comparison, owes $65 million.)
If the oncoming recession is as severe as the last, many of the states that borrowed and still haven't repaid probably will have to borrow again. For this reason, there is a move afoot in Congress to let the states raise standards for receipt of the extra 13-week benefits, to save money. This, of course, would impose hardship on workers jobless for very long periods.
In addition to federal and state unemployment insurance, at least 1.9 million workers, according to a Labor Department study of larger firms, are protected by union contracts calling for the employer to make a form of private unemployment insurance payment if the worker is laid off. These workers are largely in the auto, steel, garment, machinery and rubber industries.
These agreements vary widely, buy one provision negotiated by the United Auto Workers goes like this: the worker is guaranteed a weekly payment equal to 95 percent of his previous take-home pay, less $12.50 because he doesn't have work-related expenses anymore. If all his combined federal-state unemployment benefits don't match this figure, the company makes up the difference.
The food stamp program is another cushion against joblessness. Its eligibility provisions are easier than cash-welfare programs. In the mid-1970s, the number of people qualifying for this program -- which, in effect, gives poor people free "stamps" worth food at the supermarket -- jumped to 19.5 million, but then tailed off as the recession receded, to 16.8 million in 1978.
Congress is trying to hold down the growth of this program to save money, but if the oncoming recession is deep and long-lasting, it is likely that several million jobless workers will be added to the rolls at least for a while, giving them the food to put on their table.
Other cushioning: mechanisms are the welfare and Social Security programs. Although it's hard to measure, experts say the availability of welfare for destitute low-income families, and the possibility of going on Social Security at, say, 62 instead of waiting until 65, become a safety net for some unemployed persons.
There is already some indication that the welfare and food stamp rolls are starting to edge up because of rising unemployment.
There is another program -- currently in disfavor on Capitol Hill -- that sustained jobless people during the last recession: public service jobs.
In 1974, under existing law, there were about 37,300 people in federally funded public service jobs. When the recession hit really hard, Congress rapidly expanded this program to 310,000 slots by late in 1975 -- with the cost, including the salary of the individual, usually figured at around $10,000 a job for a year.
Early in 1977 President Carter, as a counterrecession measure, sought and got approval to boost PSE jobs to over 750,000. This pumped billions in wages into the hands of these people, many of whom didn't have other public benefits. i
The program has now receded to about 450,000 jobs, and many in Congress want to cut it further. But if inflation slows and unemployment pops back up from today's 7 percent to the predicted 7.5 percent or perhaps to 8 percent or more, it's possible Congress will push the number of public service jobs back up to 750,000 -- adding $3 billion or so a year to current federal outlays.
The automatic increases in outlays for unemployment benefits during a recession, increases in food stamps and possibly in welfare and Social Security caseloads -- these will make it much harder to balance the budget during the current recession. If added PSE jobs are voted, it will be even harder.
And to a certain extent, by pumping up purchasing power, all these protective programs will work against the general tendency of the recession to cut inflation by shriveling demand.
However, in recent U.S. history, Congress, the president and the nation in general have always calculated that these added costs are well worth it.
As one congressional economist put it, "We just don't let people starve in a recession."