IN ADDITION to any job creation plan that may be enacted, Congress needs to take quick action to shore up the unemployment insurance system (a matter that former senator Jacob Javits puts at the top of his list of jobs proposals on the opposite page today.) The 48-year-old state-run system is in precarious financial condition at the same time that it is failing to help many of the unemployed in greatest need.
The House Ways and Means public assistance subcommittee held hearings last week to find out how the system and its millions of beneficiaries were holding up during the severest recession since the 1930s. From laid-off workers in the industrial Midwest, the subcommittee heard testimony about the hardships of people who have exhausted all unemployment benefits. Between 80,000 and 90,000 workers are using up their state-provided benefits each week. Less than half of the 12.5 million people unemployed in January were receiving unemployment benefits, and the number of long-term jobless rose sharply. Many of the families of the unemployed are now without medical coverage and are ineligible for welfare help.
From state governors, the subcommittee heard that the system is putting severe financial strain on state governments at a time when revenues are falling. By the end of last year, 22 states had borrowed almost $11 billion from the federal Treasury to cover benefits. The Labor Department estimates that by the end of this year, 35 states will have had to borrow a total of $14 billion. Interest payments on this debt alone are expected to cost states $625 million. In the state of Michigan, where unemployment is at disaster levels, federal interest charges are running at $216,000 a day.
The federal government has been helping out by paying for additional weeks of benefits for the unemployed. The administration has also proposed continuing that program for people newly exhausting state benefits--but not adding extra weeks for those who have already run out. The administration also proposes to let states use some of their unemployment taxes to pay for retraining the jobless. That's not much of an offer, however, since most states aren't collecting enough taxes even to cover benefit payments.
Whatever legislation is passed needs to deal with the fact that unemployment is a national problem. It doesn't make sense to force hard-hit states to raise taxes on the employers in their states in order to pay for unemployment benefits. It is true that in the past some states failed to bring their unemployment benefits and taxes in line with each other, but in recent years even the most recalcitrant states have made substantial efforts.
Suspending interest payments would be an important step in the right direction. So would federal payments for additional benefits and training for the long-term unemployed. This would be expensive--but it is only one of the many costs of deciding to fight inflation with unemployment.