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Reforming Unemployment Insurance

By Matthew Yglesias on August 18, 2011 at 12:15 pm

"Reforming Unemployment Insurance"

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I have a special place in my heart for Mitt Romney, so while I suppose I shouldn’t be surprised, I am disappointed that his proposal to reform Unemployment Insurance looks to be nothing more than a regressive income tax cut. I do admire the modern conservative movement’s zeal for not only touting regressive income tax cuts as the solution to 85 percent of social problems, but also for their extraordinary ingenuity in turning things that don’t appear to be regressive income tax cuts into regressive income tax cuts.

That said, I don’t think progressives should just stick our fingers in our ears and defend the status quo. The actual operation of the Unemployment Insurance system is unnecessarily degrading, uncertain, and dehumanizing while failing to maximize the opportunities for the broader economy. If you have a car, and your car is insured, and your car gets totaled you don’t get a check every two weeks to help you with bus fare. Nor are you told that the checks will stop coming as soon as you buy a replacement car, but that in order to stay eligible for the checks, you need to demonstrate that you’re making good faith efforts to try to obtain a replacement car. Consequently, we don’t have political controversies about whether or not auto insurance reduces auto sales or unfairly subsidizes the bus. Your insurance works like insurance. “Car got destroyed” is a triggering event, and what it triggers is a payment of money. Normally people spend the money on getting a replacement vehicle, but it’s their money and they’re allowed to do what they want with it.

Unemployment Insurance should be like that. Insurance against the possibility that you’ll get laid off. If the bad thing happens to you, you get the payout. What you do next is up to you. The role of the government in this process shouldn’t be to micro-manage your job search, it should be to take advantage of the government’s risk-pooling efficiency to create a universal, nationwide single-payer Unemployment Insurance system. People who work pay taxes into the system (you can cap the tax liabilities as with the present system), and people who get laid off get lump sum insurance checks and then keep on living their lives. Not as welfare recipients, but as insurance beneficiaries.

In addition to treating UI recipients in a more generous and humane way, this would increase UI’s countercyclical punch. It would mean that a period of mass layoffs results in a gigantic and nearly immediate surge in payouts. The current system is also countercyclical, but it works with a needless lag. The surge comes in the form of a surge in the duration of payments, which means it only comes into effect after the economy has parked itself in a ditch.

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