MR. ROBERT REISCHAUER: I'm Bob Reischauer and my initial function is to turn the chair over to Wayne Vroman, and then he'll return it back to me.
MR. WAYNE VROMAN: Just briefly, many of you are here because there is actual unemployment insurance legislation that is likely to come to pass, perhaps within a month, perhaps considerably sooner than that. There's a panel of four people here today who will talk about various aspects of the labor market and unemployment insurance. But, as in any sort of organizing of a meeting, there are other people with special interests or expertise that also need to be recognized and may want to participate more actively than simply being passive members of the audience.
So I want to identify people who are not on the panel but who may want to speak or may be called upon to speak. From the Office of Workforce Security at the Labor Department, the senior actuary, Mike Miller, is down here at the end of the table, Lynn Webb, next to him, is from the legislation group at the Office of Workforce Security. Additionally, we have a couple of people from the National Governors Association. Martin Jensen is here, with the very distinguished white hair, across from me on the table.
Additionally, yesterday afternoon, Wendell Primus from the Center for Budget and Policy Priorities indicated he would be here. Now, he may have sent some other person from CBPP—I'm not sure. But they have been influential in framing some of the legislation, or at least one of the proposals that's going forward. So if there's someone from CBPP who might be interested in speaking, or Wendell may show up as this unfolds. I did want to introduce those other people, identify them, and I'll just turn it back to Bob.
MR. REISCHAUER: Okay, my role here is to be the moderator and the enforcer, and to start by introducing the panel just briefly. Probably, they don't need any introduction because they're well known faces in this area. We're going to start with a brief overview by Harry Holzer, who is a professor of public policy at Georgetown and a visiting fellow at the Urban Institute, and he was the former chief economist at the Department of Labor, author of a number of books, and affiliated with virtually every policy research center dealing with unemployment and welfare issues in the nation.
Kelleen Kaye will follow Harry. She, like some of us, started her career in Washington at the Brookings Institution and then moved on to the Urban Institute. After a stay at Michigan getting educated, she is now at HHS, and she will discuss some of the findings at the national level on the way unemployment, employment, and the unemployment compensation system affect vulnerable groups.
Wayne Vroman, a principal research associate at the Urban Institute, will be next. Wayne has been a professor or taught at Oberlin, Berkeley, and the University of Maryland, and worked at the Social Security Administration, and OEO, and has authored a number of books relating to unemployment compensation. The final speaker will be Rich Hobbie, who is with the National Association of State Workforce Agencies, where he is the unemployment insurance director. He has also been at the Department of Labor, staff director of a Subcommittee of Ways and Means on the Hill, the Congressional Research Service, but of course, he got his start at the Congressional Budget Office, where we were colleagues. And I think you came straight from Ohio State to CBO.
And so, I think we have a wonderful panel here, and I wield the enforcement mechanism here, and I know it's not going to have any effect if I show it directly to them. So I'm counting on peer pressure here, and I will show it to you, and you will begin glaring at them when they have gone over their time limit. Harry.
MR. HARRY J. HOLZER: Well, today's session is on unemployment insurance, and I think the other panelists are going to talk a lot about the details of the system, of the eligibility issues and finance issues and the like, so I thought I would start just by providing some broad context. What do we really think the problem is? How much of it is an unemployment insurance problem as opposed to other things? And if we're talking about a potential solution to this, what components should be there in unemployment insurance, as well as some other things?
And as I see it, there are sort of two pieces to this problem. One is that some workers, low-wage workers particularly, in the economy, lack access or may lack access to any safety net at all during a downturn when job availability is going to much more limited. The second set of problems is people who do have access to a safety net, one or the other, but those safety nets have limitations, either the duration of the benefits are limited and may not be automatically extended, or the level of support may not be what we'd like it to be, or there may be particular gaps like health insurance and other things.
I think a lot of the discussion of at least some of the proposals we've heard to date, particularly from the administration, really focuses more on the second issue—some of the particular holes for limited sets of workers and limited sets of circumstances—and doesn't deal more broadly with the overall issues of access to some safety net, whether it be unemployment insurance or something else. Now, the basic fact that makes us concerned about this is, first of all, that right now only about a third of unemployed workers are covered by unemployment insurance.
That goes up somewhat during a downturn, and during the most recent downturn in the early '90s, that number was somewhere in the range of 40 to 50 percent. Nevertheless, even in a recession a lot of people are not eligible for unemployment insurance and don't get coverage. And there's a lot of different reasons for eligibility, and Kelleen is going to talk about those in a few minutes, so I won't go into that. Nevertheless, there are big holes in UI coverage.
Now, historically, we didn't worry that much about that, simply because there was another program called welfare that picked up a lot of the slack. And low-wage women, low-income women who didn't have access to unemployment insurance, could go on this other program. And it was an entitlement, so there was no question about their eligibility. And it was not an undue burden for the states because the states didn't pay the whole cost under a match and grant program, which AFDC (Aid to Families with Dependent Children) was. The federal government picked up half or more of the extra cost during a recession.
So we knew in a recession that the rolls were going to go up, and they did, estimates say five to ten percent for every percentage point increase in the unemployment rate. And between these two programs, most people got covered one way or the other during a downturn. Now, of course, we all know that's changed. On the TANF (Temporary Assistance for Needy Families) side, the entitlement aspect is gone, the states have much, much more discretion over who to let on and for how long, and states have much more of an incentive to limit access to welfare because they bear the full cost now. In a block grant system as opposed to a matching grant system, the states will bear the full cost of any increases in the rolls.
During the good times a few years ago, the states were piling up big surpluses in TANF. As the rolls were dropping much more rapidly than the states anticipated, states felt some pressure to use the money or lose it, so they started reallocating it to lots of other needs. Many of those were very worthwhile things, childcare expenditures and the like, other supports for low-wage workers. The problem is now, when the need for TANF dollars goes back up, a lot of states are in a bind because they reallocated the money elsewhere and it may be hard to pull that money back from those other allocations to pay for TANF recipients, which, by the way, as we know, is not a group with a lot of political support.
There used to be a federal contingency fund, maybe to bailout the states in times of trouble. I believe that fund has already expired with the last fiscal year. Even when it was in operation, the size of the fund was relatively small, $2 billion. There were a lot of hoops that states had to jump through in order to have access to the money, many of which may have been set unrealistically high on the basis of numbers from earlier in the 1990s. So a lot of states wouldn't even have had access to that.
So that's the situation. Now, you have two safety net programs, both of which have significant holes in them, and we worry about the number of people that may fall through and not land in either safety net, as well as the limitations of each net that may catch these people. Many questions remain as we enter this downturn about how serious all of this will be. Number one, we don't know what the magnitude of the recession is going to be. We don't know what the duration of the recession is going to be, whatever its magnitude is. And the duration actually will be very important, not only for determining access to UI benefits, but also for the question of, on the welfare side, whether time limits really will start kicking in for a lot of people that will further limit the ability of states to keep people on the rolls.
We don't know exactly how hard it's going to hit a lot of these low-wage women. We know that they have very limited skills and very limited work experience, so we know that they are the most vulnerable; they are truly the last in and at least at risk of being the first out in a recession. On the other hand, many of them have piled up more work experience in the boom period over the last four or five years than we thought they would. So that may shield at least some of them from layoff; it may make more of them eligible for unemployment insurance than we had previously thought. And again, Kelleen actually has some numbers on that, so I'll defer that to her.
We don't know how the states are going to respond to all this influx in the demand for recipients. And we haven't even touched on other populations like low-wage men, who have much more limited access to TANF and also very limited access to the UI system. Their needs ought to be on the table as well during this whole discussion.
So where does all this leave us as we turn to the other speakers? Today, we're going to focus on unemployment insurance; I understand that. I guess I'd like to walk into that discussion with a broader view of the range of the problem and the different populations that may have limited access to some kind of safety net, as well as some of the gaps in that net. I think we need to talk about unemployment insurance reforms broadly, as I think the other speakers will today, maybe more broadly than some of the proposals that we've heard floating around. But I think we always want to, in the back of our mind, remember that unemployment insurance, at its best, is only going to take care of some of this problem.
And we also want to think about other changes in TANF, possible other funding streams through the states that might complement any package of unemployment insurance benefits, either changes in the work rules in TANF or, as I said, in the funding—some kind of countercyclical funding stream to the states that would enable them to fund TANF or job creation—or something to make sure that in all of its different pieces, some kind of real safety net occurs as we enter this downturn. I think I'm well within my time limit. I'll stop nonetheless.
MR. REISCHAUER: No, you're 35 seconds over it, but that's all right. [Laughter.]
MS. KELLEEN KAYE: Wayne asked me here today to present some findings on some research that I actually did last spring. And at that point, I conveniently put aside the more difficult question of answering, well, what is the most appropriate package of supports and services for these disadvantaged workers that we're worried about, and skipped to the easier question to answer, which is, now that we have a large segment of the disadvantaged population sort of moving from the welfare safety net into the labor market, can we assume that the unemployment insurance system is going to be their new safety net? If we do make that assumption, is that a correct assumption, and are there any data out there that would help inform that?
And since I have very limited time, I'll skip right to the punch line. The data that I looked at in fact, I guess not surprisingly, indicates that there is a big source of concern out there that the disadvantaged worker population is going to have a great deal of difficulty qualifying for these benefits for a variety of reasons. And the numbers that I can show you maybe help paint a little bit of a picture of why that might be.
It revolves around the eligibility requirements that a worker has to meet in order to qualify for UI. And probably most of the people in this room are basically familiar with what those requirements are. The four quarters prior to becoming unemployed, you have to have accumulated a certain amount of work experience, both in terms of the amount that you earned and also the amount that you work. And those are called the monetary requirements. There are also what we call non-monetary requirements. The reason that you lost your job has to be a qualifying reason, and you have to be available for work and seeking work.
And what I found was that, in fact, the monetary requirements were not as big of an issue as we expected. Now, it's important to point out that the data that I have, which was the most recent data available, pertains to outcomes in 1997, which we all know was a quite prosperous period, and what we see is that about 82 percent of the sort of at-risk, vulnerable workers that I was looking at really appeared to have accumulated sufficient work and wages to be able to meet these requirements. And while some people may feel that that's not that surprising, because it was an economically prosperous time, I think for a lot of policy [analysts] thought that there's no way that these people would meet the requirements.
And so, I think what this says is that as long as people are in a time when they have some economic opportunity, some ability to participate in the labor market, there's a very large share of them that are going to be able to meet the requirements in each of their states. Now, what I did want to point out, though, is that we don't want to forget the roughly 20 percent that don't qualify. And these 20 percent were working, and they averaged 23 weeks of work and wages in a little over two quarters, with annual earnings of $2,000.
And so this isn't trivial work experience that these folks had, and in spite of that, they still weren't able to qualify. So I think it's important that while most of them do qualify, we don't ignore the fact that a significant portion of them do not. But really, what I found out—the most important story—was with respect to the non-monetary qualifications, which we don't tend to focus on as much. Maybe people aren't as familiar with them, and we certainly don't have as much data that gives us a clue about people's likelihood of meeting these requirements. But the data that I looked at at least give us a bit of a hint, I think.
What the data allowed me to do is to look at the reasons people gave for separating from their jobs. And you know, like slack work or laid off, that tends to be kind of the traditional UI applicant that we think of. But there are people that left their jobs for a lot of other reasons as well—going back to school, suffering health or disability, taking care of themselves or their family. All of those reasons are less likely to qualify in a great number of the states.
And so, if you take these reasons and kind of do a very back-of-the-envelope comparison with what the requirements are in the states that they came from, I came up with a rough guess of how many of these people would be likely to have a qualifying separation. And, in fact, I found that probably about 27 percent seemed very unlikely to meet this requirement of having a qualifying separation. 41 percent seemed like they were somewhat likely; they were in the middle. They might qualify, but a good share of them might not. And only a little over 30 percent would be very likely to meet this requirement. And this was just measured among people that met the monetary requirements. So even if they got past that first hurdle, they're still going to have what looks like a big problem qualifying for UI.
Now, there's a second set of non-monetary requirements that, as I said before, deals with being available for work and actively seeking work. And again, the data don't tell me that directly, but they give me a clue. If I look at people who are working for less than 52 weeks, and I see the reasons why—they were on layoff or said that work was not available—they probably would be available for work in the event that it was there. So they, we can imagine, would be quite likely to meet that requirement.
Now, we have other people who said that they weren't working because they were ill or disabled, taking care of home or family, going to school—a variety of other reasons. And again, depending on which state they live in, they're more or less likely to qualify. Most of them will not qualify. So again, if I do that sort of ballpark comparison of the reasons they gave versus the eligibility requirements in their state, it suggests that 40 percent, in fact, were unlikely to meet the availability requirement.
Then you sort of lay over the top of that whether they were actually looking for work during that time. And those two factors put together suggest that 64 percent were unlikely to meet both of these non-monetary requirements. So that, as I said before, highlights that. While we tend to focus a lot on the monetary requirements, there are some really big issues on the non-monetary side that need to be thought about.
Now, the last set of results that I was asked to speak about concern part-time workers. And the fact is that in many states, people who apply for UI but say that they're only seeking part-time work are going to be automatically ineligible. And there have been a lot of reform proposals on the table essentially saying that if you apply for UI and are only available for part-time work, you could be eligible, provided that you met the monetary requirements and did so with some part-time work.
How important is that for the population of disadvantaged workers? There are a few things that speak to that. One is, are very many disadvantaged workers part-time? And, of course, as you would expect, quite a few of them are. Roughly one-third of the disadvantaged population of workers I looked at were part-time.
And, of course, the next question is, would they really be able to meet the monetary requirements, given that they're probably low-wage and they're only working part time? And surprisingly, the data that I looked at suggests that 70 percent of them would be able to meet the monetary requirements. So, the reforms could very well be quite relevant for these people.
The last part of the puzzle that I wanted to look at for part-time workers was—I was not looking in my data at people who worked part time, became unemployed, and said they were only seeking part-time work because I couldn't identify that in my data, and I probably would have samples of about five people. But what I could do is, among people that were working part time, find out the reasons why they were doing so. And again, that gives us a clue as to whether they would really be seeking part-time work.
And, in fact, 39 percent said that they were part-time due to slack work. So these people, if they became unemployed, would quite likely seek full-time work if it were available. They're probably already potentially eligible, so the reforms may not have that much relevance for them. But 61 percent said that they worked part time because they wanted to, or for some other reason. And that suggests that this is a group of workers that probably would show up in the UI office saying they're seeking part-time work. And this is the group that the proposed reforms would be quite relevant for.
And so, I think this suggests that the reforms that we're talking about really would have potentially a very important impact on the group that a lot of you are concerned about, that is, sort of the at-risk, low-wage workers.
In conclusion, I just wanted to run down the main points. It does appear that at least during an economically prosperous time, which was 1997, most of the workers appeared able to meet the monetary eligibility requirements. What we find, though, is that if we then look at the non-monetary side, workers seem to have a much more difficult time. 27 percent appeared very unlikely to have a qualifying separation, and 64 percent seemed unlikely to be both looking for and available for work.
So I think the more that we can start looking at the non-monetary side of things, that will be a very important issue. Part-time work is obviously a component of the at risk labor market, and it seems like the reforms that we're talking about are highly relevant for this population. A third of these workers were part-time, 70 percent appeared able to meet the monetary requirements, and 60 percent seemed to be sort of that pool that might show up at the UI office and say that they are actually seeking part-time work. And with that, I'll wrap it up.
MR. ROBERT REISCHAUER: Thank you. Wayne.
MR. WAYNE VROMAN: Let me give you a preview of where I'm going in three areas and three bottom lines. The first area is to talk about UI claims in the context of the current uncertainty of what's happening in the labor market. We're not sure if it is a serious recession, and we probably won't know for a couple more months, at least.
The second area is to talk about the financial condition of the unemployment insurance system. There it's a good news story. There's lots of money in the state trust funds and lots of money in federal trust funds. In fact, so much money in the federal trust funds that there's about to be a disbursement back to the states because the money is flowing over the top of the legal requirements. So that provides a basis for some help to the states, potentially, as well as direct help from federal legislation that may be forthcoming.
The third item is to talk about access to benefits, and that will sort of explain itself as I go through it. So, going to the first area, here is the time path of claims for unemployment insurance benefits -- initial claims, which is people filing for the first time, and continued claims, which is people who are in the system who are filing for additional weeks of benefits. What the chart is showing is year over year changes for the various weeks within each month. So the first week of the year 2000 compared to the first week of 1999, that ratio coupled with similar ratios for the second, third, and fourth week.
So when you're at zero, there's been no change from the previous year, and as you go above zero, you're showing larger and larger increases from the previous year. What you see is, by the time we get to September of this year, both initial claims and continued claims are about 50 percent from where they were a year ago. So claims are definitely up. However, a number of cautionary points should be made.
The last recession prior to the current situation we're in was 1990-92. There were several weeks and months during 1992 when claims were 65, 70, and 75 percent higher than they were in the same week of the previous year. So if you did the same kind of calculation in the early 1990s, we still do not have a situation where the increase in claims in the UI scheme are matching what they did in 1990-92, which, by longer historical criteria, was quite a mild recession.
The same kinds of ratios, if you show the claims growth during the early 1980s or the mid-1970s, that is, the two recessionary periods prior to the early '90s, the top end for the high claims months were more than 100 percent higher, relative to the previous year. So we're not in an environment that looks even like the mild recession of 1990-92, much less the more serious recessions of the mid-70s or the early 1980s.
And if you look at the weekly claims data, in fact, for the first week of October, yesterday's Labor Department release showed that the very high jump that had occurred in the last week of September had already receded. So that the last week of September had claims about 70 percent above the corresponding week of the previous year—that's initial claims. The initial claims for the first week in October were down to about 40 percent above the previous year. So until we see a little bit more data, particularly the weeks of October, we're not certain how serious.
Harry made comments about depth and duration of the recession. I guess these comments simply reinforce that point. We don't know what we're going into at this point.
Okay, the second area is the status of UI trust funds. They're most easily described in terms of federal and state level. First, the state funds. At the end of June, the 53 state programs had in their funds $53.8 billion. Those are monies that are reserved exclusively for the payment of unemployment insurance benefits, not for anything related to administration, not for training, not for any of the other kind of measures that might be used to facilitate adjustments of workers in the labor force. There's lots of money in the state funds in the aggregate. That's more than a billion dollars per state, on average.
Since you've got 53 programs—and this should be stated in contrast to the situation for TANF—again, Harry's earlier comments about the reserve funds in TANF basically not being very large at all. Certain states do have funding problems when you look at their state trust funds. If you take what's in the funds at the end of the June this year, compared to a high payout, and the high payout rate that's used in the Labor Department for their calculations of fund adequacy is the three highest years of payouts in the past 20.
If you use that as a measure of high payouts, three states had fewer than four months worth of benefits in their trust funds at the end of June. Two of these states are among the largest in the country, Texas and New York. And, of course, New York has additional problems with the events of early September. The third state was North Dakota. An additional four states had between four and seven months worth of benefits sitting in the trust funds—this is again, end of June—Illinois, Minnesota, Missouri, and West Virginia.
If you take these seven states as a group and say they have low reserves, they represent 22 to 23 percent of the employment in the unemployment insurance system. So some states you can say have modest reserves, but it's the definite minority within the context of the whole system. When you look at the federal trust funds, at the end of June there was an additional $37.7 billion in three federal trust funds that are used for various purposes—UI administration, employment service administration, loans to the states, and the Federal State Extended Benefit Program.
The federal funds are so full that there is to be a distribution back to the states under the so-called Reed Act. The timing and magnitude of that are matters of some uncertainty right now, but if you add up the state and federal trust funds, the total exceeds $90 billion. That $90 billion is interesting to contrast with last year's payout of UI, which was about $20 billion. So even if this year the system pays out $30 billion, which is possible—I don't know if it's likely—there's lots of money in the system overall.
The third area is recipiency. On recipiency, briefly, I want to talk in three areas: entry into the program, long term unemployment, and associated benefit exhaustions, and interstate differences in recipiency. Entry into the program, overall, when unemployment occurs in the economy, about half of the new spells of unemployment are followed by an application for unemployment benefits. Application rates vary depending upon the circumstances of losing a job, and they vary quite sharply by geographic area. They're not the same, and nationally they're only about half of the people experiencing unemployment.
Within the unemployed population, low-wage workers have a special problem getting into the unemployment insurance system to collect benefits. Quite a good analysis was conducted and completed last year by the GAO and issued in December, titled "Unemployment Insurance's Role as Safety Net for Low-Wage Workers is Limited." Open up to the early pages of text in this report and the first three tables give you a display of how much more unemployment low-wage workers experience relative to high-wage workers and the lower rates of recipiency.
Low-wage workers, per spell of unemployment, receive UI at about half the rate as high-wage workers. So low-wage workers represent a special problem as far as gaining access to the unemployment insurance scheme. There have been proposals to remedy this. One is to have an alternative base period. The display on the map here identifies the 12 states in the U.S. that currently offer an alternative base period.
Some of you have gone through this exercise; I'll just repeat the definition of the alternative base period with an example. If we decide tomorrow that we're unhappy with Bob's leadership here at the Urban Institute and he gets laid off and has to file for unemployment benefits, the date of separation would be in the middle of October, which is in the fourth quarter of the year 2001. In most jurisdictions, the base period that would be used to determine eligibility for such a layoff would start July 1, 2000 and end June 30, 2001. All of the earnings activities between July 1, 2001 and the date of the separation do not get recognized or counted in the eligibility determination.
What the alternative base period does is roll the clock forward. The base period is always a 12-month period. In most states, the alternative base period would toss out those earliest three months from June, July, August of 2000 and replace them with June, July, August, September 2001. This change in the base period is especially important to low-wage, part-time, and intermittent workers.
There have been two studies of the alternative base period. I've been involved in both. This one was published by DOL in 1995; this one was published in 1998. Of the 12 states identified here, 8 of them have had the alternative base period long enough so that we can actually develop, from experience in the states, how much it costs. As a rule, it's between a four to six percent addition to benefit payouts; it's between a six to eight percent addition to claimants. So that more people get into the system because the alternative base period disproportionately serves low-wage workers.
Part-time workers: we have less actuarial experience, but Kelleen's already spoke to that. Interstate differences in recipiency: we're going here from dark to light. Dark is very low recipiency, light is reasonably high recipiency. I have recently completed a project looking at state-level recipiency differences. And top to bottom, the top 13 states in the country, if you measure recipiency, recipiency is twice as high as it is in the bottom 13 states. So there are major contrasts across the system. There seem to be more controversies getting into the scheme in the low-recipiency states. There are many factors that contribute to that.
I wanted to get this out on the table because there's nothing in the current legislative proposals going forward that tries to speak to interstate differences in recipiency. I have exceeded my time a bit, but basically, that's it. Thank you.
MR. REISCHAUER: Rich is going to talk a little bit about the proposals to reform unemployment comp.
MR. RICHARD A. HOBBIE: Thank you, Bob. I provided you with some information so that I don't have to spend a lot of time describing the details of these various proposals. If you look in your folder for a moment, I have detailed descriptions of the president's back to work relief package. And on the first page of that near the bottom, you'll see extending unemployment benefits, and there's a detailed discussion there of the proposal from the president. And also, the National Emergency Grants on the next page of $3 billion, which also has some income assistance in it and also COBRA extensions.
Moving along from that, I've provided you several pages from the National Governor's Association package for economic stimulus. At the top of the first page there where you see assistance for affected families, there's an item, "Expand Unemployment Insurance Eligibility"—that item is relevant to us today. And then, if you turn the page over, in the middle of the next page under economic stimulus, you'll see an intriguing idea: accelerate Reed Act distributions for unemployment insurance, to which Wayne alluded a moment ago.
If you turn the page, on the back of the next page you'll see a one page summary of the Temporary Unemployment Compensation Act that Congressman Ben Cardin, a Democrat from Maryland, has proposed. And that will be considered today in the Ways and Means Committee mark up this morning.
And then, I've provided you an executive summary of the comprehensive UIES reform package that we in the Department of Labor and representatives of business and labor developed last year. And I've given you this not so much because it's relevant now, because these are permanent changes, and members of Congress and others are only considering temporary changes, but just to point out that this package largely is embodied in Mr. McCrery's bill in the House Ways and Means Committee, a Republican from Louisiana—except for the benefit eligibility provisions located at the bottom of the first page. He does include one item there, the first bullet item eliminating special extended benefits eligibility requirements.
And then, finally, I've provided you with a Department of Labor Employment and Training Administration summary of the disaster unemployment insurance program. And there, it's interesting because DUA not only provides benefits to individuals who run out of regular benefits in an area that's been declared a disaster, but it also can provide unemployment benefits to self-employed workers if they've lost their work. They are not covered by unemployment insurance.
And if you'll look at the bottom there, also it can provide benefits if an individual in a family became a breadwinner as a result of the death of a head of household, even though that breadwinner might not have had sufficient earnings in the recent few quarters. So take a look at that. I'd like to talk briefly from the chart, which I devised last night. I'll have to apologize that there should be another column there for Senator Carnahan's bill. I just accidentally excluded that.
I noticed in the Washington Post this morning that the Senate voted down Senator Carnahan's bill, so I'm not sure it will come back in the Senate; it could in another form, I suppose. It was voted down on so-called procedural reasons, so my guess is it might come back in a different context. These bills provide various extensions of unemployment benefits. The Carnahan bill was targeted on airline workers, airport workers, and workers in related industries who were directly affected by the terrorist acts on September 11.
I don't have cost estimates for these proposals, but I do for the Carnahan bill -- CBO just published that on the web this morning. The Carnahan Bill would provide $1.7 billion of unemployment insurance benefits for this narrowly targeted group. It also would provide $1.1 billion for COBRA extensions for those workers directly affected by the attacks, and it would have been authorized for two years.
I don't want to talk about the details here; I'd like to focus more on issues. But if you look at the administration's proposal, the administration's tried to target its extension of 13 weeks of benefits on individuals directly affected by the terrorist acts in the disaster emergency areas, primarily New York, Virginia, and New Jersey would be the states where the workers would receive benefits. There was some debate about New Jersey, but I believe they are included now.
And, also, it targets these benefits on states that have experienced an increase in unemployment, not necessarily high unemployment rates, but an increase in the total unemployment rate, not the insured unemployment rate, compared to the three months prior to the attack. The Cardin Bill is a bit broader. It would provide 13 weeks of additional benefits beyond the normal 26 weeks that states provide to all individuals who exhaust their benefits, regardless of whether unemployment has increased in the state and regardless of the level of unemployment.
So the Cardin Bill probably would cost substantially more than the administration proposal. And then, of course, the National Governors Association proposed helping workers who aren't eligible or covered by the normal unemployment benefits we have available in our system by using the Disaster Unemployment Assistance Program as a model in helping some of those workers I just mentioned earlier that don't normally get benefits. One of the problems with these proposals is that in current law, under the Extended Benefits Program in the states, individuals who receive extended benefits must engage in a systematic and sustained job search effort, and also, if they're offered a minimum wage job and they refuse, they will be disqualified from benefits.
If this applies in these proposals—and it's not entirely clear to me that it does, but it does apply in the Permanent Extended Benefits Program—states have said it's extremely hard for them to administer these provisions, because they've moved toward taking unemployment insurance claims remotely, either through centralized telephone call centers or over the internet. For example, Florida now takes about half of its initial claims over the internet. So there's no place for these individuals to go to demonstrate that they have engaged in a systematic and sustained work effort, and states just can't administer that.
Funding of these programs is an issue also. I'm assuming that the NGA proposal would be funded out of general revenues, because the DUA program is, although I don't think they were that specific on that. Martin, I guess, would support me on that for the time being. The other programs on this chart would be funded out of the trust fund. Now, there's more than enough money in the trust fund to cover a full-funding and administration of these programs, and benefits and loans to states. In fact, as Wayne mentioned, the federal accounts are overflowing. There would be a $4 billion distribution to state accounts next October because these funds are overflowing.
Now, that was under economic assumptions that were set forth prior to the attacks and prior to our realization that we might have a serious recession, so those projections might change. But because of that overflowing, the other NGA proposal has come into play here and is being discussed both in the Senate and the House now, and is being entertained seriously by Republicans on the House Ways and Means Committee. And that is accelerating these so-called Reed Act distributions and distributing them immediately.
If Congress were to do that, $9.3 billion would go out to the state accounts in the unemployment trust fund, and it would basically delegate authority to the states to decide what to do about extending benefits, improving benefits, improving solvency, or funding additional re-employment services, employment services, or fully funding unemployment insurance with federal funds, which currently it has not done, because the federal government has been under funding the Unemployment Insurance Program.
You can see the other benefits provided in some of the other proposals. Congressman Cardin is very concerned about low-wage workers and part-time workers. He has included provisions to provide benefits to those who might not be eligible, who have recent earnings but they don't have enough earnings in the base period, as Wayne described it. Part-time workers who want to seek part-time work would also—
[TAPE CHANGE.]
MR. HOBBIE:—changes under the comprehensive reform proposal of last year. Those are not supported by employer groups, so they're fairly controversial in Congress, particularly among Republicans.
Finally, the Department of Labor has estimated that Employment Services and Unemployment Insurance Administration is underfunded by about $500 million. States have been using their own money, of over $500 million, to fill in this gap.
One of the points our association's making is that the federal government should take some of this excess money that they've collected out of the federal unemployment tax, and fully-fund this program, not only for this year, but for ensuing years, so that the system can provide re-employment services for UI claimants, employment services, and so it can administer the Unemployment Insurance Program efficiently.
I'm pleased to see that Mr. Cardin included a one time, $500 million authorization, which would be mandatory spending under his bill for administration of this system. And I might add that Mr. McCrery's bill, which probably won't be taken up in this context, also provides that full funding, not only for this year, but permanently. So that really is our primary concern from an association standpoint. We think, in the past, when Congress has responded to recessions, they've been very anxious to extend benefits to workers who really need benefits, but they've ignored the fact that there are programs out there, state agencies out there, who need funding to provide these benefits in a proper and efficient manner and on a timely basis, which is extremely important to us.
They haven't been providing that money; now's the time to correct the problem and that mistake that they've been making in the past, and spend a little money to make sure worthy unemployed workers get these benefits on a timely basis. I'm done.
MR. REISCHAUER: Well, with that little advertisement, we can now turn to a broader discussion and ask whether the changes that are being contemplated in the unemployment insurance system are adequate to meet the conditions that face the nation at this point. I thought I would, while you get your thoughts together, just provide a few observations about the presentations.
First, a footnote to Harry's broad view, and that is, don't forget food stamps and the EITC (Earned Income Tax Credit). A lot of people who are losing their jobs are probably in the phase out range of the EITC. And while we bemoan high marginal tax rates when people's incomes are rising—when they're falling, in fact, it has a good effect of reducing the amount of income loss one might face.
With respect to Kelleen's presentation, I was even more optimistic looking at her data than she was. And that is, while you stressed that '97 was a good year, it was a good year only if you looked at the years before it. If you looked at the years afterwards, you know, it was a pretty dismal year. And so, the fraction of the people who were monetarily eligible in 2001, I would think would be a lot higher than it was in '97 when we had a 5.8 percent or whatever unemployment rate in the previous year. So I would think things would be good.
And also, when you look at reasons for people being unemployed, the reasons now would be very different from what they were when we had an expanding economy. When you have an expanded economy, employment growing, a higher fraction are going to school, or taking care of family or something like that. When they're being thrown out of work because of the downturn, a higher fraction would be, in fact, available for full-time work, and all of that.
The information that Wayne put out also may be a little more hardened when he was comparing the situation in the last year, the increases in new claims versus a year ago, to what happened during the '90-'91 recession. Because at that point, of course, going into the '90-'91 recession, we had a much higher unemployment rate, and so one would expect the new claimants, even when the economy was in its pre-recession state, would be a higher number, and so the percent increase would be larger numbers of people that you get now when we went through a year of basically four percent unemployment. And so, maybe the data aren't as gloomy even as were suggested. Now, that's my two cents' worth.
ROBERT LERMAN, URBAN INSTITUTE: Couple of points. First of all, on Kelleen's point, I mean, if a person isn't available for work, they wouldn't be considered unemployed in any event, and it's not clear to me that this is a gap. Let me just go on and mention, in connection with that, that I was kind of stunned about this issue about the work requirements. I mean, just as TANF is becoming more serious about work requirements, you're telling me that UI has pretty much abandoned them, and that's kind of a strange outcome.
Just a couple of other points. You know, a lot of unemployment, as I'm sure all of you know, is very short-term unemployment. And it would be interesting to know if it's true that almost all of the people—not almost all, but let's say 85 percent—are monetarily eligible. It might be that some don't take up unemployment insurance because their spells are very, very short, and I think that has to be more in mind. In fact, we want to keep them short, we want to keep in perspective some of these numbers, it seems to me. Maybe my numbers are way off, because I'm not a specialist in this area. But it does seem to me that you do need to think about the duration.
And again, the whole point of the unemployment insurance, it's not simply Bob Reischauer's point about the share being higher for these other reasons. But if people are returning to school or something, I mean, it isn't really clear that that's a gap in the unemployment insurance.
MS. KAYE: I'm very glad that you raised that point, because actually, if you look at the last page of my paper, you'll find exactly that same point. And I just think it's important to point out that when I undertook this research and I came up with these results, it wasn't necessarily to say, when I look at these people who aren't covered, that this is a gap in the UI program. Because, in fact, if these people aren't looking for work or aren't available, they may not be in the labor market, and that may not be part of the mission of the program.
But my intent was to say, we can't assume that these people are covered. If they're no longer part of the TANF system and they're in the labor market, and clearly, some of these people are probably struggling to balance the need to participate fully in the labor market versus the need to take care of their families. And I think that could be a bigger issue among the low wage population. I have heard assumptions, well, we don't have to worry about them because they're in the UI system. And I thought that it was at least important to empirically show, no, they're not in the UI system, not necessarily saying they should be, but we can't make that erroneous assumption that they are.
MR. HOBBIE: Bob's point about the contrast between increased emphasis on job search in TANF and the decreased emphasis in unemployment insurance is really well taken and, in fact, it's worse than you even know. Steve Wandner published a book a couple of years ago about unemployment insurance, and there's a chapter in there on quality control efforts of the Department of Labor and states' reactions to the Department of Labor's attempts to measure payment error rates. And one of their policy reactions was to relax their job search requirements in their law, in their practice, because a large source of the over-payment error rate—
Q: [Inaudible.]
MR. HOBBIE: Both. Both. And the result was, because that was a large source of the payment error, their payment errors went down dramatically and they looked a lot better in the quality control system as a result. I find that very troubling. And, of course, it's also due to states being very constrained on what they can do with the limited funding they get. They just don't have enough people to really enforce serious job search requirements. It is a major problem.
JULIE KASHEN, SENATOR KENNEDY'S OFFICE: I wanted to first say that Senator Kennedy actually also is working on legislation very similar to the Cardin Bill. I also wondered if you could, Ms. Kaye, talk about what the average population, how that was defined in your paper?
MS. KAYE: In my paper, I defined the average population as those people that had a recent history of receiving either TANF/AFDC, Medicaid, or Food Stamps. And there are a lot of different ways that you can define it, and I'm sure that the results would be sensitive to that definition. I was looking for sort of a broad definition of what kind of population we think might be at risk for sliding back on to some kind of public assistance. So that's who's in there.
VICKY LOVELL, INSTITUTE FOR WOMEN'S POLICY RESEARCH: I have a question and then also a comment. The question is, if we can assume that a lot of these vulnerable workers in the low-wage market are cycling in and out of the labor market more rapidly than some other workers, are requalification requirements in the states going to be a particular problem for a worker who may work a low wage job for some period of time, be laid off or lose their job, apply for and receive UI, be in the labor market again, and then once again lose their job? Are there going to be special problems, meaning the requalification criteria in states, or is that not that big an issue for this group?
And the comment is, when we talk about the adequacy of the UI program for these workers, we have to look not only at access to benefits, but benefit levels themselves. And for low-wage workers who face low wage replacement levels in UI, is that also going to be a major problem in supporting this group of people during periods of increased layoff?
MR. HOBBIE: On the second question, low-wage replacement rates in UI, I believe are a problem for average to above average workers. For example, some of the workers laid off who worked at National Airport, I think they were surprised at the very low wage replacement rates they had for Virginia unemployment compensation. UI benefits formulas in states tend to be progressive, so low-wage workers tend to have higher wage replacement rates. So I don't think it's a particular problem for low-wage workers.
The greater problem is probably whether they're working part time and want to seek part-time work, or whether they only had recent wages and aren't monetarily eligible, or they committed some disqualifying act and aren't eligible based on the non-monetary qualifications. The first question, I think, is really hard to answer, and it relates to some of the non-monetary qualifications. If they lost a job through no fault of their own, and they go back to work a little bit and then they're laid off again, chances are they will be eligible for unemployment insurance. Now, that's a gross generalization. You really do have to look at each individual state to how they handle it. That's about as well as I can do on that one.
MR. HOLZER: If I could follow up on that. I think there's lots of categories of people. We don't know the size of a lot of these groups—the cyclers or problem groups. And this is probably in response to Bob's question as well. When you look at the last recession, and even in a recession period, over half of the unemployed at a point in time aren't receiving UI. Now, part of that might be for short duration reasons and lack of take up and things like that, but there's lots of categories of people.
For instance, part of the reason unemployment goes up in a recession is not just more people losing their jobs, but a slower rate of people finding new jobs, since they may have left for a lot of reasons that Kelleen indicated; they're just finding much more difficulty getting back in than they thought. And those people may not have access. I also am concerned about a potentially fairly large pool of people that left welfare and have been working off the books. So they don't even show up in a lot of our data sets.
At the First Tuesday we had a few weeks ago, we talked about the fact that at any moment in time, 40 percent of the leavers don't seem to be working. There's some indication that a big chunk of those people are working off the books, and they're not going to have access as well and not show up in any of our numbers. So there's all kinds of circumstances that may leave people without access.
MR. VROMAN: I thought I would go back to one of the topics that we've gone over already in the discussion, and that is the effect of good labor markets on access to the system. Here we're looking at the regular UI program and two indicators of developments during the 1990s. The top line is the proportion of people who file for benefits who are found to be monetarily eligible. And notice the change between 1993 and 1999. The proportion eligible goes from basically 85 percent to 90 percent.
The bottom line shows the proportion of applicants who actually get a first payment. Now, if you thought that all boats rose in a good economy, you would think the first payment rate would move right along, because more of the people are trying to flow into the system—would satisfy the monetary eligibility requirements, as indicated by the top line. But, in fact, if you compare 1999 with 1993, there's a small increase, but it's only about one-fifth or one-sixth of the increase in the eligibility that's implied in the top line, so that the non-monetary eligibility criteria are exceptionally important in the UI program.
And it's undoubtedly the case that former TANF recipients have earnings which are much higher—many more of them are in the labor force. But going from having a substantial previous work history to getting a first payment for unemployment benefits does have to satisfy the non-monetary requirements as well. And this is the most recent evidence, at the national level, of how these two factors have moved during the past decade, which was one of extraordinary growth and good times in the labor market. So it's a very interesting question, and reasonable people can draw different conclusions about what is happening right now with respect to former TANF recipients who are losing their jobs.
EVELYN GANZGLASS, NATIONAL GOVERNORS ASSOCIATION:—And I guess Bob Reischauer as well, looking at unemployment insurance versus other systems, TANF or another system. And just let us assume there is a sizable number of people who would not need non-monetary requirements, and so there is an unmet need. From a policy point of view, I'd just like to hear your assessment of the political reality of trying to modify the unemployment insurance system versus a general funded program that may be administered in conjunction with the unemployment insurance system, versus looking at other strategies, whether in existing programs or trying to create some temporary other assistance program to deal with this population, just from the financing point of view. Even though there's money there, it's largely an employer-financed system. What is your take on that?
MR. HOBBIE: My reaction is that in this current context where Congress has focused on temporary changes for economic stimulus purposes, we ought to focus on general revenue funding of emergency unemployment compensation programs and other programs to help workers who aren't otherwise going to get help from our normal programs. In addition, I think we ought to look at the McCrery Bill and other proposals that might be added to the McCrery Bill, such as the benefit provisions that were in the package last year, early next year, and really focus on reforming the UI system to deal with some of these well-known problems once and for all.
But in the interim, I think we really should focus on the temporary measures. And probably, except for extending UI benefits 13 or 26 weeks, there's not a lot more we can do in the UI system in the near term.
MR. HOLZER: In terms of looking outside the UI system, we know there have been all these discussions of TANF reauthorization that come up next. I haven't seen a lot of movement in those discussions, in any way, to sort of make that program more counter-cyclical in the short term. There were a set of hearings, actually, held last spring. The House Ways and Means Committee, the Subcommittee on Human Resources did have some hearings on the contingency fund.
But in that environment, somehow, nothing seems to have come out of those discussions that time. There weren't any alarms going off making this a more pressing problem to move ahead on. Maybe that will change now; maybe those conversations will resurface, and the idea of some kind of countercyclical funding stream to the states, related to TANF or maybe even more general, will bubble back up to the surface.
MR. LERMAN: The Food Stamp issue comes into play here, because, you know, an unemployment shock to some people who have a moderate level of assets might limit their access to Food Stamps, or other limitations would be that they're just not used to applying for Food Stamps and they're not that knowledgeable about Food Stamps. And yet, you know, it is a household size condition program that would cover people in families based on need. And I think that we've seen big drops in the Food Stamp caseloads, and that might be another area to push on.
MR. VROMAN: As you well know, there's also legislation at the state level. It's interesting to look at some of the recent developments there, and I'll take the example of California. California just passed a bill to raise benefits January 1 of next year, substantially. It's going from a position of having about the lowest benefits relative to average wages of any state in the country. But the maximum, next January, moves from $230 to $330 per week. That bill passed this year when it was recognized that there is an economic problem and the likelihood of a recession.
There was a serious proposal last year in California to institute an alternative base period. It, in fact, went through both the House and the Senate in California and was vetoed by the same governor who just acceded to this benefit increase for the maximum benefit. And I think to expect state legislation to enact on large-scale changes in UI that serve the difficult to serve low wage population is not something that recognizes the way legislation occurs at the state level.
The interest groups are much more likely to do something that is mainstream—raising the maximum benefit, doing something to change the tax rate that employers face that have a broad-based impact throughout the state, rather than going for special needs populations—is a much more likely form of legislation. The 12 states that have alternative base periods, to get to that number of 12, it's been a period of 11 years. The first alternative base period came in in 1987. So the national experience, even though it does serve this population of special needs, the rate of adoption has been about one state per year. So even though states are the locus of a lot of UI legislation, they're not in the aggregate going to do a great deal that serves this population.
MR. REISCHAUER: Let me ask each of you, if you could make one change, impose one change on the unemployment insurance system, forgetting about the institutional politics or the cost, and the federal government was going to pay for this, like instituting for the next 18 months, requiring an alternative base period, and the feds would pick up the difference between what the state would have paid versus now, or benefit increases so that there is a threshold, a minimum fraction of replacement, or lowering the minimum monetary requirements or non-monetary requirements—I'm just making those up. What would you do?
I mean, this is something that you could require in the next three months, which would be temporary and would address the particular circumstances that our economy is likely to face over the next couple of years. Harry.
MR. HOLZER: If I'm limited to one, and given that all the part time, the alternative base period, those are all, each one, separately a fairly small piece, I might say maybe have the top proposal under Congressman Cardin's legislation have a broader separate program for people that, for one reason or another, don't meet the eligibility requirements within the regular program.
MR. HOBBIE: I would agree with that—a broader, general revenue-funded program that helps individuals who either were not covered by the current UI program or are not currently eligible. And I would include, although this is difficult, some self-employed persons who've lost their work and can't find anybody to ride in their taxis near airports. But it would have to be time limited, maybe, you know, more than one year.
MR. VROMAN: You already have the vehicle, the Disaster Unemployment Assistance Program, which is administered through the local offices of the UI scheme, so that you could have an administrative entity that's already in place provide a different kind of payment, DUA. And DUA, in fact, can make payments to the self employed. Now, anyone who has sympathy with state administrators in the UI scheme would be cringing at this conversation, because it's imposing a whole new set of administrative requirements on the states that are already stressed in terms of their current obligations relative their staffing. But that would be the vehicle, and the mechanism for doing it is in place.
MS. KAYE: Well, I'm not here today to impose anything on anybody, because I have my humble researcher data analysis hat on today. But I do think that it would certainly be wise, for me, to give more attention to the notion of part-time workers. I mean, it seems like a lot of states are moving in that direction anyway. And at least for some of the disadvantaged workers that we're concerned about and the difficulties they're facing in balancing the need to participate in the labor market and their family needs, I think that's definitely worth looking at a lot more seriously.
MR. REISCHAUER: Does anybody have a final comment or observation, question? Well, thank you very much. We appreciate your participation in this. We thank the panelists for staying, for the most part, within the time limit, when averaged across four people.
[END OF EVENT.]
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