“Laws are like sausages, it is better not to see them being made,” observed Otto von Bismarck, the famed Prussian designer of German unification. Contrary to Bismarck’s aphorism, Stephen Wandner’s new book, Transforming Unemployment Insurance for the Twenty-First Century: A Comprehensive Guide to Reform, uncovers many of the policy choices confronting lawmakers in reforming the federal–state unemployment insurance (UI) program. The book’s central thesis is that the UI program is foundering and requires a fundamental reset. Wandner distills his comprehensive assessment of the program’s chronic deficiencies and proposes policy solutions.
The UI program has been the nation’s first line of defense against the challenges of joblessness. The program provides a temporary replacement for a portion of lost earnings to involuntarily unemployed individuals. During tough economic times, the program has been a reliable macroeconomic stabilizer, bolstering recovery by injecting funds into local communities. As the nation’s largest social insurance program operated as a federal–state partnership, the UI program functions under broad federal guidelines, while being administered by state agencies under companion state laws. Employer UI taxes largely fund federal and state administration and benefits.
According to the author, the federal partner does not have the tools needed to properly oversee state UI administration. Many states, in turn, have prioritized low employer taxes over a functional safety net. As a result, in recent recessions, the federal government has enacted emergency benefit assistance as a supplement to unemployment benefits, laying bare the push–pull of American federalism when a federal–state partnership is out of balance. Many state UI programs exhibit low benefit levels, inadequate financing, declining benefit recipiency, deficient administrative funding, depersonalized claims processing, and a burgeoning freelance workforce outside the program’s coverage. Given how some states have restricted program eligibility, people who need UI protections have often been unable to access them. The book canvasses the program’s history, with the bulk of analysis confined mostly to the last half century.
Wandner does an excellent job of laying out a broad consensus about what should be done to make the UI program work as intended, while also assessing changes in the workforce that make other reforms necessary. The recommendations in the book are largely based on previous research findings. For example, in chapters 4, 8, and 14, the author examines the duration of unemployment benefits paid under state laws. He reports that, by the 1970s, all states provided at least 26-week benefit durations, a provision that lasted through 2010, when some states began rolling back benefit generosity. The author presents policy options that include restoring 6-month maximum potential durations and imposing a national UI standard under which all state “durations should uniformly be 26 weeks, regardless of the past wages of the recipients, aiding low-wage workers during periods of unemployment.”
The book examines the severe challenges facing the UI program with respect to program eligibility, benefit adequacy, coverage, financing, uses of targeted and extended benefit programs, federal–state infrastructure and technology, accountability data, staffing, and ties to employment services. In parts 1 and 2, Wandner provides a primer on the UI program’s history, economic objectives, and government delivery structure. Readers who wish to examine the author’s prescriptions for reform can page directly to chapter 14.
In chapter 6, Wandner surveys the disincentive and incentive effects of unemployment benefits and taxation policies. He observes that we would not expect the Social Security system to be viable if we kept the taxable wage base frozen since 1983 (today, federal UI taxes still apply only to the first $7,000 of wages). Similarly, Wandner persuasively argues in favor of states enacting laws that require some employee UI tax contributions, although he might have used Roosevelt’s 1941 admission about the underlying value of payroll taxes: “We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.” For decades, some state legislatures have cut employer taxes and benefit levels, tightened benefit eligibility, and harmed state financing. According to Wandner, employee UI tax contributions would raise workers’ policy influence in state legislatures.
The author offers other recommendations for making the UI program more effective in meeting its objectives. These recommendations include amending federal law, issuing additional national standards, reorganizing the federal bureaucracy, expanding research, raising additional revenue, and distributing extra state resources to strengthen the integrity and effectiveness of the program. The reviewers agree with the author about the urgent need for additional national standards.
Wandner offers two federal reorganization proposals. The first would restore the role of the U.S. Employment Service (USES) in guiding national labor exchange efforts and expanding the interface of the UI work test and job-search-assistance services. The reviewers also would include placing the Reemployment Services and Eligibility Assessment program under a restored USES. Next, Wandner offers a sweeping reorganization proposal to end the federal–state UI partnership and operate the UI program as a wholly federal enterprise. To accomplish this, the author advocates transferring the federal administration of the UI and Employment Service (ES) programs from the U.S. Department of Labor (DOL) to the Social Security Administration (SSA). As Wandner himself indicates, however, it took the Roosevelt and Truman administrations until 1949 to link the UI and ES labor-protection programs and fold them into DOL. In the reviewers’ opinion, the UI and ES programs are small compared with other programs already administered by the SSA and likely would garner less attention and influence within that agency. There may also be some benefit to continuing to have states administer UI, because such administration could make it easier to connect claimants to other state-run assistance programs. The author realistically declares that “neither the Congress nor the states are going to want to change the federal–state administration of the UI program.”
Wandner makes it clear that the social insurance fabric of UI has frayed. His remedies are intended to mend the UI program and improve its effectiveness. For public policy analysts concerned with UI reform, this book is an essential read.
Disclaimer: Part of this review was drawn from the reviewers’ technical commentary of Stephen Wandner’s book for The Century Foundation. The reviewers acknowledge that they previously have worked with Wandner, and the views expressed herein are their own.
United States Department of Labor
