Testimony

Modernizing Unemployment Insurance

Jeffrey R. Kling

In looking toward the future of a modern system, we must have clear goals. In 1936, the federal government powerfully articulated what I believe to be the key goal of unemployment insurance: “to lighten the burden which now so often falls with crushing force upon the unemployed worker and his family.”

Seventy years later, the nature of this crushing force has changed. Maintaining living standards immediately after job loss, the original focus of UI, is no longer the major difficulty associated with unemployment. In the twenty-first century economy, the situation has changed in at least three key ways.

First, job loss is now more likely to be permanent, and associated with drops in long-term wages, not just short-term income loss.

Second, unemployment duration has increased.

Third, people have greater ability to borrow to tide over short periods of unemployment.

These three facts—more permanent job loss with large wage losses, longer unemployment durations, and greater ability to borrow—suggest a shift in resources towards larger, longer-term consequences of unemployment should be the top priority of efforts to modernize the UI system.