Obama suggests changing unemployment system

In urging Congress to extend jobless benefits, President Obama went beyond short-term aid and called on the country to rethink how it looks at unemployment, recognizing the long-term devastating costs of having so many unproductive people on its hands for long periods.

Specifically, Obama endorsed a work-sharing plan embraced in Europe that averts layoffs by spreading the pain among co-workers, as well as a more controversial bridge-to-work idea that puts people who are on unemployment benefits into training or temporary work that would set them on a path toward regular jobs.

The president also proposed, as part of his $447-billion stimulus bill unveiled Thursday night, a $4,000 tax credit to employers for hiring anybody who has spent more than six months looking for a job.

The White House estimated that this part of Obama’s economic stimulus would amount to $49 billion, mostly for extending jobless benefits that would otherwise expire early next year for more than 3 million people.


The president’s overall aim is to get more out of unemployment insurance funds in light of the reality of today’s economy: Job growth has stalled and the number of people out of work for six months or more has swelled to unprecedented levels.

Some 6 million U.S. workers, or about 43% of the total unemployed, have been without jobs for more than six months, according to federal statistics for last month. Discouraged, many others have dropped out of the labor force. And the longer they remain jobless, the more likely they are to suffer the scarring effects of unemployment that can hurt their earnings permanently.

Devastating as this is for the jobless and their families, it’s an increasingly serious problem for the nation too, as it means a less productive economy that will make it all that much harder for the country to pay for Medicare, defense and infrastructure that affects everyone.

“It is painfully obvious that the large quantities of unused resources in the U.S. are an enormous waste,” Charles Evans, president of the Federal Reserve Bank of Chicago, said this week in a speech that called on the Fed to do more to fight unemployment.


“And it’s not just the current loss. Over substantial periods of time, the skills of long-term unemployed workers decline, their re-employment prospects for similar jobs fade, and these reductions in skills have a lasting effect on the future growth potential of the economy,” Evans said.

Regardless of whether Congress will adopt Obama’s specific proposals, labor experts and economists agree that the nation’s decades-old unemployment insurance system needs to change with an economy in which unemployment is running longer and employers aren’t calling back workers after layoffs as often as they used to.

The president’s plan is “an attempt to break into that,” MIT economist Paul Osterman said.

Work-sharing isn’t new to the U.S. It’s been around since the 1980s, and employers in 23 states, including California, can sign up for it, though relatively few have.

As described by George Wentworth, a senior staff attorney at the National Employment Law Project, the plan works like this:

An employer has five workers, but business can only support four. Rather than lay off one worker, the employer cuts each worker’s week by eight hours — leaving five workers each putting in 32 hours a week.

The unemployment benefits that might have gone to the laid-off worker would be distributed equally among the five employees. Unemployment benefits usually cover about 50% of a worker’s pay.

Work-sharing is particularly popular in Germany and has helped keep its unemployment rate down during the turmoil of the last few years: It is at 7%, compared with the United States’ 9.1%.


Some economists have argued that although that’s a good idea in general, this isn’t the time for work-sharing because the job problems today aren’t about layoffs but rather about companies’ simply not hiring.

Not so, said Dean Baker, co-director of the Center for Economic and Policy Research. That doesn’t account for the destruction and creation of jobs every month, the so-called churning of the market in which some 2 million people may lose their jobs involuntarily while a similar number are hired in the same month.

Viewed in that light, Baker said, work-sharing could save tens of thousands of jobs every month.

But if U.S. employers have been slow to embrace it in the past, it’s partly because the process is seen as overly bureaucratic.

“It’s too much paperwork and too much confusion,” said Woodrow Pearce, president of Pearce Plastics, in explaining why he never signed up for the program.

The Pasadena maker of caps and other products for the health industry had as many as 125 workers in the 1980s, he said, but it’s since dwindled to two dozen. Pearce also doesn’t think his employees would buy into work-sharing.

“They don’t like to have their time split up like that,” he said.

The bridge-to-work proposal has its own set of challenges.


One model the administration cited was Georgia Works, an innovative and controversial initiative that provides job training for people who are receiving unemployment benefits.

Participants in Georgia Works receive as much as 24 hours of job training a week for up to eight weeks from private companies, with a stipend of $240 to offset childcare and transportation expenses during the period. Companies do not have to pay the participants during the training.

“It reduces the cost of training and hiring new employees because what you’re really doing is subsidizing the training in the private sector,” said Michael Thurmond, the former Georgia Labor Commissioner who started the program in 2003.

The program has been replicated in New Hampshire and Missouri and has drawn bipartisan praise from the likes of former President Clinton, the Rev. Jesse Jackson, House Speaker John Boehner (R-Ohio) and Majority Leader Eric Cantor (R-Va.).

But critics worry that such programs offer little more than free work to employers.

AFL-CIO President Richard Trumka wrote to Labor Secretary Hilda Solis this month asking for an investigation into whether Georgia Works complies with federal labor laws, which require people to be paid unless they are receiving legitimate training.

Obama’s jobs proposal promises “important fixes and reforms” to such programs to make sure minimum wage and fair labor protections are being enforced. But the AFL-CIO still has problems with the concept, said Kelly Ross, the union’s deputy policy director.

“The concern here is that you’re opening the door to a system where people have to work for their unemployment benefits,” he said. “The real reason employers aren’t hiring is because there isn’t enough demand, and that’s what has to be addressed. And giving them free workers is not going to solve the problem.”

Maurice Emsellem, policy co-director for the National Employment Law Project, said programs such as Georgia Works, which Obama cited in his speech Thursday, undermine the integrity of unemployment insurance, which is designed to pay benefits, not subsidize training.

“There are other ways to fund these programs,” he said.

Georgia’s labor commissioner, Mark Butler, said in a column in the Atlanta Journal-Constitution this week that he has scaled back the program. The reasons: a “lack of oversight and dramatically increasing costs” that rose to $2 million a month at the end of last year.

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