The benefit of jobless benefits

Unless Congress acts soon, the federal government will stop offering extended unemployment benefits at the end of the year, cutting off aid to more than 1 million jobless Americans. Meanwhile, states and employers are being dunned by Washington to help pay for the benefits already provided. Critics of unemployment insurance say the problem is the benefits themselves, which they say prolong unemployment. But the issues at the state and federal levels are distinct, and they require different responses.

States set unemployment insurance tax rates, benefit levels and eligibility limits, and provide the initial benefits to idled workers. Washington may offer additional weeks of benefits when job losses surge. A recent report by the Tax Foundation, however, shows that California and many other states failed to collect enough reserves during good times to prepare themselves for a severe recession. After the latest downturn drained their insurance funds, they had to borrow heavily from the federal government, and now Washington is starting to collect on the debt.

The job losses have been so severe and sustained, California’s insurance program probably would have gone into the red even if it had been sensibly funded. But because lawmakers kept tax assessments low as wages rose, the state has been forced to borrow billions more from Washington than it should have needed. Making matters worse, the state is trying to dig itself out of its hole by imposing a surcharge on all employers, effectively forcing those that had avoided layoffs to subsidize those that hadn’t.

Lawmakers need to fix both of those problems, although they should move gradually so as not to drive up employers’ costs sharply while the economy is weak. In the meantime, the problems in California and other states with high unemployment shouldn’t deter Congress from continuing to offer federal aid to job-seekers after their state benefits run out.

The main criticism of the federal benefits, which provide up to 73 extra weeks of aid, is that they prompt laid-off workers to hold out longer for a better job. A recent study by economist Jesse Rothstein, however, found that state and federal benefits accounted for a small fraction of the current unemployment rate, and may even have kept some idled workers from dropping out of the job market entirely. With more than four job-seekers for every opening, there simply aren’t enough jobs to be found.

The best answer is to create more jobs. Until the market does so, with or without government’s help, Congress should continue providing the benefits that keep families out of poverty and prevent the economy from contracting even further.