YOU DECIDE: Is there a better way to help the unemployed?

Date posted: August 20, 2010

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

There are almost 15 million unemployed workers in the country, double the number since the recession began in late 2007. There are over 450,000 unemployed workers in North Carolina, also twice the number since the start of the recession. A big question is, how should these unemployed workers be helped? Many economists say the answer not only impacts the unemployed but may also help determine how fast unemployment falls and the competitiveness of our future economy. Wow!

When I was a youngster in the 1950s, my father — who worked as a carpenter in the construction industry — would be periodically unemployed. His stretches of joblessness would generally last a week or two — normally no more than a month — and his unemployment was often related to bad weather. In the Midwest, where I grew up, snow storms in the winter and heavy rain in the spring would bring construction to a halt for short periods of time.

During his weeks of idleness, my father would collect unemployment benefits. The money wasn’t lavish, but it was enough to get my father’s family through the lean times until the weather cleared and he could go back to work.

Unemployment benefits — also called unemployment compensation — is still the main way we help the unemployed today. Begun in the 1930s, the system was established as a type of insurance program where employers (but implicitly, employees) contributed money to a central fund. The fund was then used to make payments to those unlucky enough to become unemployed.

This system works well as long as two conditions are present — the periods of unemployment are short and temporary and there’s relative stability in the economy in terms of the types of skills and occupations needed from the workforce. Actually, the two conditions are related. If there are big shifts in the types of available jobs, then there’s likely to be longer periods of unemployment until workers get retrained.

But this is exactly why some economists say the current unemployment compensation system isn’t working today. Several factors — among them technological advances and international outsourcing — have combined to reshape businesses’ labor needs during the last three decades. Many office, administrative and sales jobs have been replaced by technology (mainly computers), and factory jobs and even skilled crafts occupations have seen their numbers decline as a result of foreign competitors and modern machinery and equipment.

Consequently, unemployment is becoming chronic rather than temporary for an increasing number of workers. Today, almost half of the unemployed workers have been without a job for six months or more. This has strained the unemployment compensation systems of many states and caused the federal government to kick in money to extend the number of weeks that unemployed workers can collect benefits.

Critics say this is just putting a bandage on the situation, and what is needed is real surgery. They say now is the time to dramatically change how unemployed workers are helped while at the same time improving the match between the skills of the unemployed and the skills needed by employers.

How could this be accomplished? It could be done by converting the system of weekly unemployment checks to one large up-front check provided to a worker when he first becomes unemployed. This lump sum amount could be in the thousands, or perhaps, tens of thousands of dollars. The unemployed worker would be required to use the funds for living expenses, but in addition, for skill retraining or relocation to regions where jobs are more plentiful.

In this way the unemployment compensation system would motivate jobless workers to arm themselves with the training needed by today’s businesses and also to move to where the jobs are located, thereby – one hopes — reducing the unemployment rate faster than under the current system.

Of course, this won’t work for everyone, raising the question of what to do for people who spend their lump-sum unemployment check and still can’t find a job. There’s also the practical fact of the government needing to come up with a large amount of money at a single point in time rather than spreading those payments over several weeks.

But the current system appears to be out of date given the new realities of the labor market. Maybe it is time to go to plan B. You decide if the lump sum system, or something else, could move our unemployment problem off square one!

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

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