RALEIGH — If you ever wanted to learn how the nation’s unemployment-insurance system works — or fails to work — I’ve got a recommendation for you: read the work of Dr. Bill Conerly, an Oregon-based economic consultant and policy analyst (and former North Carolinian) who is one of the country’s leading experts on employment policy.
Bill’s latest examination of the subject is a brief paper written for the Dallas-based National Center for Policy Analysis. It focuses on the problem of overpayments of UI benefits to the unemployed that stem from an inability or an unwillingness to enforce the system’s rules and maintain its fiscal integrity. In 2002, he estimated, excess payments out of the state’s UI funds totaled $3.7 billion or about nine percent of the UI benefits paid during the year. This astounding number actually exceeded the nationwide cost ($3 billion) of administering the program.
Fraud and a lack of serious enforcement of UI rules explain the bulk of the problem. Workers fail to report their income from part-time or even full-time jobs, they falsify their efforts to find a job (a requirement to receive benefits), or they are fired for a cause, but are not compelled to honor the statutory waiting period before receiving benefits.
Why do most states do such a poor job of enforcing the rules? Conerly points to several problems. For one thing, Congress has failed to act on Bush administration proposals to use databases such as child-support enforcement to police fraudulent claims. Also, because the funding stream for the states’ administration of the UI system is separate from the trust funds used to pay claims — each is financed from a different “employer” tax that, in reality, falls on workers’ wages — there is little incentive for states to devote resources to enforcement because whatever savings they accrue couldn’t necessarily be devoted to covering the additional cost. Again, President Bush has recommended the sensible reform of combining both elements into a single program and funding stream, but Congress continues to dither.
As I wrote some time ago, my colleagues at the Locke Foundation have argued that it is not enough simply to find better ways of enforcing the rules within the existing UI system. It is fundamentally flawed. It discourages the jobless from quickly finding new employment. It doesn’t serve the needs of those who need training or start-up capital, not weeks and weeks of benefit payments. And because workers benefit from the system only to the extent they make successful claims, the incentive to fudge or to falsify is strong and can be contained only through aggressive and expensive enforcement efforts.
A better model would be for workers to pay into personal accounts that they, not their employers or the state, own and manage. Fraudulent claims in this situation would do little more than limit the workers’ future payouts or retirement funds, since unspent dollars in their accounts would become their personal property at retirement.
Still, given the current system, Conerly makes some excellent observations. Instead of spending their time pandering and preening, our politicians ought to be thinking seriously and critically about the unemployment-insurance system — and how it worsens unemployment.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.