Insurance or Politics?

April 14, 1958

Since its inauguration more than twenty years ago, our state unemployment-insurance program has steadily expanded while safeguards against abuses have been relaxed. Since 1940, as I have already pointed out (Newsweek, March 31), the average weekly benefit paid to an unemployed man has almost tripled. The waiting period before payments begin has been reduced from two or three weeks to a week or nothing. Since 1937 the most frequent maximum duration period of payments has been extended from sixteen weeks to 26.

But if the plan that the President recommended to Congress on March 25 is enacted (not to speak of worse Democratic plans) the state unemployment-insurance program will lose its last title to be called insurance. It will become a discriminatory relief system and a political football.

FAILURE AS RELIEF

The Administration program cannot be justified, in fact, either as insurance or relief. Considered as relief, it makes no test of need. As my colleague Raymond Moley pointed out last week, it would ignore the estimated 2.2 million unemployed who have received no unemployment compensation, but would provide additional payments to the less than 300,000 who have already received and exhausted their benefits. Considered as relief, it would also be rankly discriminatory. The sums paid under state plans are related to previous wages and not to family needs. Typically, the maximum weekly benefits are three times as great as the minimum benefits (e.g., $30 down to $10). The Administration plan would not change this basis. Considered as relief, payments even under the Administration plan would stop at the end of a maximum, say, of 39 weeks, even to those still out of work.

On an insurance basis, benefits may be properly proportional to the previous period of employment and the previous weekly wage—especially if the taxes paid in are also proportional. But any insurance justification for present differences will be destroyed if the Federal government suddenly orders an increase in the duration of benefits and tosses a huge added amount into the reserves to pay them.

The Administration plan is bad from no matter what standpoint it is considered. The President declares that “such legislation should not encroach upon the prerogatives which belong to the states.” The proposed legislation clearly encroaches upon these prerogatives. It orders the states to increase the duration of their payment of benefits by 50 percent. Ironically, under such a flat proportional plan the states that have already had the longest benefit payment periods are ordered to lengthen them the most and the states that have had the shortest benefit payment periods are asked to lengthen them the least. In addition to discriminating between unemployed in different states, the Administration plan discriminates in favor of the present unemployed (if it is really temporary, as it professes to be) as against the unemployed in future years.

Not the slightest evidence is offered that the states need these forced loans. State unemployment reserves now total $8.5 billion. This is where they stood at the end of 1956, their highest point except for the $8.9 billion at the end of 1953.

IMPROVISED SCHEME

The Administration proposal has obviously received no serious thought. It is a hastily improvised political gesture. Even as an “anti-recession” measure it is dubious. It may tend to prolong unemployment by reducing the incentive of many workers to get a new job as soon as possible, and by reducing pressure to adjust excessive wage rates.

The plan would destroy unemployment insurance. It would put the Federal government permanently into relief masquerading as insurance. Unemployment insurance as such can only be preserved if it is strictly separated from relief. What we really need now is not to desert the insurance principle but to return to it more strictly. A big step in that direction might be to have the workers themselves contribute directly toward the premiums, as they have always done in Britain, and in our own Federal old-age insurance system (OASDI).