Jobless benefits system failing

The government safety net designed to protect laid-off workers from financial catastrophe is faltering, leaving nearly half the 11.6 million jobless Americans without unemployment benefits.

Its problems are abetting the recession as more workers fall through the net and curtail spending. The trend highlights what economists say is a growing need for a 21st-century makeover of a program started in the depths of the Great Depression.

Among the key problem areas:

*There are many more part-time workers now than in 1935, but the program only covers those looking for full-time work.

*Many eligible jobless Americans are shut out because states use an outdated system for calculating their income, making it more difficult to meet requirements.

*Unemployment spells increasingly last longer than the usual 26-week jobless benefits program.

Jobless benefits are essentially minifinancial stimulus packages for struggling American families. Helping laid-off breadwinners continue to purchase goods and services until they find new jobs ultimately bolsters the economy and makes further layoffs less likely.

About $27 billion of the economic stimulus package under consideration by Congress would be used to extend jobless benefits, which vary by state but average about $300 a week. That would cover roughly 3 million Americans through the end of 2009, according to the National Employment Law Project, an advocacy group.

The stimulus bill also would provide $7 billion to the states to encourage them to cover part-time workers and more low-wage workers. These changes could extend benefits to 500,000 people, according to the law project. The package would also add $25 a week to jobless benefits in an effort to further boost recipients’ ability to spend.

But more fundamental reforms are needed to address the system’s underlying weaknesses, several economists said.

Many of the 5.2 million unemployed Americans without jobless benefits already have used up their 26 weeks of assistance. The program, funded by states through taxes levied on employers, has been no match for a recession that is frustrating the ambitions of even the most-qualified job hunters.

The situation is forcing families to cut back on spending and use savings, if they have any.

Paula Stein’s $363 weekly benefits ran out last month. The former office manager from Goochland, Va., who missed several mortgage payments even before her benefits ended, has had to drain her savings and lean on her partner’s $124-a-week unemployment check to help make ends meet.

“It’s a domino effect,” said Ms. Stein, 57, who receives a small pension from IBM, where she was an accounts receivable supervisor. “If you don’t have a job, it touches everything.”

Gus Faucher, director of macroeconomics at Moody’s Economy.com, said if the government provided benefits to more workers, it would reduce the severity of the recession.

Congress extended unemployment benefits twice last year, adding up to 33 weeks of coverage for individuals. Still, there were roughly 500,000 more unemployed Americans not receiving benefits in last December than a year ago.

Before the emergency extensions, only about one-third of unemployed Americans were receiving benefits, a level that has declined steadily since coverage was at its peak in 1975.

The proportion of workers covered usually increases during recessions as Congress typically enacts extended benefits. Some experts argue that extensions should be automatic during downturns to avoid politicizing them.

But the crush of applicants has revealed other problems as well.

High demand - and insufficient funding - has made it difficult for many unemployment offices to keep up. Last month, online systems for requesting benefits in three states crashed under the crush of claimants. Other states, such as Michigan, have hired more workers to process the claims.

At least a half-dozen states have had to borrow money from the federal government to pay benefits after exhausting their unemployment insurance trust funds.

Beyond that, the economy has changed in significant ways since the jobless benefits system was first set up.

In decades past, layoffs during recessions were often short-lived and workers were eventually rehired by the same company. Today, companies are more likely to eliminate jobs for good, either by shutting down plants or moving them abroad, according to a study by the Brookings Institution.

The result: Unemployment spells tend to be longer as workers seek opportunities with new companies or even in new industries.

The jobless benefits system has another, more obscure, shortcoming. Many states don’t count workers’ most recent three to six months of wages - a relic from when computerized records weren’t available and handwritten records were used. This can shortchange low-income workers, who may not be able to prove they earned the minimum required for benefits. The requirement varies by state, but is typically several thousand dollars in at least one three-month period during the previous year.