Time for Unemployment Reform?
Jan 12th, 2009 | By Rob | Category: economy
Last week, Hyundai began running a commercial that offered an incentive for those considering buying a car but were nervous about losing their job: if you lose your job within one year of buying a new car, they will let you return it with no penalty. I thought it was a brilliant promotion in the current economy. It encourages consumers to spend money and offers them a form of insurance against their near term unemployment prospects. If I were in the market for a car, I would definitely consider taking advantage of the offer.
The commercial also has me wondering whether it isn’t time to begin considering unemployment reform, with President-elect Barack Obama set to begin his push for an economic stimulus package that is now hoped to save or create 4 million jobs in the United States, and the United States economy possibly facing the worst economic environment since the Great Depression.
Let’s look at the evidence of problems in the unemployment system:
- State unemployment funds are running budget deficits with some jobless fund deficits expected to reach up to a couple billion dollars over the next few years.
- The federal government has had to pass a federal emergency unemployment extension of benefits not once but twice to extend the jobless benefits for an extra twenty weeks for those unable to find work.
- More state unemployment systems are reporting problems handling the large numbers of claimants, overwhelming phone systems with callers and crashing websites.
If these problems weren’t enough to justify reform of the unemployment system, there is the problem of the unemployed affording their mortgage payments, credit card debt financing, and health insurance on $500 a week.
The Hyundai commercial was persuasive because it offered the ability to unload debt quickly under unfortunate circumstances: the loss of employment. While unemployment offers a minimal payment to bridge the gap between jobs, it’s not an effective measure for those that are in debt. Whether it is a large mortgage payment, a high outstanding balance on your credit cards, or a medical problem requiring continued health insurance, the low unemployment payments and the low savings rates probably push many towards foreclosure or bankruptcy. And people looking for a new job don’t need those financial pressures.
A few weeks ago, I saw a news story where they indicated that individuals who lose their jobs will earn 15-20% less when they go back to work. Even if an individual is able to make their finances work on unemployment compensation, they won’t be able to replenish the loss of their savings when they return to work at a significantly lower salary.
When economic times are tough, one of the first things that a business does is layoff employees. They do it to shed expenses and improve their financial health. Unfortunately, consumers who are laid off don’t necessarily have the same option to shed expenses. They can’t quickly sell their home (a process which is expensive in and of itself) or sell their car and lower their monthly expenses. If they don’t have three months of expenses saved for a rainy day (and who has really saved that much these days?), then an individual that loses their job is in financial trouble.
The government should make it a little bit easier for individuals facing unemployment. Websites and phone lines that aren’t overburdened by the amount of unemployed are a minimum standard. Whether it is subsidized low cost health insurance for the unemployed, a new temporary jobs program like that instituted during the Great Depression, or the ability to postpone debt payments during job loss, more can be done to aid the unemployed. Let’s get it done.
