Monday, May 23, 2011

Heather Boushey, Jordan Eizenga: The JOBS Act is not about jobs

  House Republicans introduced the Jobs, Opportunity, Benefits, and Services Act of 2011 or, as they prefer to call it, the JOBS Act of 2011, on May 11, 2011. To be clear, the JOBS Act, which provides an incentive for states to cut unemployment benefits, is less about creating jobs and more about hurting those who have lost one. The JOBS Act would greatly weaken an already fragile unemployment insurance system, jeopardize our still-fragile economic recovery, and provide undue hardship to millions of households. Congress should reject this legislation and instead focus on policies that create jobs and strengthen our economy.

  The JOBS Act makes eligibility for unemployment insurance, or UI, benefits conditional upon possessing or currently pursuing a high school education. It also allows states to use federal unemployment funds for purposes other than providing UI benefits. These changes would have a profoundly negative impact on both the UI system itself and the economy. For instance, the Economic Policy Institute estimates that the JOBS Act could result in between 65,000 and 136,000 fewer jobs than under current law.

  The legislation’s stricter eligibility requirements would reduce recipiency rates and make it harder for the government to fight recessions. Why? Because unemployment benefits go to those who spend the money immediately. For this reason, UI is one of the best ways to increase economic growth during economic downturns.

  In fact, UI has been estimated to close nearly one-fifth of the output gap during recessions, and states with high recipiency rates are estimated to be 50 percent more effective in stabilizing their economies during recessions than states with low recipiency rates.

  Tying benefits to educational attainment flies in the face of the intended purpose of unemployment insurance, which is to provide income support to workers who have lost their job through no fault of their own while they job search, regardless of their background.

  A key problem is that the nature of this rule assumes that the problem is that unemployed workers are out of work because they are unskilled and do not have high school degrees. In fact, the two occupations where workers are spending the longest time unemployed are sales and management, where many workers already have high school and even college degrees.

  Clearly, it is a worthy goal to ensure the unemployed receive adequate training to re-enter the workforce. And the federal government should work to strengthen mechanisms that allow us to achieve that goal. But education is not keeping people out of work. It’s a lack of sales that is constraining firms’ hiring decisions.

  The JOBS Act also takes federal money meant for the provision of UI benefits and allows states to use that money for other purposes, such as paying down their UI loans, which keeps state UI taxes low.

  Prior to the Great Recession in 2007, 33 states had not sufficiently forward-funded their state unemployment insurance trust funds through state UI taxes and had less than one year’s worth of reserves in their trust funds. This meant that when the economy turned sour and unemployment skyrocketed, these states quickly depleted their trust funds and were forced to borrow from the federal government. Today these states collectively owe more than $40 billion to the federal government.

  Federal law requires that states with loan balances see a reduction in their federal unemployment insurance tax, or the FUTA tax, credit, which effectively increases taxes on employers in states that have not repaid their trust fund loans quickly enough. Three states—Indiana, Michigan, and South Carolina—currently fall under this rule, and they are paying higher taxes. Twenty-three states and the Virgin Islands are projected to experience a reduction in their FUTA credit next year.

  It’s true that the JOBS Act can help states avoid these tax increases by allowing them to use federal dollars to pay back their UI trust fund loans. But this means that the legislation takes money meant to provide benefits to the unemployed and uses it to prevent state UI tax increases.

  What’s more, the JOBS Act further weakens the incentive of states to adequately fund their UI trust funds going forward. In effect, the creditor—the federal UI trust fund—is giving money to the borrower—states—to pay off their state UI trust fund loans. This clearly introduces the kind of moral hazard one would think the Republicans would want to avoid. After all, why raise taxes and forward-fund your trust fund if the federal government is just going to bail you out?

  To be sure, the UI system in its current form is in need of improvement. Earlier this year, the Center for American Progress released a proposal to strengthen the UI system. But the changes proposed in the JOBS Act only weaken it.

  The fact remains that Congress should not be cutting UI benefits and making it harder to create jobs with 13.7 million people out of work and insufficient job growth.

  So slap any name you want on this bill. It still doesn’t change the fact that it is a terrible piece of legislation and should not become law.

  About the author: Heather Boushey is a Senior Economist and Jordan Eizenga is a Policy Analyst at the Center for American Progress.

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