safety nets

I just saw this article about whether the stronger European safety net means that they don't need separate stimulus packages.  I don't really know how much spending is needed to turn their economies around, but would note that less than half of the American Recovery and Reinvestment Act could even vaguely be described as safety net spending (and only that much if you include all of the individual tax credits in that category).

But, I think the broader point, that the European programs are far more countercyclical the US programs (meaning that they automatically grow during hard times) is really important.  There are a couple of reasons for this.  The obvious explanation is that their social programs are far more generous than ours in general.  But I think it's equally important — although not as obvious — that several of our major programs — especially Unemployment Insurance, TANF, and Medicaid — are administered at the state level.   By constitution, most states aren't allowed to run budget deficits, so they're forced to cut services or raise taxes just when people need help the most.

The Federal government often chips in to help states when times are bad, but that requires specific legislative action, which often creates political complications.  There's a program — the Extended Benefits program — that is supposed to provide extra unemployment insurance to workers in high unemployment states, but the mechanics of it are so messed up that in practice, Congress always comes in and passes a separate program.  And that often happens well after we're in a recession — the one good thing about this one is that it got people to pay attention relatively early.  Obama's budget includes language about fixing the Extended Benefit triggers, which made this policy wonk happy.

The Times article that I linked to above mostly focuses on a German program called “Kurzarbeit,” or short-work, which allows firms to cut workers hours instead of laying people off, and the government makes up a portion of the reduced wages.  There's actually a U.S. version of that in some states, called work sharing, although almost no one has heard of it.  It's a good idea.

4 Responses to “safety nets”

  1. Jennifer Says:

    My husband’s company has instituted work sharing. It’s a very small company; they’ve done one round of lay-offs (and reduced health-care benefits, etc.) and are worried that if they lay anyone else off, they may as well close their doors entirely because they won’t be able to function. Hence the work sharing. So far my hub hasn’t had to do it, but a lot of people have.
    Unemployment in the county in which I live (Deschutes County, Oregon) is at 14%.

  2. TC Says:

    My gut says work sharing is bad, especially for those of us making juuuuust enough to live on–which I’m thinking is a fair majority of us. At a point not far below what I make now (I’m the sole wage-earner in our household), I’d be better off on unemployment…but if I were to be offered a job-share and turn it down, I imagine that would be tantamount to quitting, putting my unemployment benefits in jeopardy. Sounds lose-lose to me. Where am I missing the upside?

  3. Elizabeth Says:

    TC, first, I suspect you’re vastly overestimating how much money you’d get from unemployment if you were laid off. The replacement rate is generally around 50 percent — in California, I think the maximum weekly benefit is $450. The typical work sharing program cuts everyone’s hours and wages by 20 percent. Plus, the idea behind these programs is that the employer would continue your health benefits, and I suspect those alone are worth as much as UI.

  4. TC Says:

    Meant to reply before, but, you know…
    I wasn’t clear in what my objections are to work sharing. Yes, unemployment is devastatingly little money…but you can search for another job full time while you bring in that money. A 20% cut in my salary would put us in danger of bankruptcy/losing our house and yet I would still be expected to show up at the office 32 hours a week…making it that much more difficult, if not impossible to find another job. So my point was that, if offered a job share, I might be inclined to turn it down, but turning it down would mean not being eligible for unemployment…and so instead of $450 a week, I’d be getting nothing.
    For some people, I’m sure work sharing would be a great alternative to a layoff–especially if the reduction in hours doesn’t put you out of the running for health insurance. But for people like me, living pretty much on the edge (I’ve just taken an 8% paycut and am running scared)…not so much. So I guess I’m saying my hope would be that job-sharing opportunities would be implemented without taking away a worker’s right to collect unemployment if that opportunity was untenable.

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