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How Unemployment Insurance Abroad Compares To The U.S. - YouTube
Channel: CNBC
[0]
The unemployment rate right
now has jumped to
[3]
fourteen point
seven percent.
[6]
Those numbers are
just absolutely brutal.
[9]
Unemployment insurance or
adding another six
[11]
hundred dollars. We continue
to hear about
[13]
people not being able
to get their benefits.
[15]
Since the start of
the Covid-19 outbreak,
[16]
millions of Americans have
lost their jobs,
[19]
according to the U.S.
Department of Labor.
[20]
More than thirty eight
point six million
[22]
Americans have applied
for unemployment
[24]
insurance benefits as
of May 21st.
[26]
Five weeks into the
crisis, all the job
[28]
gains that the U.S.
economy made since the
[29]
Great Recession have
been wiped out.
[31]
In April, the U.S.
economy lost a record
[33]
twenty point five million
jobs, causing the
[35]
unemployment rate to
skyrocket to fourteen
[37]
point seven percent. Experts
say this number
[39]
may go higher. The St.
[41]
Louis Fed projects the
unemployment rate may
[43]
get his high as
32 percent more Americans
[45]
than ever are turning
to government run
[47]
unemployment insurance
programs.
[48]
Terrence Jerard Shepherd
was furloughed from
[50]
his job at a
restaurant in Charlotte, North
[52]
Carolina. As a result
of the coronavirus
[54]
pandemic, I then realized
that I probably
[57]
wouldn't be back to
work for a while.
[60]
So I did. I went
ahead and I applied for
[63]
unemployment and if I
could possibly get
[65]
food stamps to help
me out with food.
[68]
The increased demand is
calling attention to
[69]
the role of the social
safety net and its
[71]
potential
shortcomings.
[73]
A strong safety net,
advocates say it will
[75]
help the economy
rebound once lockdowns
[76]
begin to ease. I
don't feel like North
[79]
Carolina was ready for
this many people to
[83]
all be out of work at
the same time, or when
[86]
a vaccine or Covid-19
treatment hits the
[88]
market. Greg Casar is
a city council member
[90]
in Austin, Texas, who
is working to deploy
[92]
emergency funding to citizens
at the local
[94]
level, everyday
working people.
[97]
Not only need to survive
the virus, they also
[99]
usually have to
work to survive.
[102]
We have so many people
in our city and in
[104]
this country that live
paycheck to paycheck,
[106]
and when they're not
working, we've got to
[108]
make sure they can
make ends meet.
[109]
So how does the
United States unemployment
[111]
insurance system compare to
those in other
[113]
countries? And how will it
hold up under the
[115]
stress of the
coronavirus crisis?
[127]
The federal state
unemployment insurance
[129]
program in the United
States was created by
[131]
the Social Security Act
of 1935 during the
[133]
Great Depression. Suddenly
you had millions
[135]
and millions of people
who didn't have the
[138]
means to take care
of themselves and take
[140]
care of
their families.
[141]
And the aggregate impact
of that on the
[144]
economy was
tremendously negative.
[146]
The unemployment system is
set up as a
[148]
partnership between the
federal government
[149]
and the states in
order to provide temporary
[151]
financial aid to
certain workers.
[153]
That's an old joke in
the social policy and
[157]
unemployment insurance space
that we don't
[158]
really have one
unemployment insurance
[160]
system. We have a
collection of 50 different
[163]
unemployment insurance systems
and what
[165]
kinds of benefits you get
and then how easy
[168]
it is for you to
access those benefits is
[170]
going to look very
different, depending on
[172]
whether or not you're
in California and
[173]
Florida, for example.
Most states offer
[175]
unemployment for a maximum
of 26 weeks while
[177]
workers look for
new jobs.
[179]
But there are several
states that make the
[180]
maximum period either
longer or shorter.
[183]
Federal law sets the
general criteria that
[185]
workers must meet in
order to receive
[186]
benefits across
all states.
[188]
Beneficiaries must have lost
a job through
[191]
no fault of their own,
be able to work and
[193]
are actively seeking work
and have earned at
[195]
least a certain amount
of money prior to
[197]
becoming unemployed. But
each state can
[199]
apply these
guidelines differently.
[201]
One example states can
decide how much money
[203]
the program pays out
in February 2020, just
[207]
before the coronavirus
crisis started.
[208]
Average weekly benefits
were about three
[210]
hundred and eighty
seven dollars nationwide.
[212]
Mississippi offered the
lowest amount and
[214]
benefits at two hundred
fifteen dollars per
[216]
week. While Massachusetts
gave recipients
[218]
the most at five
hundred and fifty dollars
[220]
per week. Each state has
a trust fund that
[221]
collects all the
payroll taxes from
[223]
employers. Employers pay
into that fund
[225]
based on their workers
earnings, taking them
[227]
out of each paycheck.
Payroll taxes like
[229]
these increased for
companies if their
[231]
workers end up
using unemployment insurance
[233]
system more
frequently.
[234]
Payroll taxes are
experience rated, meaning
[236]
firms are supposed to
incorporate some of
[238]
the costs they impose
on the system by
[240]
laying off. However, states
don't want to
[243]
raise payroll taxes
on firms.
[244]
And for example, in
California, the wage
[246]
base is ridiculously low
and hence the trust
[250]
fund runs out of
money all the time.
[252]
And then California has
to borrow from the
[255]
federal government and to
repay those loans.
[258]
There are automatic payroll
tax increases on
[261]
all firms. Still,
many eligible workers
[264]
don't know they qualify
for benefits or they
[265]
have trouble navigating
the system.
[267]
The recipients rate is
really low, meaning
[270]
the response rate is
the fraction of
[272]
unemployed workers who
actually obtain
[274]
unemployment insurance
benefits.
[276]
That rate nudges upward to
40 to 50 percent.
[281]
In the big recession and can
be as low as 20
[284]
percent during
regular time.
[286]
So unemployment insurance
effectively does
[289]
not cover the majority
of the unemployed.
[295]
The United States isn't
alone in the
[297]
downturn. Spain experienced
the country's
[299]
single biggest job
loss on record.
[301]
300000 people lost their
jobs in Spain
[303]
between February
and March.
[305]
Increasing the unemployment
rate there by
[306]
nine point
three percent.
[308]
So Spain actually does
something similar to
[310]
what the U.S. does right
now, which is to
[313]
allow companies to
furlough workers and
[316]
allow companies to to
reduce working time
[319]
down to 100
percent or zero.
[322]
And then these workers
become eligible for
[324]
unemployment benefits,
even though,
[326]
technically speaking,
the employment
[328]
contract is
still valid.
[330]
Sweden's economy is also
taking a hit from
[332]
the virus. Swedish
officials expect the
[334]
country's GDP to shrink
by four percent and
[336]
unemployment to rise as
high as 10 percent
[338]
in 2020. The Swedish
government expects an
[341]
economic contraction as deep
as during the
[343]
global financial
crisis.
[345]
Unemployment could reach its
highest rate in
[346]
more than 20 years.
[348]
This downturn occurred
despite Sweden not
[350]
implementing the same
sort of restrictive
[351]
social distancing measures
as other
[353]
countries. But many
Swedish residents and
[355]
businesses have been
voluntarily social
[357]
distancing, which has lead
to the economic
[359]
strain. One thing I would
consider a bill is
[362]
to an extent, it was
also sort of government
[364]
induced. It was a
government decision to say
[367]
we shut
everything down.
[368]
Everyone has to
stay home.
[369]
Businesses are closed.
[370]
People need to
be laid off.
[372]
When you look at the
case of Sweden they,
[375]
they take a
different approach.
[377]
To avoid, to the
extent possible, closing
[380]
businesses. Sweden has
a voluntary
[382]
unemployment insurance system,
so workers
[384]
must decide for themselves
to pay into the
[386]
program rather than
their employer paying
[388]
taxes on
their behalves.
[390]
Some of the funds are
linked to unions for a
[391]
specific line of work,
while others are open
[393]
to a range
of professions.
[395]
What you would expect,
theoretically, is that
[398]
the system shouldn't work
as well as a
[400]
mandatory system because
the people who
[404]
don't need insurance.
[405]
De facto, it
does work.
[408]
The Swedish government
has passed legislation
[410]
to provide more resources
to benefit funds
[412]
and has also
relaxed the eligibility
[414]
requirements. Germany's approach
to the
[416]
crisis was also to
keep workers attached to
[418]
their jobs by
essentially subsidizing their
[420]
wages. What they do
is they basically freeze
[424]
the employment
contract.
[425]
So the government says,
you know, the
[427]
employment contract cannot
be dissolved, so
[430]
you will
stay employed.
[431]
Your working time might
be reduced up to
[434]
100 percent and
the government will
[436]
compensate essentially the
employer for the
[440]
wage costs. Germany, notably,
is an example
[444]
of an economy where there
was already a lot
[446]
of economic coordination
and sort of
[449]
industrial policy that that
happens in the
[453]
form of councils
that regroup.
[455]
Government officials and
officials from the
[457]
private sector and
representatives from
[459]
unions. And so they
had this existing
[461]
infrastructure to draw on
that made it
[464]
easier for them to
deploy a reform like
[466]
that. Both Republican
and Democratic
[471]
lawmakers agree that
unemployment insurance
[473]
cannot adequately address
the scale of
[475]
economic devastation caused
by the
[477]
coronavirus pandemic.
[479]
As a result, Congress
passed several bills
[480]
to provide support
to the states.
[482]
Lawmakers currently remain
in talks for
[484]
future legislation.
[485]
So far, the federal package
is made up of
[487]
several different
bills.
[488]
Together, they work to
fill gaps in the
[490]
unemployment insurance
system.
[491]
The legislation covers
the following
[493]
measures, provides an
additional six hundred
[495]
dollars to all
beneficiaries, regardless of
[497]
which state they
are collecting insurance.
[499]
It allocates funds to
help states administer
[501]
the benefits more
efficiently and allows
[503]
recipients to collect benefits
for up to
[505]
four months. It also
expands who qualifies
[508]
to receive benefits,
including self-employed
[510]
or contract workers,
and provides state
[513]
trust funds with an
additional one billion
[514]
in funding. One
characterising feature of
[517]
the Covid-19 crisis in
the labor market is
[519]
that it has hit
low income workers
[524]
substantially. In California,
for example,
[526]
we see that one in
three workers coming from
[530]
the accommodation and
food service industry
[533]
has applied for
unemployment insurance
[536]
benefits, and one in
five workers coming
[538]
from retail sale has
applied for UI.
[540]
Given these individuals
are low earners,
[543]
their typical UI benefits
are not going to
[546]
be very high. And
the six hundred dollars
[549]
per week from
pandemic unemployment
[551]
compensation makes a
big difference here.
[553]
The legislation also
provides incentives for
[555]
businesses not to
lay off workers.
[557]
Many economists say it
is crucial for
[559]
workers to remain attached
to their jobs
[560]
during the crisis, despite
the decline in
[562]
the demand for labor.
[564]
The key thing is they
keep their jobs and
[567]
that has these two
really important effects.
[570]
The first one is
fewer people face the
[572]
trauma of job loss,
which can have very
[575]
lasting consequences.
[576]
And then the employers,
when the recession
[580]
is over, don't have to
scramble to find new
[583]
workers, hire them and
train them onboard
[585]
them. And so they'll be
able to when that
[588]
when the lockdown is over
to do just turn
[591]
the lights back on
and get things going
[593]
again. The Paycheck Protection
Program is a
[595]
lending program to
help small businesses
[597]
avoid bankruptcy. But the
rollout of the
[599]
program has run
into many problems.
[601]
Banks and small businesses
spoke out about
[603]
how difficult the
process was.
[605]
One of the problems
with that is the
[607]
administration has been
very hard.
[609]
There's so many businesses
that are applying
[612]
for this work.
[614]
We don't really have
the infrastructure in
[616]
place to process all
of those loans.
[618]
Shierholz says the program
focuses too much
[620]
on trying to prevent
fraud through the
[622]
application process, which
is delaying the
[624]
distribution of the loans
at a time like
[627]
this. I always think
of it's more important
[629]
to get the money
out the door.
[631]
This timing is
everything right now.
[633]
You're going to have
people that get laid
[634]
off unless you can get
this money right out
[637]
the door so you can
do that sort of
[640]
oversight of something like
this on the back
[642]
end, like with the
small business loan
[644]
program. There have
been administrative
[646]
problems. The state
run unemployment systems
[648]
are not prepared to
handle the volume of
[650]
applications the pandemic
is creating.
[652]
The state of Texas has
for the longest time
[656]
had a very, very thin
social safety net if
[659]
they had a social
safety net at all.
[661]
And so everything that
was wrong about our
[664]
system in Texas becomes
so much more clear
[667]
here in the middle of
a pandemic or people
[669]
who've been calling
to access their
[672]
unemployment, some of them
calling dozens of
[674]
times a day and not
being able to get access
[676]
to basic benefits. Those
state systems have
[680]
been profoundly underfunded
for decades.
[683]
They're using ancient
computer systems.
[685]
In many cases. They're not
set up to be
[689]
agile, to be able
to accommodate an
[692]
avalanche of claims
like we're seeing.
[694]
So there have been and
will continue to be
[697]
problems. The U.S.
[700]
system was not equipped
to handle a huge
[702]
spike in unemployment
all at once.
[704]
But could it have
been more prepared?
[706]
The current state
highlighted a few
[711]
drawbacks. One thing, of
course, is that the
[713]
system was not ready
for this onslaught of
[716]
unemployment benefits, and
it always takes
[718]
some time until
benefits are processed.
[721]
Some experts say
the U.S.
[722]
can implement a
system that automatically
[724]
triggers supplemental benefits
during a
[726]
crisis. This system is
made for sort of
[730]
regular economic
activity.
[731]
So in every major
recession, the federal
[733]
government starts to extend
and pay for
[736]
benefits. It's called
emergency unemployment
[738]
compensation. But since this
is a program
[741]
paid for by Congress,
it's ad hoc.
[743]
Every time there's a
debate, things are
[745]
delayed. There are also
ways experts would
[747]
like to reform
the unemployment insurance
[749]
system during times when
there isn't an
[751]
economic downturn.
[752]
One of the big ways
in which the system could
[755]
be reformed is if it
were made into a truly
[758]
national system.
[760]
So many of the
problems with the
[762]
unemployment insurance system
as it exists
[764]
now can be traced to
the fact that this has
[767]
been left to the
states and they don't
[769]
really have many of them
the capacity to do
[771]
this properly, whereas
the federal
[773]
government does. States
unlike the federal
[775]
government, are unable to
run a deficit.
[780]
They need to balance
their budgets at the
[781]
end of the year. And
even though they can
[784]
borrow from the federal
government to pay
[786]
for unemployment insurance
benefits, they
[788]
have to repay those loans
in about two to
[790]
three years. So they have
a little bit of
[792]
breathing room, but really at
the end of the
[794]
day, they face a
severe budget constraint
[797]
and they don't have the
power of the purse
[799]
in the way that
the federal government does.
[801]
Latitude afforded to states
leads to the
[802]
strange, patchwork,
patchwork quilt.
[805]
Some states you can
only apply by phone.
[807]
Some states you cannot
only apply online.
[811]
The rules differ from
state to state, and
[813]
the government just in
general, needs to do
[814]
a much better job
informing people about
[817]
their their eligibility
for benefits.
[819]
We cannot go back to
the system that we had
[822]
before this pandemic.
[823]
This pandemic has
highlighted exactly what's
[825]
been wrong with our
system in states like
[827]
Texas. We have
underfunded and overburdened
[831]
our employment systems because
of this myth
[834]
that having unemployment
insurance somehow
[836]
makes people not
want to work.
[838]
But the fact of the
matter is we need
[840]
unemployment
insurance.
[841]
So in a disaster
like this, people can
[844]
afford not to work.
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