To Encourage Earning

May 19, 1958

I have already pointed out (Newsweek, April 14), as has Raymond Moley (April 7), what is wrong with the Federal extension of state unemployment insurance proposed by the President on March 25 and already passed by the House. If this measure becomes law, it will destroy the principles of state unemployment insurance and put the Federal government permanently into relief masquerading as insurance. Many conservatives in the House felt themselves compelled to vote for this ill-considered measure in order to stave off the incomparably more reckless and demagogic bill offered by the Democratic leadership.

In Newsweek of March 10 I gave one illustration of how the unemployment insurance system, even as it stands, directly tends to increase the very unemployment against which it insures. The United Automobile Workers asked the Chrysler Corp. to reestablish a 44-hour week for its workers and to lay off those it was employing only part time, on the ground that the latter would make more money per week through unemployment benefits if they were made completely idle.

PENALTY ON WORKING

This sort of consequence is the result of defects in the state unemployment insurance laws that the states themselves could remedy without the need for Federal intervention. Few people seem to realize that present state unemployment insurance systems put a direct penalty on earning money by work. In the great majority of states a worker is disqualified from unemployment benefits if he earns more than $5 or $6 a week during his benefit period. A handful of states have different formulas, but all of them put a positive penalty on earning above a certain amount.

This foolish deterrent to part-time work and earnings could be removed by a simple device. For every $1 of outside earnings that a man received during his benefit period, his weekly benefit could be reduced by 50 cents. In this way he could always increase his net weekly income by at least half the amount he earned from casual work. Suppose the weekly benefit to which the unemployed worker was entitled was $30. Then if he earned $10 by casual work in a given week he would not be completely disqualified from unemployment benefit but would receive $25, making his net income $35. If he earned $20 his benefit would be reduced to $20, making his net income $40. If he earned $30 his benefit would be reduced to $15, making his net income $45.

PREMIUM ON IDLENESS

It probably would not be wise to continue this formula beyond the point at which a man’s outside earnings exceeded his benefit. The primary purpose of unemployment insurance, after all, is to provide some minimum income during unemployment, not to supplement income from employment. But even if outside earnings exceeded the amount of the full benefit payment, it would be cruel and stupid, and defeat the purpose of unemployment insurance, to disqualify the unemployed worker completely. From that point on his weekly benefit could simply be reduced by the full amount of his additional earnings. This would mean, for example, that if a worker entitled to a $30 benefit earned $35 his benefit payment would be reduced to $10.

To prevent the formula I have suggested from being exploited as a subsidy for part-time work by any collusion between unions and employers, unemployment benefits, as now, should begin only after a worker had been laid off. And any part-time earnings from employment by the same firm that had laid him off, if they occurred during the benefit period, would be fully deducted against the benefit payment.

Under such a system the worker would at least never be out of pocket from accepting part-time or casual work, and in most cases he would gain by it. The states should, of course, treat “supplementary unemployment benefits” in the same way, deducting, say, 50 cents of unemployment benefit for every $1 of SUB. To make (as some 40 states now do) no deduction whatever for SUB, not only discriminates in favor of members of a few strong unions, but discriminates in favor of income from not working against income derived from work.