March 28, 2024

Today’s Economist: Casey B. Mulligan: The New Subsidy for Layoffs

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Casey B. Mulligan is an economics professor at the University of Chicago. He is the author of “The Redistribution Recession: How Labor Market Distortions Contracted the Economy.”

A major provision of the American Recovery and Reinvestment Act helps predict what will happen in the insurance market next year.

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Employees and employers often take steps to avoid layoffs, like working hard to encourage customers and clients to continue buying the goods and services provided by the business.

Sometimes layoffs are not avoided by such efforts, which is why many employers also take steps to ease the burden of a layoff on employees and their families and to minimize disputes between them and the employer. Many businesses voluntarily offer cash severance pay, which is intended to replace the usual paycheck for several weeks or months after the layoff, depending on the length of time that the employee had been with the company. (During the time of unemployment, the former employee can many times collect both the severance pay and state unemployment insurance benefits.)

Employers may also offer to help laid-off workers continue with their health insurance during the unemployment spell. (Indeed, a laid-off worker who intended to spend some severance pay on health insurance premiums would save money on taxes if the former employer were paying those premiums, even if it meant lower severance.) Severance pay and health insurance costs for former employees are significant expenses that employers presumably take into account when they decide the number and timing of their layoffs.

During 2009 and 2010, the American Recovery and Reinvestment Act had the federal government pay some costs of layoffs, especially with its premium-assistance program, which paid 65 percent of the premiums that a laid-off employee would pay to stay on the former employer’s health plan. People who could join a spouse’s employer health plan and people without health insurance on their previous job were ineligible for the program.

Economists understand this premium assistance to be a subsidy to layoffs, making them cheaper and less of a burden. Employers saw it this way, too, according to an Urban Institute study.

“Some large‐firm interviewees reported that before A.R.R.A. they provided some amount of free or reduced cost Cobra coverage for laid‐off workers, based upon the prior duration of employment,” the study found, referring to the Consolidated Omnibus Budget Reconciliation Act, which allows workers who have lost their jobs to purchase coverage. ”Several of these companies reported that they reduced or dropped this prior benefit in reaction to A.R.R.A.”

Although we will learn more when (and if) the United States Treasury releases its final report on the premium-assistance program, it appears that program participation was high. An interim report indicated that perhaps two million households and even more individuals had their health insurance subsidized within nine or 10 months of starting the program.

The law’s premium assistance program ended in 2010, but significant amounts of premium assistance are coming next year as a part of the Affordable Care Act. For families with income between 100 and 250 percent of the poverty line, the Affordable Care Act is even more generous than the Recovery Act, because it helps them pay for both health insurance premiums and out-of-pocket costs like co-payments and deductibles. Also, health insurance is more expensive now than it was in 2009, which makes a percentage subsidy that much more valuable.

Moreover, unlike the Recovery Act’s program, next year’s program welcomes people out of work even if they left work by quitting, retiring or being fired for cause. It also welcomes people who have the possibility of joining a spouse’s plan and people who had no health insurance on their prior job.

Thus, we are about to begin a federal program that subsidizes layoffs to a degree that we have not seen before. Nevertheless, economic and budget forecasts by the Congressional Budget Office and others have yet to consider the effects of the layoff subsidy on the size of the program and the number of layoffs that will occur.

The C.B.O. has concluded that 800,000 people will take early retirements or quit as a consequence of the Affordable Care Act, not from its premium assistance, but based on the assumption that the unsubsidized nongroup health insurance market will operate better. The C.B.O. still needs to estimate how many people will be laid off as a consequence of the new subsidy to layoffs.

Over all, the C.B.O. predicts that 11 million people will receive premium assistance in 2015 (and even fewer in 2014), the vast majority of whom would be employed or dependents of an employed person. Yet the Recovery Act’s experience suggests that three million or four million people will receive premium assistance through unemployment alone, not to mention the millions more that receive it while working.

Be prepared for some unpleasant surprises over the next year or two, both as to the amount that the labor market is depressed and the unanticipated federal spending that will be needed to provide the benefits promised by the Affordable Care Act.

Article source: http://economix.blogs.nytimes.com/2013/06/12/the-new-subsidy-for-layoffs/?partner=rss&emc=rss

Economix Blog: Nancy Folbre: Public Job Creation

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Nancy Folbre is an economics professor at the University of Massachusetts Amherst.

President Obama has signaled a new commitment to combating unemployment, with a major speech planned for later this week. The big question is whether his battle plan will go beyond indirect means of encouraging long-run employment growth (such as tax incentives) to include public job-creation programs that could significantly lower unemployment over the next year.

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His Republican critics take a “been there, done that, didn’t work” approach to economic stimulus. But President Obama’s stimulus plan, the 2009 American Recovery and Reinvestment Act, relied primarily on tax cuts and increases in aid to the states, shying away from direct federal job-creation efforts that were considered politically risky. (Jared Bernstein, chief economic adviser to Vice President Joseph R. Biden Jr. at the time, provides a clear account of the administration’s rationale).

The stimulus helped the economy toward recovery. Increased aid to the states temporarily buffered the impact of state and local budget cuts. But over all, the Obama administration has been characterized by public job elimination rather than creation. The latest estimates of government employment (preliminary estimates for July 2011) show a significant decline since 2008, to about 22 million from about 22.5 million.

This decline in public employment will inevitably be intensified by further cuts in public spending and has particularly ominous implications for women, who make up a disproportionate share of state and local payrolls.

As Eileen Appelbaum points out, men were harder hit by job losses in 2009 than women but also faster to regain jobs as private sector hiring revived. A recent report from the Institute for Women’s Policy Research provides a vivid, up-to-date graph of these trends.

As of August 2011, the seasonally adjusted unemployment rate for men 16 and older was 9.6 percent; that for women, 8.5 percent. A new Economic Policy Institute report notes that persistently high unemployment has lowered the earnings and family income of a wide swath of American families.

Democrats to the left of President Obama have long argued the need for direct job creation through new federal programs, targeted transfers to state and local governments or both. Robert Reich, who served as secretary of labor under President Clinton, has offered a model speech along with a model plan.

The National Urban League, a prominent civil rights organization, has outlined a 12-point proposal, Putting America Back to Work.

Representative George Miller, Democrat of California, has introduced several legislative proposals, most recently the Local Jobs for America Act. Money would go directly to eligible local communities and nonprofit community organizations that would decide how best to use them. The act would also underwrite approximately 50,000 additional private-sector on-the-job training positions to help businesses put people back to work.

Representative Jan Schakowsky, Democrat of Illinois, has sponsored the Emergency Jobs to Restore the American Dream Act, which puts more explicit emphasis on money for schools, health care and community service. This program would be fully financed through separate legislation creating higher tax brackets for millionaires and billionaires, elimination of subsidies for major oil companies and closing of corporate tax loopholes that encourage offshoring of American jobs.

In a post last year, I described several specific proposals to create jobs in home-care services, including a voucher program to help subsidize the cost of home aides for the elderly, moving them out of nursing homes and back to their own homes.

Last week, Heidi Hartmann, president of the Institute for Women’s Policy Research, mobilized an online discussion of participants in the Womens Scholars Forum (including me). The resulting briefing paper summarizes a number of additional ideas, such as expanding the length of the school day and school year to improve educational outcomes and developing an Urban Conservation Corps.

The briefing paper emphasizes a longstanding concern of women’s organizations: the need to make sure that “women get their fair share of jobs that are nontraditional for women, for example technical and craft jobs in construction, transportation, and green energy and that are supported by federal dollars or federally guaranteed loans.”

A good example of targeted spending in this area is a small grant that the Women’s Bureau of the Department of Labor recently awarded to Austin Community College in Texas to recruit women to a renewable energy training program.

A strong public job-creation effort could help qualified graduates of programs like these find jobs improving the energy efficiency of schools and other public buildings. The employment impact would be both quicker and more reliable than subsidized loans or tax breaks for renewable energy companies.

Right now, the unemployed themselves represent an important form of renewable energy that is going to waste. That’s why President Obama should take a close look at proposals to put them to work in a variety of publicly financed jobs.

Article source: http://feeds.nytimes.com/click.phdo?i=53fcc2ca3dbac420e4a9f3c930295a43