Although it isn’t the looming train wreck that Social Security and Medicare are, our system of government unemployment insurance (UI) also is badly in need of reform. Both Don Carrington and I have written in the past about this issue and here two economists from Central Michigan University arrive at the same conclusion we (and others) have: workers ought to set up their own accounts to cover periods of unemployment.
Currently, states are pretty much locked into our antiquated, New Deal-era system thanks to a federal tax that is mostly refunded to the states as long as they maintain a UI system that conforms to federal guidelines. That prevents state governments from improving on the status quo. Therefore, the first order of business is to push for federal waivers (or a repeal of the Federal Unemployment Tax Act) so that states can move away from forced socialization of the risk of unemployment and into individual responsibility.
As with Social Security, the transition would pose some problems, but it’s better to deal with those problems than to live indefinitely with a system that wastes resources, unjustifiably transfers wealth from workers who have stable employment to those who don’t, and encourages laid-off workers to remain unemployed longer than they would if they would drawing on their own money.
