Why Obama wants a new unemployment insurance plan

On Saturday, President Obama proposed a new unemployment benefit and wage insurance plan for the 2017 federal budget. 

President Barack Obama announced a plan to expand unemployment insurance during his weekly address on Saturday.

Mr. Obama stated that his goals for the final year of his presidency included expanding economic protections for American workers during his final State of the Union address on Tuesday.

“We also need benefits and protections that provide a basic measure of security,” said Obama. “It’s not too much of a stretch to say that some of the only people in America who are going to work the same job, in the same place, with a health and retirement package for 30 years are sitting in this chamber.”

This week, Obama announced some of the forms he hopes those protections will take – without yet announcing how to pay for them.

On Thursday, Obama promoted a Medicaid expansion that would aid families with incomes at 138 percent of the poverty threshold. On Saturday, he announced an unemployment plan.

Although the unemployment rate has actually dropped significantly throughout most of Obama’s presidency, from nearly 9.9 percent at its zenith in 2009 to exactly five percent today, the president says he remains deeply concerned for the wellbeing of unemployed workers.

Unemployment benefits currently vary from state to state. North Carolina, for example, offers benefits for 13 weeks of unemployment. In Massachusetts, unemployment benefits last for up to 30 weeks.

Under Obama’s plan, unemployment benefits would be standardized across the states. Unemployment benefits would last for up to 26 weeks. States with high unemployment could receive federal funding to support up to 52 weeks of unemployment benefits.

With unemployment rates the lowest they have been in years, why is this new plan important now?

When emergency benefits programs, passed after the 2008 crisis, expired at the end of 2013, Democrats tried and failed to extend them. The expiration of those benefits left 1.3 million unemployed Americans without benefits.

Obama says he hopes to forestall another such benefit-need gap for the future. He says that this plan will give the workforce the strength and flexibility it needs to weather periods of unemployment and change.

Not only would the new plan help unemployed workers gain a better standard of living, says Obama, the plan would also encourage unemployed workers to become reemployed.

“It’s a way to give families some stability and encourage folks to rejoin the workforce – because we shouldn’t just be talking about unemployment,” said Obama in his weekly address, “we should be talking about re-employment.”

Obama’s wage insurance program would offer workers who had been at their previous place of employment for three years compensation for lost wages, provided their new job paid less than $50,000 per year. Replaced wages could value up to $10,000 over two years.

Instead of enabling free-riders on the system, the wage insurance program would provide incentives for unemployed workers to re-enter the workforce. With the promise of wage insurance payouts, workers would be free to take any job, cutting the time spent job-searching for an employment situation with comparable wages to their previous job.

For some workers who have given up on finding a new job, the wage insurance program could be a stimulus to start searching again. According to a 2014 Rasmussen poll, 41 percent of Americans know somebody who has given up on a job search. Obama’s plan seeks to change that.

University of Chicago economist Robert LaLonde concurs with Obama’s reasoning, saying “Displacement insurance can begin to address the substantial risks that many prime-aged and older workers confront in a dynamic economy.”

The Atlantic notes that not all economists may have such a rosy view of Obama's plan. Some feel that such a plan could have the unexpected side effect of incentivizing low-wage job creation. If workers will take lower wages due to wage insurance, economists say that employers could choose to pay less. 

Obama may find this plan difficult to pass with a Republican Congress. Historically, unemployment insurance and welfare plans have been difficult to get past Republican majorities. Critics argue that spending more on unemployment benefits now will tax future generations. According to former top economist under Obama, Larry Summers, unemployment benefits also contribute to long term unemployment.

In 2014, Rep. James Lankford (R) of Oklahoma characterized the Democratic perception of unemployment plans as, "We should make times tougher on our kids to make it easier on us, and then feel better. And I think that’s just not a philosophy I’m willing to support.”

Obama has not yet detailed how the federal government will pay for this plan. The proposed 2017 budget will be released in full on Feb. 9.