Unemployment accounts would be better for most Oregonians than traditional unemployment insurance

For Immediate Release
August 4, 2010

Christina Martin, Asset Ownership Project Director
Cascade Policy Institute

Unemployment accounts would be better for most Oregonians than traditional unemployment insurance

By Christina Martin

PORTLAND, Ore. – Ninety-seven percent of Oregonians would benefit by switching from a standard unemployment insurance system to a system of unemployment savings accounts, according to a study released today by the Cascade Policy Institute.

The study, Unemployment Accounts: A Better Way of Protecting the Unemployed, was completed by economists Stéphane Pallage, Ph.D, chair of the Department of Economics at the University of Quebec in Montreal, and Christian Zimmermann, Ph.D., Associate Professor of Economics at the University of Connecticut.

“Unemployment accounts may well change the way we view unemployment insurance,” said Zimmermann. “Our results indicate that Oregon would benefit from a switch to the new policy of unemployment accounts.”

Economists have long observed that Unemployment Insurance (UI) increases the length of unemployment for workers who receive unemployment benefits, increasing overall unemployment. Benefit extensions alone have raised the unemployment rate by 1.5 percentage points during this recession, according to a recent study by Michael Feroli for JP Morgan Chase.

For years, reformers have noted that outside of severe recessions, UI typically does not cover a majority of unemployed workers. For instance, workers who are unable to work full-time are not eligible to receive UI benefits.

Unemployment accounts are a solution to some of the problems associated with traditional Unemployment Insurance, according to the study. According to Pallage, “[u]nemployment accounts lower the risk of free riding since most workers personally bear the cost of refusing job offers.”

Unemployment accounts work similarly to health savings accounts. Instead of paying into a common fund, the bulk of payments would be made to private accounts. When workers lose their jobs, they would draw benefits from their personal unemployment accounts. If their savings are insufficient, they could draw from a common fund similar to the current UI program. Individuals who retire with money in their unemployment accounts could use it for retirement.

Christina Martin, who directs the Asset Ownership Project at Cascade Policy Institute, said, “This study adds to the weight of evidence that calls for unemployment insurance reform. Switching to unemployment accounts would not only allow workers to ultimately keep more of what they earn, but it would also promote saving and personal responsibility.”

Importantly, the research demonstrates that a system of unemployment accounts would benefit workers with the least education who are also more likely to be unemployed. The report concludes, “The unemployment account system easily beats the unemployment insurance system, despite the fact that the optimal design of unemployment accounts in our study reflects the preferences of those who are most likely to prefer unemployment insurance (those with empty accounts)….”

A complete copy of the study is available here .

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