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September 18, 2006

Economist Lori Kletzer proposes major overhaul of U.S. unemployment system

By Jennifer McNulty

Economist Lori Kletzer coauthored a major proposal to overhaul the U.S. unemployment system that has attracted the attention of top policy makers in Washington, D.C.

Kletzer, an expert on the U.S. labor market, collaborated with Howard Rosen of the Institute for International Economics in Washington on the report, Reforming Unemployment Insurance for the Twenty-First Century Workforce, which was released last week by the Brookings Institution.

The paper addresses shortcomings in the current system, including the fact that lower-income workers, who need unemployment insurance more than their better-paid counterparts, are less likely to receive it.

"The nation's unemployment insurance program is seriously out of date, given the changes over the last 70 years in the U.S. labor market," Kletzer told the New York Times.

The proposal was featured in a high-level briefing Sept. 15 sponsored by the Brookings Institution's Hamilton Project, launched this year to "inject new policy options from leading thinkers across the country into the national economic debate." The forum, "Economic Security in a Changing World," brought together former U.S. Treasury Secretary Robert E. Rubin, Roger C. Altman of Evercore Partners, and Laura D'Andrea Tyson of the London Business School.

Kletzer, whose research focuses on the impact of global trade and economic integration on the U.S. labor market, has become an influential voice in Washington policy circles. She was singled out in a National Journal special report on the "people whose ideas will help shape debate on 10 important issues of the day."

Kletzer and Rosen call for broader coverage of workers and stronger federal guidelines to minimize disparities between states in eligibility and benefit rules. They would establish personal accounts for the self-employed, with worker pretax contributions matched by contributions from the federal government of up to $200 a year. And they propose a wage-insurance program that would assist workers who, upon reemployment, are in jobs that pay less than they had been earning on the jobs held before job loss.

Globalization and other changes prompt the need for the overhaul, according to Kletzer and Rosen, who note that today's workers are forced to change industries more often than their counterparts did when the system was introduced more than 50 years ago, and they often take jobs that pay less. In addition, laid-off workers now face periods of joblessness that average 16 weeks--four weeks longer than in the 1970s.

The changes in the labor market signal a trend that is moving "from temporary layoff to permanent displacement," according to Kletzer and Rosen.

Kletzer and Rosen's proposals could add up to $13 billion in additional costs, but the scholars called for raising the federal unemployment tax, which is currently levied on only the first $7,000 of income. Employers pay a maximum of only $56 a year for each covered worker, after tax credits, they said.

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