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June 8, 2003

How to Give Job Seekers a Tastier Carrot


WO companies are in a race to build the first version of an innovative product, and executives at each devise strategies to finish first.

At one, the chief executive announces that employees will receive $100 bonuses for every day they work on the project during the next month. At the other, the chief executive says members of the project team will each receive a $3,000 check. If they finish before the month ends, they can go on vacation.

Which company will win the race?

Most economists would not hesitate before picking the second one, and they would call the victory yet another example of the power of incentives. If you want to persuade people to do something quickly, don't give them money for every day they have not finished the job.

This is the philosophy behind a Bush administration proposal to create a new program for unemployed workers. Unlike the regular unemployment insurance system, which pays workers each week that they look but fail to find a job for up to six months, the Bush proposal would give them the equivalent of a single payment. People who find a job in four weeks end up with as large a benefit as those who searched for 12 weeks, giving them another reason to find new work as quickly as possible.

"This is a way to help people get paychecks rather than unemployment checks," said Mason Bishop, the deputy assistant secretary for employment and training at the Labor Department. The aim of the program, he added, is to keep people from being "detached from the labor force maybe longer than they need to be."

Sensitive about the criticism they have received for being less generous than other Republican administrations to jobless workers, officials have emphasized that the program would not replace unemployment insurance. Workers who qualify for weekly jobless benefits, which are worth an average of $260 across the country, would continue to receive them. The program, called personal re-employment accounts, would cost $3.6 billion and exist alongside unemployment coverage.

It would begin with state agencies identifying which people, of those who had lost jobs, were most likely to be out of work for long periods. A person with very specific skills whose company had closed, leaving no similar employers in the area, would be one candidate. Someone with no college education who lost a good-paying factory job would be another.

These workers would then receive up to $3,000 that they could use to enroll in classes, place their children in day care while going on job interviews or do other things considered part of their search. But if they found jobs before draining the accounts, they could keep the money that was left receiving 60 percent of it when they were hired and the rest after six months on the job.

The proposal has bounced around Congress this year, at one point becoming part of a House bill, but it seems to have little chance of becoming law anytime soon. Many Republicans in Congress view it as a new welfare program, and Democrats worry that it would be part of a slow erosion of unemployment insurance.

N fact, only 44 percent of people who are out of work and looking for a job receive benefits now, down from 50 percent in 1975 and higher levels earlier in the 20th century. Many part-time and self-employed workers do not qualify for the payments.

"The unemployment insurance system was set for an economy with heavy manufacturing employment," said Janet Norwood, whom the first President Bush appointed to a commission to study the system. "The economy has changed."

The recent extensions of jobless benefits to 39 weeks from the typical 26 weeks have also been shorter than those enacted during the economic downturns of the early 1980's and 90's. More than three million people have exhausted their extended benefits since March 2002 without finding new work, according to the National Employment Law Project.

Those trends have caused many people to tune out the Bush administration when it talks about joblessness, but the re-employment accounts deserve a hearing. Academic research has shown that large, long-lasting weekly jobless benefits can prolong unemployment. Just look at Europe, where benefits are much more generous and jobless spells are much longer.

A great majority of people who have lost their jobs simply want to find new ones. Because of changes in the economy over the last few decades, some will struggle to do so for months, regardless of what kind of benefits they can receive. But human nature suggests that giving people an incentive to find work more quickly will cause some of them to do just that.

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