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The Administration's proposed Reemployment Act of 1994 would establish a comprehensive reemployment program for workers who were permanently terminated from their jobs. It would also create a capped entitlement to income support for certain of these displaced workers who were participating in long-term training and educational activities. At the request of Senator Pete Domenici, Ranking Republican on the Senate Budget Committee, this paper examines the proposal. In accordance with the Congressional Budget Office's (CBO's) mandate to provide objective and impartial analysis, the paper contains no recommendations.
Ralph Smith of CBO's Health and Human Resources Division prepared this paper under the direction of Nancy M. Gordon. The estimate of the proposal's cost was prepared by Cory Oilman, formerly of CBO's Budget Analysis Division, under the direction of C.G. Nuckols and Paul Cullinan, and by Peter Ricoy of CBO's Tax Analysis Division under the direction of Rosemary Marcuss and Richard Kasten.
CBO gratefully acknowledges the cooperation and assistance of the staff
of the Department of Labor. In addition, valuable comments were provided
by Sandra Christensen, Gail Del Balzo, Paul Cullinan, Ann Lordeman, and
Bruce Vavrichek. Sherwood Kohn edited the manuscript, Christian Spoor proofread
it, and Ronald Moore prepared the final version of the paper.
Robert D. Reischauer
Director
December 1994
SUMMARY
I - INTRODUCTION
II - DESCRIPTION OF THE PROPOSAL'S KEY PROVISIONS
III - EFFECTS OF PROVIDING INCOME SUPPORT
IV - EFFECTS ON THE FEDERAL BUDGET
APPENDIX Cost Analysis of the Reemployment Act of 1994
SUMMARY
The Administration's proposed Reemployment Act would establish a comprehensive reemployment program for workers who were permanently terminated from their jobs. The act would also create a capped entitlement to provide income support for certain of those displaced workers while they participated in long-term training and educational activities. The new program would replace Economic Dislocation and Worker Adjustment Assistance (EDWAA), Trade Adjustment Assistance (TAA), and several smaller programs for specific groups of displaced workers.
The proposed entitlement program, included in title II of the bill, is the major focus of the Congressional Budget Office's (CBO's) analysis. That component is central to the Administration's goal of transforming the unemployment insurance system into a reemployment system that would make extended unemployment insurance benefits available to displaced workers engaged in long-term training and education. The Subcommittee on Human Resources of the Committee on Ways and Means reported a modified version of title II (the title within the committee's jurisdiction) in July 1994. No other part of the Administration's proposal was acted on by either House during the 103rd Congress.
As modified by the subcommittee, title II would establish a Retraining Income Support (RIS) program that would extend unemployment insurance benefits for certain displaced workers beyond the usual six-month maximum. Once the program was fully phased in, displaced workers who had worked at least three years for a previous employer could qualify for up to one year of support after they exhausted their regular unemployment insurance benefits. Displaced workers who had held a job for at least one year could qualify for up to six months of support. To qualify for that support, displaced workers would have to be making satisfactory progress in a training or education program approved by an authorized state agency, and the workers would generally have to enroll in that program within 16 weeks of losing a job. In effect, the state agencies would be the gatekeepers for access to the RIS payments.
Although the RIS payments are referred to as an entitlement, they would be limited--or capped--by the amounts to be established as a new account within the Unemployment Trust Fund. The proposed legislation, as reported by the subcommittee, would effectively limit expenditures to the available amounts. CBO estimates that spending for the income support payments during the 1995-1999 period would total about $2 billion, which would be nearly offset by phasing out the TAA program and permanently extending the 0.2 percent Federal Unemployment Tax Act (FUTA) surtax, which is scheduled to expire at the end of calendar year 1998. In subsequent years, federal spending for income support that is authorized by the proposed program would be limited by amounts raised by the extended FUTA tax and, therefore, would not, on net, increase the federal deficit. In 2001, the first full fiscal year during which all of the act's provisions for income support payments would be in effect, the limit would be roughly $1.2 billion.
Some features of the proposed income support program, however, raise concerns. First, the caps would probably be well below the amounts necessary to provide income support for all of the displaced workers who would seek assistance. For example, the Department of Labor estimates that funds would be available to support about 220,000 displaced workers while they participated in education or training programs in 2001. That number represents only 10 percent of the workers that the department anticipates will be displaced in 2001. The magnitude of the income support--more than $9,000 for displaced workers receiving the current average weekly benefit amount, provided they are eligible for the maximum duration of support--would probably make the program attractive to a larger percentage of eligible people.
Second, even though the total amount of funds available for income support would be capped, the administering state agencies would have little or no direct incentive to limit participation. The caps would be nationwide, not on a state-by-state basis. The funds would, in effect, be available to states on a first-come, first-served basis. The proposal also raises a number of other issues about who should receive income support. For example, the proposed program would enable some displaced workers to obtain support that is generally not available to other unemployed workers, such as economically disadvantaged people who participate in the training programs authorized by the Job Training Partnership Act.
Third, it is not clear whether the proposal would result in a more effective system than the current one in preparing displaced workers for new jobs. The income support would enable the recipients to participate for much longer periods in training and education programs than they do under EDWAA, which authorizes the main federal program for displaced workers. Few participants in the current program receive income support, which is one reason why few of them have participated in training programs lasting more than four or five months. But the argument that longer training would be more effective, though plausible, has not been proven.
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