The Secular Rise in Unemployment Insurance Exhaustions and What Can Be Done about It

Over the past several decades, the rate at which regular unemployment insurance recipients run out of benefits before they have found jobs, even in a strong labor market, has been gradually rising. For example, in 1973, 27.4 percent of UI recipients exhausted their benefits; in 2007 (with a similar unemployment rate) 35.6 percent exhausted. This paper documents the increase in the exhaustion rate, along with the parallel rise in long-term unemployment; examines the consequences; and reviews what has been learned about the efficacy of various approaches for reversing, or at least halting, the trend. The research on the rise in long-term unemployment and UI exhaustions suggests that, even after the labor market recovers from the recent recession, some UI recipients will have a difficult time finding a new job, while others will want to avoid going back to work as long as they can receive benefits. The dual challenge, then, is to ensure that 1) workers who could benefit from employment services received those services, and 2) UI recipients do not abuse the system by failing to actively search for work. The evaluations reviewed in this paper point the way to policies and programs that can meet that challenge. In particular, strengthening job search requirements and increasing job search assistance would address both goals; the Worker Profiling and Reemployment Services program provides a good framework for these activities. In addition, evidence from experiments conducted in the 1980s suggests that financial inducements for unemployed workers to search for work more intensively or to accept job offers they might otherwise have rejected can also be effective. Finally, for individuals whose skills are no longer in demand, mixed results from the evaluations of public training programs underscore the importance of directing participants to courses that are appropriate for their interests and abilities and that match the needs of employers in their community.