Back These Smart Safety Net Fixes

Finally, Washington is talking about making America’s safety net smarter. And businesses should help to make sure the talk turns into action. President Barack Obama’s proposals to reform unemployment insurance and related programs would be good for workers and companies alike.

Obama pitched his ideas for updating the safety net earlier this month, as part of a broader jobs plan.

Sadly, some business leaders pooh-poohed the call for payroll tax relief and a tax credit for hiring the long-term unemployed with what amounted to a kind of whining. Let’s hope the employer community reacts more positively to the president’s safety net legislation.

These ideas are sound and long overdue. In the 2009 federal stimulus package, Washington strengthened unemployment insurance by giving larger payments, extending the payment period and closing gaps in coverage. But major shortcomings remain. One is an overly hands-off approach to job-losers.

In Denmark, the government works vigorously to get the jobless back to work through tough requirements and tireless efforts to line up new training. In America, you may get your unemployment insurance check, but you’re largely on your own when it comes to landing new work. This risks demoralizing workers who often already feel isolated when laid off. And it can lead to people abusing the system—with too few guarantees that they are seriously pursuing new work.

Other problems with the U.S. system include the difficulty of using unemployment funds to start up a business and the way workers are loath to take a job at a much lower wage given their former standard of living. What’s more, work sharing—in which people stay employed with reduced hours—is not common in the U.S. while Germany has used the tactic extensively and with apparent success.

Obama’s recent proposal tackles each of these problems. A re-employment assistance program amounts to tough love—requiring states to design better services for the long-term jobless but also review the eligibility of long-term unemployment insurance claimants. The plan also envisions more work-sharing, wage insurance for older, long-term jobless Americans—to narrow the gap between former salaries and lower-paying new jobs—and new flexibility in unemployment programs so those out of work a long time could start up businesses.

In addition, Obama seeks to replicate “Bridge to Work” programs, which allow long-term unemployed workers to continue receiving unemployment while they take temporary, voluntary work or pursue work-based training. And he wants to extend unemployment insurance to keep 6 million job seekers from losing benefits.

The likely effects of these plans? The stimulus effect of unemployment checks getting spent. More people finding jobs. More confidence among workers, including those already holding jobs—who won’t be on pins and needles about layoffs. All this translates into greater productivity and economic growth.

The U.S. safety net got stronger in 2009. Now it can get smarter—in ways that will aid both employees and employers. Wise business leaders will line up behind this smart set of ideas.