US social safety net in trouble...

A safety net in need of repair

Unemployment insurance is one of the economy’s most important automatic stabilisers, helping to maintain household purchasing power when the economy weakens. But that role is impaired by the short duration of benefits and their skimpy level. At just under $300, the average weekly benefit is less than half the average private-sector wage. Mississippi’s maximum benefit of $230 is not much more than the federal poverty threshold of $200 for an individual. Benefits are low, in part, because they are financed by payroll taxes that states levy on their employers. States don’t like to raise such taxes, even when times are good. But that means they lack the funds to pay benefits when times are bad, forcing them to raise other taxes or borrow from the federal government, as some 30 states are now considering.

One of the best features of America’s system is “experience rating”: employers that frequently lay workers off must pay higher payroll taxes, thereby discouraging such lay-offs. But according to Alan Krueger of Princeton, many states have neutered that feature by charging most employers the lowest tax rate.