6.5: Unemployment Benefit Triggers

DESIGN EFFECTIVE AUTOMATIC TRIGGERS FOR EXTENDED UNEMPLOYMENT BENEFITS.

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Under current law, extended unemployment benefits are triggered when unemployment in a state meets certain criteria. However, these criteria are poorly calibrated to the current economy, as evidenced by Congress’s frequent decisions to intervene with legislation providing ad-hoc extensions. As a consequence of these inefficient on and off switches, extended benefits are often provided too late, turned off too quickly, applied too broadly, or provide too much stimulus after recovery has begun. The Commission recommends putting into place a more precise trigger mechanism that will both turn on more quickly when unemployment levels exceed a threshold and are increasing, and remain on should unemployment levels remain elevated at levels above a set threshold. Similarly, benefits should automatically turn off when unemployment falls below the threshold level. A second tier trigger could automatically turn on and off second tier extend benefits only in hardest hit states. Such a trigger would both ensure a reliable, timely intervention when needed, and would divorce key countercyclical programs from the political whims of Congress.

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