Less-skilled workers, welfare reform, and the unemployment insurance system

Abstract

The declining economic position over the past two decades of those workers with less skill increases the importance of the unemployment insurance (UI) system in providing a safety net during periods of unemployment. Recent welfare reform legislation, designed to encourage labor market entry of typically very low-skilled workers who are likely to have unstable work patterns at best, potentially makes the UI system an even more critical component of the safety net. This paper seeks to determine how less-skilled workers typically fare in the UI system, estimating their likelihood of becoming eligible for and collecting benefits. We find that all workers who separate from a job, and particularly those with lower levels of skill, are not likely to be compensated by the UI system. Although minimum earnings requirements keep some less-skilled job losers from receiving UI, it is the provision mandating that separations be “involuntary” that prevents most workers from gaining UI eligibility. These findings suggest that the UI system will provide little additional support to the safety net following welfare reform.