of work, the benefits enable that employee to support his household at a reduced level until such time as his employer issues a recall. Recent research indicates that 50 percent of all workers drawing unemployment insurance ultimately return to work at the same job with the same employer. In the case of an employee on indefinite layoff, the payment of benefits allows for a more intense and productive job search. To the extent that such a search goes on, the mobility of labor is enhanced as a direct result of the unemployment benefits provided. In addition, the current system of unemployment insurance affects total national employment indirectly by helping to maintain the level of consumer purchasing power during periods of recession and high unemployment. It has been estimated that the system indirectly supports 500,000 to 1 million workers which, in effect, means that unemployment rate would be about one-half of one percentage point higher without the purchasing power represented by unemployment compensation.

COMBINING BENEFITS AND TRAINING

With all of its advantages, the unemployment insurance program is not designed to serve one important function-increasing the employability of a worker who is drawing benefits.

An alternative to a simple extension of the current system of unemployment compensation might shift the emphasis of Federal payments from income maintenance to increasing the employability of the unemployed. One possibility is to place a worker in a training program after some limited time on unemployment compensation (e.g., 26 weeks). If the unemployed participated in a retraining effort, at least two positive purposes would be served:

(1) Benefit payments would provide recipients with an opportunity to upgrade skills and increase both their potential for employment and their range of job choices.

(2) The program would generate employment directly for those who staffed the training programs.

If, however, the worker is only waiting to be recalled to his old job, the expense of training would be wasted.

Undoubtedly many persons would accept paid training in lieu of unemployment compensation if the option was available. Making training or employment a requirement for continued compensation after, say, 26 weeks is clearly another matter. Whether the reduction. in benefits for those who would rather forego unemployment compensation than undertake training is either appropriate or worth the increase in discipline problems is a matter of judgment.

TAXATION OF UNEMPLOYMENT BENEFITS

The current unemployment insurance system fails to differentiate among the unemployed on the basis of need. To the extent that unemployed individuals were previously employed at high salaries, have employed spouses, or have substantial current income from investments, benefits are less important to sustain income levels or to

• Martin_Feldstein, "The Importance of Temporary Layoffs: An Empirical Analysis," Brookings' Papers on Economic Activity 1975:3, p. 725.

"ANTI-UNEMPLOYMENT BUDGET OUTLAYS ($ billions)

Table 5.-THE FEDERAL DIRECT RESPONSE TO UNEMPLOYMENT (FISCAL YEAR 1977 CURRENT SERVICES) 1

[Billions of dollars]

1

3 Included in Second Concurrent Resolution but not enacted.

(*).

4

1. 7

2.8

2. 1

2.8

NOTE: Numbers may not add to totals due to rounding.

Table 7-DIRECT RESPONSE BUDGET (PATH B)

B. ENHANCED EMPLOYABILITY AND INCENTIVES

Many current and proposed responses to unemployment involve creating incentives and making information available to workers and firms. Some create incentives for employers to hire workers while others enhance the incentives of workers to find jobs.

If there is an absolute limit to the number of jobs that can be made available at any given time, then enhancing the employability of one individual may only mean that he or she will replace another individual in a job without producing any net reduction in unemployment.3 Even in periods of high unemployment, however, some jobs go unfilled. When, for example, some unemployed do not have necessary skills or when qualified unemployed persons are unaware of openings or live a substantial distance from available jobs, unemployment and unfilled openings can coexist.

The matching of openings to skills has become increasingly difficult during the last 10 years because of changes in the composition of the labor force. In particular, the large increase in the number of working wives and teenagers who typically have higher unemployment rates than household heads has made achievement of 4 or even 5 percent unemployment, without creating severe inflationary pressures, more difficult. The demographic change of the last 10 years is shown in Table 8.

By 1980, however, those born at the beginning of the post-World War II baby boom (1947) will be 33 while those born at the end (1957) will be 23 years old. Thus, the teenagers of 1975 will be ready to take full-time career jobs in 1980 if positions are available and if education and training programs have been effective.

Table 8.-DEMOGRAPHIC CHANGES IN THE LABOR FORCE AND UNEMPLOYMENT ROLLS

3 In fact, measured unemployment may increase if training or the availability of day-care facilities increases the labor force without increasing the number of jobs.

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