THE BLOG
11/18/2014 05:31 pm ET Updated Jan 17, 2015

The Case for Privatizing Unemployment Insurance

A new GOP majority will be looking for creative policy proposals to differentiate themselves from President Obama. After years of being called a "do nothing" Congress, they are going to look at proposals that will help them differentiate themselves in a way that resonates with millions of voters of every economic group.

Several years ago President George W. Bush's attempted to privatize Social Security. This bold proposal fell upon deaf ears and was considered "dead on arrival" by policy wonks. The reality is, a move to privatizing something as far reaching in importance as Social Security -- even only partially -- was more than most people could imagine. Is was too big and over reaching and sent shock waves among voters across the country. It became a lightning rod to many interest groups that have the protection of Social Security as it is, their single focus.

After a terrible unemployment experience over the last several years, with people receiving benefits for 24 months and only having the option of getting small payments when a larger influx of money could have made a difference in the creating of an actual business, I think many Americans would find serious unemployment reform, including privatization, attractive.

  • The number of people who will ever need unemployment insurance is considerably less than those who will need Social Security. Therefore it is "safer" to implement in this arena than in something like Social Security. In other words, it would be perceived as an experiment, rather than a radical shift in policy.
  • This policy could have substantial flexibility in plan design, allowing individuals to store up money for the purpose of creating a business at the event of unemployment. This is something many would find attractive and would easily build support. This is particularly true after finding millions on unemployment for literally years. With an approach like this, they could have created a business with their insurance proceeds.
  • Until 2008 and the years that immediately followed, we have enjoyed decades of relatively low unemployment, with short periods of higher unemployment. When you look at the mid 1980s until the 2008 crisis and following, you see an unemployment that justifies modest, market, rates. These would be very attractive compared to the arbitrary government taxes, and would likely lead to a large number of Americans to support it.
  • With a huge number of Baby Boomers in or approaching retirement age (and many being vulnerable to being laid off), yet not having adequate savings, they would love to have a "tool" like this to protect them. This would create a huge amount of support and financial momentum.

The benefits of this policy would be numerous and obvious:

  • People would be able to design plans to meet their specific needs.
  • People would have an incentive to get back to work quicker (or to create a business), in order to keep their rates low. Over usage would lead to higher rates, similar to the way other insurance are determined. The benefits to the economy would be obvious.
  • It would contribute to a growing economy as revenues moved to private enterprise, both in premiums (which insurance companies would use for investments) and in the creation of new businesses because of the policy designs.

With the vast majority of Americans employed and many of them preferring to easily create a business if they lost their job, there should be plenty of support for a policy such as this. Furthermore, it could be a great wedge issue for the GOP to take support from the Democrats as they position themselves as a party that is concerned about average Americans. This isn't a policy that should have to wait for a Republican President AND Congress. Rather, it is an issue Republicans should pursue today and make it a referendum issue for 2016.