This week’s readings highlight the importance of Institutions to the policy process. Howlett and Ramesh (2003) define institutions very narrowly as structures or organizations of the state, society and the international system. While Elinor Ostrom (2007) defines institutions as many different types of entities, including both organizations and the rules used to structure patterns of interaction within and across organizations. Ostrom in “Institutional Rational Choice: An Assessment of Institutional Analysis and Development Framework” presents the IAD framework as a general language for explaining how rules, physical and material conditions as well as attributes of the community affect the structure of action arenas, individual incentives and outcomes. The Bird paper and Romer essay could be interpreted as applications of the IAD framework to specific policy issues, decentralization and institutional reform respectively. In a similar vein I will apply the IAD framework to the present Unemployment Insurance program to highlight some of the weaknesses in this program.
The UI program was intended to act as a countercyclical mechanism to help stabilize the economy during economic downturns. The federal government established rules and standards, primarily on minimum coverage and eligibility criteria as well as a minor tax to finance the overall administration of the program. While individual states determined their own benefit amounts, duration of assistance and means of financing that assistance. Unemployment Insurance in the US is a near perfect example of fiscal federalism as while the federal government established the program its management was delegated to individual states. In “Assignment of Responsibilities and Fiscal Federalism” Bird, Dafflon, Jeanrenaud and Kirchgassner (2003) argue that while fiscal competition can lead to greater efficiency in the provision of public goods and services it can create allocative and distributive problems if responsibilities for taxation and finance are not properly assigned. Furthermore these problems lead to increase demands on federal resources to achieve equalization across institutional jurisdictions. The Unemployment Insurance (UI) program provides example of how decentralization creates allocative and distributive problems.
The 1935 law that established the Unemployment Insurance program failed to adequately assign fiscal responsibilities for financing the program, which has resulted in the inability of the program to achieve its intended purpose. The present unemployment program has a multitude of problems varying from unequal income replacement rates and benefit duration periods across states. The current UI program is a federal-state system in which the federal government establishes rules and standards, primarily on minimum coverage and eligibility criteria and sets a minor tax to finance the overall administration of the program. Individual states set their own benefit amounts, duration of assistance, and means of financing that assistance. The eligibility criteria for receiving assistance are based on monetary and non-monetary determinants established by the federal government but application varies by state. This leads to program inconsistencies for example worker’s who quit to move with a spouse or because of sexual harassment but meet the monetary eligibility criteria may receive benefits in states like California and New York but may be excluded in Connecticut and New Hampshire (Kletzer and Rosen, 2006). This is a clear examples of where rules have not properly been established which has led to the failure of an institution to achieve its intended purpose.
Recipiency rates across states vary and nationally have declined indicating that unemployed workers are actually not receiving the assistance they required (Kletzer and Rosen, 2006). Additionally benefit levels vary across states, which are set as low as $133 in Puerto Rico to $826 in Massachusetts. This has led to varying income replacement rates across states, 38 states had income replacement rates less that 50% of earned income while the average national replacement rate in 2006 was 38%. Benefit duration periods also vary across states and have been increasing from an average maximum of 26 weeks in most states to 28 weeks in Montana and 30 weeks in Massachusetts. While these inconsistencies might be interpreted as efficiencies in the matching of income levels and revenue generation abilities with program beneficiaries. When welfare, equity and economic stability concerns are taken into consideration it is clear that inconsistencies in the present UI program could be the cause of compromised living standards, higher unemployment rates and reduced risk taking behavior which all lead to economic instability.
Analysis of the UI program using the IAD framework would require an examination of the program as an institution with its own rules and norms of behavior. As the preceding discussion has shown there are many inconsistencies present in the in UI program that indicate weaknesses in the rules These rules must be addressed if the program is to achieve its intended purpose. Policy reform would have to examine the specific situations that exist within individual states to explore how the established rules could be improved upon to bring about parity provided it is warranted.
Submitted by Deon Gibson
References
Howlett and Ramesh, Chapter 3: “Policy Actors and Institutions”
Sabatier, Chapter 2: “Institutional Rational Choice: An Assessment of the Institutional Analysis and Development Framework” by Elinor Ostrom
Bird, Richard, Bernard Dafflon, Claude Jeanrenaud and Gebhard Kirchgassner, “Assignment of Responsibilities and Fiscal Federalism,” Politorbis, No. 32, 2003
Romer, Paul, Technologies, Rules, and Progress: The Case for Charter Cities, Center for Global Development Essay, Washington, D.C., 2010
Lori Kletzer and Howard Rosen, “Reforming Unemployment for the 21st Century Workforce”, Hamilton Project discussion paper, 2006
A Comment...
This is interesting. Perhaps an institutional rule that shapes the differences in generosity of IU system between states is whether or not the state is more consumerist or producerist. Producerist orientation tends to “revolve around rights and interests on the supply side (such as workers, small shopkeepers). A consumerist orientation tends to “focus on rights and interests on the demand side of market, on the consumer economic interest, understood primarily as an interest in competitive prices” (J. Whitman, "Consumerism versus Producerism: A Study in Comparative Law,” Yale Law Journal, 2007). So, those states with a producerist orientation are more likely to be pro-worker (i.e. more generous UI) and those with a consumerist orientation are less so? Jermaine
The UI program was intended to act as a countercyclical mechanism to help stabilize the economy during economic downturns. The federal government established rules and standards, primarily on minimum coverage and eligibility criteria as well as a minor tax to finance the overall administration of the program. While individual states determined their own benefit amounts, duration of assistance and means of financing that assistance. Unemployment Insurance in the US is a near perfect example of fiscal federalism as while the federal government established the program its management was delegated to individual states. In “Assignment of Responsibilities and Fiscal Federalism” Bird, Dafflon, Jeanrenaud and Kirchgassner (2003) argue that while fiscal competition can lead to greater efficiency in the provision of public goods and services it can create allocative and distributive problems if responsibilities for taxation and finance are not properly assigned. Furthermore these problems lead to increase demands on federal resources to achieve equalization across institutional jurisdictions. The Unemployment Insurance (UI) program provides example of how decentralization creates allocative and distributive problems.
The 1935 law that established the Unemployment Insurance program failed to adequately assign fiscal responsibilities for financing the program, which has resulted in the inability of the program to achieve its intended purpose. The present unemployment program has a multitude of problems varying from unequal income replacement rates and benefit duration periods across states. The current UI program is a federal-state system in which the federal government establishes rules and standards, primarily on minimum coverage and eligibility criteria and sets a minor tax to finance the overall administration of the program. Individual states set their own benefit amounts, duration of assistance, and means of financing that assistance. The eligibility criteria for receiving assistance are based on monetary and non-monetary determinants established by the federal government but application varies by state. This leads to program inconsistencies for example worker’s who quit to move with a spouse or because of sexual harassment but meet the monetary eligibility criteria may receive benefits in states like California and New York but may be excluded in Connecticut and New Hampshire (Kletzer and Rosen, 2006). This is a clear examples of where rules have not properly been established which has led to the failure of an institution to achieve its intended purpose.
Recipiency rates across states vary and nationally have declined indicating that unemployed workers are actually not receiving the assistance they required (Kletzer and Rosen, 2006). Additionally benefit levels vary across states, which are set as low as $133 in Puerto Rico to $826 in Massachusetts. This has led to varying income replacement rates across states, 38 states had income replacement rates less that 50% of earned income while the average national replacement rate in 2006 was 38%. Benefit duration periods also vary across states and have been increasing from an average maximum of 26 weeks in most states to 28 weeks in Montana and 30 weeks in Massachusetts. While these inconsistencies might be interpreted as efficiencies in the matching of income levels and revenue generation abilities with program beneficiaries. When welfare, equity and economic stability concerns are taken into consideration it is clear that inconsistencies in the present UI program could be the cause of compromised living standards, higher unemployment rates and reduced risk taking behavior which all lead to economic instability.
Analysis of the UI program using the IAD framework would require an examination of the program as an institution with its own rules and norms of behavior. As the preceding discussion has shown there are many inconsistencies present in the in UI program that indicate weaknesses in the rules These rules must be addressed if the program is to achieve its intended purpose. Policy reform would have to examine the specific situations that exist within individual states to explore how the established rules could be improved upon to bring about parity provided it is warranted.
Submitted by Deon Gibson
References
Howlett and Ramesh, Chapter 3: “Policy Actors and Institutions”
Sabatier, Chapter 2: “Institutional Rational Choice: An Assessment of the Institutional Analysis and Development Framework” by Elinor Ostrom
Bird, Richard, Bernard Dafflon, Claude Jeanrenaud and Gebhard Kirchgassner, “Assignment of Responsibilities and Fiscal Federalism,” Politorbis, No. 32, 2003
Romer, Paul, Technologies, Rules, and Progress: The Case for Charter Cities, Center for Global Development Essay, Washington, D.C., 2010
Lori Kletzer and Howard Rosen, “Reforming Unemployment for the 21st Century Workforce”, Hamilton Project discussion paper, 2006
A Comment...
This is interesting. Perhaps an institutional rule that shapes the differences in generosity of IU system between states is whether or not the state is more consumerist or producerist. Producerist orientation tends to “revolve around rights and interests on the supply side (such as workers, small shopkeepers). A consumerist orientation tends to “focus on rights and interests on the demand side of market, on the consumer economic interest, understood primarily as an interest in competitive prices” (J. Whitman, "Consumerism versus Producerism: A Study in Comparative Law,” Yale Law Journal, 2007). So, those states with a producerist orientation are more likely to be pro-worker (i.e. more generous UI) and those with a consumerist orientation are less so? Jermaine
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