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Sunday, November 16, 2008

Social welfare nets and recessions

Social safety cushions, besides being the first line of defense in a recession for workers and their families, also acts as automatic stabilizers in a weakening economy. The economic boom of the past two decades gave grist to the misleading impression that the good times would last forever and social safety nets could be pruned down and markets could takeover a part of that role. The result was a series of reforms across all countries, that restructured and even jettisoned conventional social welfare programs.

The far reaching welfare system reforms of the early Clinton years made it more difficult to qualify for, and keep receiving, unemployment insurance benefits. The results, as a recent report indicates, have been disastrous. Just 37% of unemployed Americans are receiving jobless benefits today, down from 42% during the 1981-82 recession and 50% during the 1974-75 downturn. Americans today receive a maximum of 39 weeks of unemployment benefits, down from 65 weeks in the 1970s. The average weekly benefit is $293. And low-income workers — a category that tends to include women and those in part-time employment — are one-third as likely to receive unemployment insurance as higher-income workers. Further, as states have imposed tougher restrictions on welfare, just 40% of very poor families who qualify for public assistance today actually end up receiving it, compared with 80% in the recessions of 1981-82 and 1990-91.

The recent events, including the steep rise in foodgrain prices and the unemployment in the US, highlight the continuing importance of social welfare measures. Incidentally, the increased globalization and integration of economies makes the poor and those at the margins more vulnerable and exposed to the vagaries of the business cycles.

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