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On the President’s Fiscal Year 2005 Budget for the U.S. Department of Labor

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On the President’s Fiscal Year 2005 Budget for the U.S. Department of Labor

By  Ross Eisenbrey

In the face of high unemployment, near-record long-term unemployment, and increasing job losses due to imports and the off-shoring of U.S. jobs, the president’s FY 2005 budget request for unemployment insurance, job training, and trade adjustment assistance is plainly inadequate.  Despite the growing need for services and income support, the president and Secretary Chao are asking for less and plan to do less for the victims of globalization and failed economic policies.

The merchandise trade deficit—largely because of increasing imports of manufactured goods—reached an all-time record high of $549 billion in 2003 and continues to worsen. Payroll jobs in January 2004 were 2.3 million below the level in March 2001, the worst downturn in jobs since the data series started in 1939. The tepid economic recovery has left 8.3 million American workers currently unemployed.  Many of these individuals are the victims of trade and dislocation who will never get their old jobs back. In fact, more than 1.9 million workers were unemployed for more than six months in 2003. These “long-term unemployed” now make up 22% of the total unemployed, the highest rate of long-term unemployment since 1983. Gross domestic product growth and a rising stock market are not translating into job creation.

Despite these clear signs that the plight of dislocated and trade-impacted workers is getting worse, the president plans to reduce spending on unemployment insurance by $4 billion, cut spending for the retraining of dislocated workers, and proposes substantial cuts in trade adjustment assistance. Congress should reject this callous treatment of those who are most clearly being failed by the administration’s policies.

Trade Adjustment Assistance (TAA)

The TAA program benefits only those workers who lose their jobs because of increasing imports of goods due to U.S. trade agreements with other nations.  A petition must be filed with the Department of Labor (DOL), and DOL investigates to determine whether to certify (i.e., approve) the petition and provide benefits to dislocated workers.  DOL routinely denies petitions from service and other non-manufacturing industries, even though those jobs have also been lost as a result of international competition. (A February 2004 survey of CEOs conducted by the Business Council found that 54% of the firms had shifted domestic employment abroad in the last year.)

Although the program’s design limits its beneficiaries, there are also problems with DOL’s administration of TAA. The U.S. Court of International Trade recently reprimanded DOL for “flaws and dysfunctions” in its administration of TAA and noted that DOL’s “dereliction of duty” is depriving workers of the aid they need. Most dislocated manufacturing employees get no help from TAA. For example, the U.S. lost more than 500,000 manufacturing jobs in 2003, but only 195,738 workers were certified under the TAA program in FY 2003. While DOL has yet to publish how many certified individuals were actually served under TAA in program year 2003, DOL’s program year 2002 numbers (for June 30, 2002 to June 30, 2003) show only 68,568 individuals received services under TAA.

TAA’s income support includes 52 weeks at the rate of regular state UI compensation, with the possibility of an additional 26 weeks of income support in the form of basic Trade Readjustment Allowances (TRA) when the worker is enrolled in TAA training or has recently completed TAA training.  In addition to income support, some workers receive basic reemployment services, job search allowances, and training services.  Training services, however, are capped at a maximum of $259 million a year.  TAA also provides limited health insurance coverage assistance—a tax credit of up to 65% of the monthly health insurance premium (COBRA) paid by eligible participants.  This tax credit has not been sufficient to ensure health care coverage for unemployed workers, because the COBRA premiums, even with the tax credit, are financially out of reach for most unemployed workers.  Nationwide, only about 5% of eligible employees have been able to use the tax credit, which should be increased to 90%.

The FY 2005 budget proposes to maintain the same level of funding for TAA training, $259 million, which is a $4 million cut in real terms from FY 2004.  This cut comes at a time when training money is crucial, the number of TAA beneficiaries is on the rise, and there are not enough training funds to meet the demand.  For example, last fall several states ran out of TAA training money before the end of the fiscal year.  The FY 2005 budget proposes a total of $48 million in wage insurance benefits (a $38 million increase), which pays workers a temporary supplemental income when they take a new job that pays a lower salary than the job they lost.  However, the FY 2005 budget proposes a 29% decrease in funding authority for TAA benefits, from $1.06 billion in FY 2004 to $750 million in FY 2005.  In the past, actual TAA program outlays have been far below TAA budget authority: TAA outlays were less than 60% of the authorized levels in FY 2003 and 2004.  For example, in FY 2004 the TAA program had a total budget authority of $1.338 billion, but outlays only totaled $770 million.  Because of inadequate outreach by the DOL, the full TAA benefit allocation has not reached workers who need the assistance.  Instead of improving DOL’s outreach and program administration, the president’s budget proposes significant cuts to the TAA benefits program.  DOL must do a better job of getting TAA benefits into the hands of the workers who need it and should not just restore funding for TAA benefits to the FY 2004 level but increase it. 

Dislocated Worker Program

The dislocated worker program provides skills training and job placement services to workers who have been laid off.  Unfortunately, this program has not kept up with the demand for its services.  According to recently released program year 2002 figures (for June 30, 2002 to June 30, 2003), only 71,871 individuals received training services (e.g., skills training and retraining, on-the-job training, job readiness training, adult education and literacy) under the dislocated worker program, and 68,181 received only core and intensive services (i.e., assessment, job search, informational services, assessments, some training).  

The FY 2005 budget cuts $79 million in dislocated worker formula grants to states, a 7% decline from FY 2004 levels.  These are not the first cuts the administration has made—the dislocated worker program grant funding to states will have been cut 11% from over $1.2 billion in FY 2002 to less than $1.1 billion the FY 2005 proposal.  The dislocated worker national reserve program funding has increased 3% from FY 2004 levels, but has been cut by 8% since FY 2002.  As a result, the average dislocated worker program expenditure per worker has declined more than $100 per unemployed worker between FY 2001 ($274/worker) and the FY 2005 budget proposal ($167/worker).  These cuts come at a time when long-term unemployment is at the highest level in 20 years.  Funding for an effective dislocated worker program should be increased, not decreased, when so many Americans are out of work.  The dislocated worker program should make these workers
whole, by identifying new careers for them, providing the training they need to enter a new field, and helping them secure a new job. 

Unemployment Insurance

Job seekers whose employers have paid FUTA taxes on their behalf may receive unemployment compensation, which typically replaces up to 50% of a worker’s salary for up to 26 weeks.  In March 2002, Congress enacted the Temporary Extended Unemployment Compensation (TEUC) program to guarantee workers an additional 13 weeks of benefits after their state benefits expired.  That program was extended twice, but expired in December 2003.  Since then, workers who run out of regular state UI benefits are no longer eligible for the additional 13 weeks of benefits.  There is still a vital need for TEUC, given the 1.9 million unemployed who have been out of work for more than six months.  With only one job for every three unemployed workers, it is extremely difficult for these workers to find a new job, a fact reflected in the falling index of consumer confidence.  Approximately 760,000 workers have exhausted their state UI benefits since December 22, 2003 without receiving any federal benefit—this is an all-time record.  The House passed a measure to extend TEUC in early February, and a recent Senate measure was supported by a bipartisan majority.  It is time for the administration to show real compassion and leadership by supporting a six month extension of TEUC benefits, making it retroactive to December 2003.

The Administration’s Legislative Priorities

Many of the Bush Administration’s legislative priorities are poorly chosen. Some examples include:

  • Block granting existing programs.  The FY 2005 Budget seeks to consolidate four existing employment training programs (WIA adult program, WIA dislocated worker program, Employment Service state grants, and reemployment service state grants) into a single, large block grant.   The Senate previously rejected such a measure.  Eliminating a program targeted at the needs of dislocated workers reduces even further the likelihood that their needs will be met.
  • Employment services.  The Budget cuts $56 million (12%) in state Employment Service grants, from $787 million in FY 2004 to $696 million in FY 2005.  The budget zeroes out all funding for Employment Service reemployment grants that were funded at $35 million in FY 2004.  Given the large number of unemployed workers and the inadequate number of jobs being created, this is not the time to cut Employment Services.
  • New programs in FY 2005.  The president’s budget also includes funding for two entirely new programs—Community Based Job Training Grants and a pilot demonstration for Personal Re-Employment Accounts (PRA)—which make up its “Jobs for the 21st Century” plan.  The job training component consists of a community college grant program based on partnerships with industries.  This program is so poorly funded ($250 million) it is insufficient to compensate for cuts to community college training programs in other parts of the FY 2005 education budget.  The PRA initiative is a pilot project funded at $50 million that would provide $3,000 to individuals likely to exhaust their UI benefits so as to help them purchase employment services (e.g., training), child care, and transportation.  Under the PRA initiative, workers would actually qualify for less funding than they would under WIA or TAA, and acceptance of a PRA disqualifies them from WIA intensive or training services for one year or more.  There is, moreover, little empirical evidence that such cash incentives help the long-term unemployed find work.  In fact, reemployment bonuses have been particularly ineffective when given to displaced workers and others who are structurally unemployed.  Finally, PRAs are not a viable alternative to extending unemployment insurance for the long-term unemployed and should not be used as such. 


The president’s budget grossly under funds the essential federal programs that provide a safety net for workers dislocated by trade, structural changes in the economy and off-shoring.  Congress must act to protect the future of these workers and their families.

Ross Eisenbrey is vice president and policy director at the Economic Policy Institute in Washington, D.C.


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