Something big is happening in Washington right now when it comes to the social contract around work.

The economic recovery package pushed by President Barack Obama that is currently moving through Congress isn’t just about stimulating short-term demand and investing in longer-term goals like better schools and infrastructure. The American Recovery and Reinvestment Act also promises to renew the U.S. safety net—in a way that should help both employers and employees.

In this blog, I’ve often criticized the current U.S. system of unemployment insurance and other protections for workers knocked off the employment ladder. Similar concerns have been raised by prominent economists, labor advocates and a few business leaders.
 
Some of us have pointed out that a recession is the perfect time to shore up the safety net, in part because heftier unemployment payments reportedly have a big bang for their buck in sparking economic activity.

It appears President Obama and congressional leaders have come to see the same light.

The $800-billion-plus legislation at hand includes incentives for states to close some major holes in unemployment insurance coverage by making it easier for low-wage and part-time workers to get benefits, for example. It also temporarily boosts the skimpy level of U.S. benefits by $25 per week and continues the current extended unemployment benefits program—which provides up to 33 weeks of extended benefits—through 2009.

As important, the sweeping bill includes a number of provisions to help the laid-off get or retain health insurance, according to a report Wednesday, January 28, in The New York Times.

For one thing, it would allow workers receiving unemployment checks to qualify for Medicaid, the health program for low-income people. There’s also a provision whereby the federal government would pay 65 percent of COBRA insurance premiums for a year for out-of-work individuals wanting to continue their group health coverage.

All of these changes combined would do a lot to give U.S. workers a measure of economic security. Such stability has been eroding during the past decade for Americans amid shrinking health care and retirement benefits, stagnant wages and growing layoff risks.

The trends have enabled U.S. firms to be more nimble and profitable. But growing financial anxiety among U.S. workers has contributed to a volatile economic climate and to growing skepticism about globalization.

With more out-of-work Americans receiving more generous unemployment checks and more of them being able to obtain health care, employers themselves stand to benefit. Existing employees will be less stressed about losing their jobs, and therefore more productive. And the level of consumer demand should rise as the jobless have more cash to spend.

To be sure, there is something nerve-racking about pushing through such significant changes—even if temporary—in such short time and without extensive hearings.

And critics raise valid concerns about some of these proposals. According to The New York Times, for example, Republicans wanted to prevent wealthy people from getting the COBRA help or Medicaid.

Democrat Henry Waxman reportedly countered that means-testing would slow down the assistance. And indeed, speed is of the essence. Business are retrenching and slashing jobs by the tens of thousands. Consumer confidence is at a historic low. The country is effectively hurtling toward an economic abyss.

Just as we encourage businesses to innovate themselves out of tough times, shouldn’t we let government do the same thing in the form of serious stimulus spending and an updated social contract? In response to the biggest economic crisis in a generation, shouldn’t Washington go large?