The unemployment insurance (UI) system in the United States is out of date and in trouble.

Congress created the existing system nearly 60 years ago, and it has remained essentially the same despite changes in the economy and in the nature of unemployment. Chipping away at its integrity are three basic problems.

First, UI cannot meet its financial obligations during economic downturns without federal aid or deficit spending. Employers pay into a general fund that is supposed to have adequate financial reserves. Yet, many states borrow billions of dollars from the federal government to cover payments made during times of high unemployment.

Second, the system is out of touch with today's unemployment realities. Its purpose was to tide the unemployed over while they looked for work. It was based on the assumptions that unemployment is due to cyclical economic swings and that people who lose their jobs in bad times will get them back when the economy improves.

Now, however, many people are losing their jobs because of long-term, structural shifts in the economy. Tiding people over is no longer helpful when their jobs are permanently gone. They need, instead, the resources and opportunities to retrain for new careers. Unfortunately, the benefits paid out are often inadequate for breadwinners to support a family, train for a new career, and find a job. (In Michigan, for instance, maximum benefits are $283 per week, usually for 26 weeks.)

Another reality the current system does not accommodate is women in the work force. In the 1930s, when Congress developed the present system, women comprised about 30 percent of the work force; they now make up about half. However, because of their role in bearing and rearing children, women still have more intermittent employment patterns than men. For instance, they are employed more often than men in part-time work, and leave and re-enter the work force. UI's eligibility requirements are based on a permanent attachment to the work force, which puts women automatically at a disadvantage.

Third, the system encourages layoffs and seasonal employment. It compels employers who maintain long-term, stable employment patterns to subsidize those employers who frequently lay employees off.

Clearly, UI needs an overhaul. Clinton administration officials have floated at least one plan, but it is a mere revision of the old system, plus more government spending and control. It provides no additional incentives for the unemployed to look for work and it could cost the taxpayers an extra $2 billion in training funds and $1 billion in benefits.

Truly fundamental reform capable of resolving UI's present troubles must transfer the primary responsibility for unemployment insurance to individual workers. Creation of Individual Unemployment Accounts (IUAs) is an innovative way to accomplish just that. The IUA would be a portable individual trust that belongs to the employee, and would work much like today's Individual Retirement Accounts (IRAs). IUA holders would be personally responsible for investing and managing their IUA funds. They would be funded by voluntary, tax-free contributions from each worker and/or the employer. The worker would have access to the funds any time that he is without a job.

An IUA system would relieve government of most of the cost of unemployment benefits. State governments would not be burdened with debt to pay for benefits during recessions and the federal government would not have to concern itself with bailing the states out or extending benefits to score political points, as is done routinely today. Finally, the IUA would motivate the unemployed to find new jobs or careers quickly because they would be financing their unemployment benefits with their own money.

Employees would benefit from increased financial security and control over their working lives. An IUA could provide an individual with substantial financial reserves over time, all the while adding to the nation's savings pool and available capital. The unemployed could use some or all of their IUA funds to pay for training for a new career, to capitalize their own small business, and otherwise get by while looking for new employment. Women (or men) who temporarily leave the work force would not lose benefits; they would simply draw from their personal accounts.

The transition from the current system to one based on IUAs could be done simply and voluntarily. Employees and employers could have the option of choosing between one or the other.

Given the opportunity to choose between a restrictive, bureaucratic, and politicized system and one that gives individual employees the freedom to control their own career planning, we believe most would choose the latter.