Harvard University economist Martin Feldstein and Daniel Altman are proposing to privatize unemployment insurance -- a plan they claim will counteract the negative effects of the current system, as well as offering benefits of its own.

They contend that present procedures encourage the jobless to spend more time looking for work, increase the frequency of temporary layoffs and lower the wage premium employers must pay workers who face a high risk of being laid off.

• The Feldstein-Altman solution would require workers to save part of their earnings in special Unemployment Insurance Savings Accounts -- which they could draw upon if they were laid off.

• If the account didn't have enough to cover the necessary benefits, the government could make a loan to the worker.

• Account holders would earn a market return on their accounts and would pay the government the same rate of return on borrowings.

• When a worker retired, he could spend the sums accumulated in the account -- or leave it to his heirs, if he died first.

A study of 25 years of data convinced the authors that only "5 percent of employees would retire or die with negative account balances." If a worker retired or died with a negative balance, the government would forgive the debt.

The cost to taxpayers, the authors calculated, would be less than half the cost of the current system.

Sources: Martin Feldstein and Daniel Altman, "Unemployment Insurance Savings Accounts," NBER Working Paper No. 6860, December 1, 1998, National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, Mass. 02138, (617) 868-3900; Perspective, "Private Jobless Insurance, Too?" Investor's Business Daily, January 18, 1999.