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Unemployment Insurance—Options For Reform

Millions of Americans fall outside the unemployment insurance (UI) program’s safety net.
Despite the improved economy, long-term unemployment remains high and a significant number of middle-class jobless workers cannot find jobs that pay fair wages. Yet many state UI programs cover a low proportion of unemployed workers, or pay inadequate benefits.
States must avoid cutting UI benefits.
States are facing their fifth straight year of higher UI costs. Some state UI programs, including those in AR, CA, MA, MN, NY, NC, ND, PA and VA, were under considerable financial pressure in 2005. A few states continued to use federal loans to pay UI benefits in 2006. All states with serious UI financial problems entered the economic downturn with smaller-than-recommended UI trust fund reserves. Many had given UI tax breaks of some sort in the 1990s, or kept UI payroll tax rates too low to build their reserves. In many states, high UI payouts have produced payroll tax increases. These increases are needed in order to rebuild trust fund reserves in the event of a future recession. Given that tax rates rise and fall over economic cycles, states must not overreact to rising tax rates by cutting benefits or restricting eligibility.
Several states have funds sufficient to expand their UI safety nets.
Regular state UI benefits are financed through payroll taxes and paid from state trust fund accounts maintained in the U.S. Treasury. Most state UI trust funds could adequately meet the needs of the jobless in 2006. Twelve states (AZ, DE, HI, ME, MT, NH, NM, OK, OR, UT, VT, WY) and the District of Columbia have comfortable trust fund surpluses at this point in the economic cycle.
A number of states have accumulated ample UI trust funds by paying below-average benefits to a small proportion of their unemployed workers.
Arkansas, Arizona, Delaware and New Hampshire are examples of relatively solvent states that pay below-average weekly UI benefits. States with restrictive UI eligibility requirements and above-average trust fund reserves include AZ, CO, FL, GA, NH, NM, OK and VA. Although many individuals face long-term unemployment due to Hurricane Katrina, Louisiana and Mississippi have large trust funds and low payroll taxes. Both states can meet the unemployment challenges by modernizing their UI programs.
States can use several UI reforms to boost their economies.
  • Increased weekly UI benefit amounts—Too many states provide inadequate weekly benefits. UI benefits should replace about half of lost wages, up to a maximum of two-thirds of the state average weekly wage. Many states need to update their UI benefit levels in order to protect laid off workers’ standards of living. Alabama, Arizona and Missouri raised their maximum weekly benefit amounts in 2004. Georgia, Nebraska and Virginia did the same in 2005. Both Washington and New Jersey improved formulas used to calculate benefits in 2005. The new formulas increased weekly benefits for many workers in Washington and extended the duration of benefits in New Jersey.
  • Alternative base periods (ABPs)—When calculating UI eligibility and benefit levels, these provisions take more recent wages into account than traditionally defined methods. ABPs promote UI eligibility expansion, especially among women, new entrants to the labor market (including former welfare recipients), re-entrants to the workforce, and low-wage workers. A total of 19 states (CT, GA, HI, IL, ME, MA, MI, NH, NJ, NM, NY, NC, OH, OK, RI, VT, VA, WA, WI) and the District of Columbia have adopted ABPs. Nearly half of the nation’s UI claims will come from states that have implemented ABPs once the Illinois provision takes effect in 2008. ABPs have a minimal effect on overall UI programs. If all states had adopted ABPs in 2003, the number of workers eligible for UI would have increased by only about seven percent.1
  • Equitable coverage of part-time workers—Part-time workers account for nearly 20 percent of the workforce but do not qualify for UI benefits in many states. These workers are predominantly women and disproportionately low-income. Extension of UI benefits to part-time workers has only a small effect on overall UI programs. In Maine, where a significant expansion was enacted in 2003, just $1.8 million of a total $115.7 million in benefits was paid to part-time UI claimants. More than 70 percent of the workers who benefited from the expansion were women.2 New Hampshire and Texas adopted modest expansions of part-time eligibility in 2005.
  • Extended benefit triggers—States can adopt triggers that extend UI coverage for an additional 13 weeks under temporary federal extensions and the federal-state extended benefits program. Eight states (AK, CT, KS, NJ, OR, RI, VT, WA) have adopted the Total Unemployment Rate trigger, while Michigan and North Carolina adopted temporary triggers in order to pay an added 13 weeks of federal extensions during 2002 and 2003.
  • State benefit extensions—To address long-term unemployment beyond the 13 weeks provided by the temporary federal extension program, seven states (KS, MA, NH, NJ, NM, OR, UT) have passed measures to pay additional benefits. Six states (CA, ME, MA, NJ, NY, WA) provide benefit extensions to jobless individuals who are in approved training programs.
Americans strongly support measures that assist laid off workers.
Anxiety about offshoring and job loss remains high in spite of the somewhat-improved economy. Polls consistently show that jobs and the economy are among the public’s biggest concerns. Middle-class families understand that few jobs are safe in our global economy. A stronger safety net for jobless workers is one way to address these legitimate fears.

This policy summary relies in large part on information from the National Employment Law Project.

Endnotes
  1. National Employment Law Project and Center for Economic and Policy Research, “Clearing the Path to Unemployment Insurance for Low-Wage Workers: An Analysis of Alternative Base Period Implementation,” September 2005.
  2. National Employment Law Project, “How Much Does Unemployment Insurance for Part-Time Workers Cost?” May 2005.
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