Failing the unemployed

April 24, 2008

The U.S. unemployment insurance system, the primary safety net for workers in times of economic recession, is in need of significant repair. The current system, a state-by-state patchwork of policies and provisions, is rife with shortcomings and inequities. Perhaps the most important of these involves the difficulty many workers face in even qualifying for benefits. Unfortunately, those who are eligible to receive benefits sometimes find that the maximum benefit amount does not keep a family from falling into poverty. To make matters worse, unemployed workers and their families certainly aren’t helped by the fact that benefits often run out long before firms begin to re-hire workers. Of course, states could protect workers by extending the benefit duration, but many states have not adopted the provisions necessary to weather an economic downturn like the one the economy is now experiencing.

 

Structural problems with unemployment insurance


Workers are losing both coming and going – many are denied benefits while others see their benefits run out long before the job market rebounds. There are even problems for those who actually qualify for benefits. Most middle-class earners, who receive their state’s maximum unemployment insurance benefit, will struggle to eke out a poverty-level existence from UI. For many this means dipping into savings, using money earmarked for retirement, or increasing debt. For those without any of these resources, welfare may be their only recourse. Recent research indicates that nearly one-third of U.S. families will be unable to replace even 10% of their lost earnings from their savings during a spell of unemployment. For many of these families UI benefits represent the difference between stifling debt and financial security.

 

Grading unemployment insurance programs state by state


The deficiencies in the state unemployment insurance system result from its highly decentralized structure. The current arrangement allows states to act autonomously in setting eligibility rules, benefit levels and extensions, adequate financing, and taxes. To truly understand the deficiencies of the system, a state-by-state analysis is required. We have chosen critical qualities of the unemployment insurance system – eligibility, benefits, employer taxes, funding adequacy, and recession preparedness – and evaluated them according to each state’s policies.

 

Eligibility


The unemployment insurance program is a federal-state partnership, with eligibility for benefits determined at the state level. To qualify for benefits, unemployed workers must meet monetary and non-monetary requirements that vary by state. In simplified terms, the criteria that workers must satisfy are:

 

  • sufficient wages in the past year,
  • involuntary separation from employment, and
  • availability for work.

 

 

Although the principles embodied in these criteria are fair and appropriate, too often these tests result in the denial of benefits to two groups of unemployed workers: part-time workers and workers who have only recently joined the labor force.

 

Earnings requirements.

 

Eligibility can hinge on a state’s minimum earnings requirements in either the base period or the quarter with the highest earnings from the one-year base period. Base period wage requirements for minimum benefits range from $565 to $3,400, and high quarter wage requirements range from $150 to $2,266,5 though not all states have both base period and high quarter requirements.

 

In addition to requiring varying levels of earnings, states also set requirements about when those earnings must occur. In most states, the base period for determining UI eligibility and benefit levels is the first four of the five most recently completed quarters. Under this system, wages earned in both the current calendar quarter (the quarter in which the layoff occurred) and the previous calendar quarter are ignored in determining whether the worker earned enough to qualify for benefits. For example, someone laid off in late December 2007 and who began work in late February 2008 would not qualify for benefits in most states. Ten months of substantial wages does not immediately qualify a recent entrant to the labor force for unemployment insurance benefits in a state that uses the typical base period. Some states use a so-called “alternate base period” that incorporates the most recently completed quarter’s wages.

 

Non-monetary requirements.

 

In addition to varying earnings requirements, all states require that workers have lost their jobs involuntarily and through no fault of their own. States also require that workers be actively engaged in job search activities and that they be available for work. But states vary in their definitions of involuntary job separation and availability for work. For example, some states would deny a working mother UI benefits if she lost her job because the unavailability of child care prevented her from being able to change her work schedule from first shift to third. Some states also require workers to be available for full-time work, even if the job they lost was part time.

 

Benefit adequacy


Although eligibility is the single most important component of the unemployment insurance system, benefit levels are a close second. Paying adequate benefits can mean the difference between moderate hardship and privation. Benefits serve a dual purpose in the unemployment insurance system. First, they provide families the income assistance they need during a period of job loss. Without these benefits poverty rates among the jobless would be considerably higher. Secondly, the money put into the economy by the unemployment insurance system acts as a significant economic stimulus. Estimates indicate that, in the absence of UI benefits, recessions (as measured by a real decline in gross domestic product) would have been 15% deeper.

 

While the importance of UI benefits is clear, benefit adequacy, especially for those with low earnings, is ambiguous. Over time, little has changed in the way state systems calculate benefits, while much has changed within the U.S. labor market, especially in terms of U.S. poverty policy. This change in policy, initiated by Congress in 1996, requires the poor to work in the paid labor market. Since many of these workers may no longer be able to rely on welfare in times of economic distress, it is incumbent on the unemployment insurance system to cover the holes in the safety net.

 

Yet replacing nearly half of a poor worker’s lost income is very different than replacing half of a middle-income worker’s earnings. For those hovering on the brink of poverty while working, replacing half of their lost income means certain poverty. With more welfare recipients and low-income workers filing for benefits, a minimum benefit that replaces two-thirds of their lost wages makes more sense. Making benefit payments progressive in this way will help these workers pay for adequate food, clothing, and shelter.

 

The above is an excerpt I found that provided a good overview of the current unemployment program. Although written in 2002 by Economic Policy Institute, it is still pertinent today.

 

Let us know your thoughts?

 

You can email george@hbsadvantage.com

3 Responses to “Failing the unemployed”

  1. chain4188 said

    Take it easy. Keep the middle way. Problems are waiting for solving and get better soon.

  2. TIM said

    I got laid off once this past summer and found a job in january just before my uemployment ran out. That job lost all of its clients and I was out looking for a job again just after 3 months. If I was employed for 1 month longer I would have been eligible for unemployment. We the people need more of a safety net for scenarios like this and similar. It is rough out there right now and a lot of places are hesitant to hire in slow economy.

  3. Coach Knockoff Purses…

    I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you….

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