States Can Fix Unemployment Safety Net Despite Budget Shortfalls

In the wake of September 11 and the national recession, more than half the state legislatures are actively considering measures to strengthen unemployment insurance (UI). It promises to be one of the most important and hotly contested issues in both legislative sessions and elections this year.

"Just as we need a strong unemployment insurance safety net, we’re finding the system in tatters," said Georgia Rep. Nan Grogan Orrock. "Laid-off workers and their families are counting on us to shore up unemployment insurance immediately, broadening coverage and increasing benefits."

From November 2000 to November 2001, the number of unemployed Americans soared from 5.7 to 8.2 million, the largest one-year increase since 1982. Long-term unemployment has also increased significantly. From October to November 2001, the number of workers unemployed for more than 27 weeks increased by 32 percent, the largest one-month increase since such data collection began in 1948, according to the Center on Budget and Policy Priorities.

Unemployment insurance was intended to be our nation’s first line of defense in an economic downturn. But today, most laid-off workers don’t qualify for any UI benefits. The UI system – first created in 1935 based on a depression-era model of factory employment – has not kept pace with decades of change in the labor market. As a result, only 39 percent of all unemployed workers collected UI benefits in 2000, and the percentage was even less for low-wage workers.

Despite pressure on state general funds, most states are in a position to fix their UI safety nets. State UI benefits are financed not through general funds, but through state payroll taxes, and paid from state trust fund accounts maintained in the U.S. Treasury. A number of states have accumulated ample UI trust funds by operating UI programs that pay below-average benefits to a lower than average proportion of their unemployed workers. Other states have lowered payroll taxes so much that in 2000 they reached their lowest rates in the UI program’s history.

The more solvent states paying lower than average weekly UI benefits: AK, AR, GA, LA, MS, VA

Other states with lower than recommended weekly UI benefit amounts: AL, MS, MT, SC, SD, TN

States with restrictive UI program eligibility and above-average trust fund reserves: AZ, CO, FL, GA, LA, MS, NH, NM, OK, VA

Some legislatures have already taken steps to improve UI in response to worsening economic conditions. A series of options are available for states to boost the economy by reforming UI:

· Raising weekly UI benefit amounts

Too many states pay inadequate weekly UI benefits. The accepted formula calls for UI benefits to replace about one-half of lost wages, up to a maximum of two-thirds of the state average weekly wage. However, the current average state benefit payment is equal to only 35 percent of the average worker’s wage. States need to update their UI benefit levels to reflect the effects of inflation over the years. California recently increased its maximum weekly benefit amount by $100, to $330, effective January 2002. The District of Columbia and Virginia also temporarily raised their maximum weekly benefits following the terrorist attack on the Pentagon. Maximum weekly benefits were increased from $268 to $368 in Virginia, while the District of Columbia increased benefit levels from 50 to 75 percent of the base period wages of unemployed individuals.

· Adopting Alternative Base Periods (ABPs)

These provisions take more recent wages into account than traditionally-defined methods of calculating UI eligibility and benefit levels. Adopting ABPs brings more part-time and seasonal workers into the UI system, and tends to assist individuals who recently moved from welfare to work. Twelve states (ME, MA, MI, NH, NJ, NY, NC, OH, RI, VT, WA, WI), representing about one-third of the nation’s UI claims, have already adopted ABPs.

· Providing equitable coverage for part-time workers

Part-time workers make up nearly 20 percent of the workforce, but in most states they do not qualify for UI. These workers are predominantly women and disproportionately low-income. In recent years, several states, including California and New Jersey, have covered part-time workers.

· Adopting extended benefits triggers

States can adopt triggers that use Total Unemployment Rates to extend UI coverage for an additional 13 weeks. Recognizing the inadequacy of UI benefit duration, seven states (AK, CT, KS, OR, RI, VT, WA) have adopted the Total Unemployment Rate trigger.

· Suspending UI waiting periods

Governors in New York and California have suspended their "waiting week," to get UI benefits to laid-off workers more quickly and to eliminate an unpaid week of unemployment. A waiting week is an unpaid initial week of unemployment required in all but 12 states (AL, CT, DE, GA, IA, KY, MD, MI, NV, NH, VT, WI), with an additional four states that pay for that waiting week after a specified period of unemployment passes (MO, NJ, TN, TX).

With the current recession, UI reform is crucial. Now, more than ever, states must implement positive reforms to protect unemployed workers today, and provide a stronger safety net for tomorrow.

For a copy of UI reform model legislation, click here. For additional UI resources and the latest state-of-play, visit the National Employment Law Project online at www.nelp.org.