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POLICY INSIGHT
BEYOND THE NUMBERS

Cutting Workers’ Jobless Benefits Would Hurt Them and the Economy

The Wall St. Journal editorialized yesterday in favor of a bill that would renege on the federal government’s commitment to provide unemployment insurance (UI) benefits through December to Americans who have been looking for work for more than six months.  That would impose added hardship on those families and slow the economic recovery by reducing overall consumer demand. The Journal’s case for the bill simply doesn’t hold up. The bill, from House Ways and Means Chairman Dave Camp and Senate Finance Committee Ranking Member Orrin Hatch, would transfer the $31 billion that the federal government is estimated to spend on long-term UI benefits through 2011 to the states.  States could use the money to continue long-term UI benefits or for other things, like repaying the federal money they borrowed to pay for UI benefits when their UI trust funds ran out in the recession.  (Twenty-nine states have outstanding federal loans.)  Camp-Hatch would also lift a moratorium that prevents states from reducing their UI benefit levels in 2011.  (See here for our full analysis of the bill.) The Journal claims that many state UI trust funds are in debt to the federal government because federal law bars states from cutting UI benefit levels or reducing access to the program by changing eligibility rules. That’s wrong in several ways. State UI systems are in financial trouble largely because most states have kept the employer tax that pays for UI benefits artificially low over the past two decades.  Among other things, many of them failed to adjust their “taxable wage base” — the amount of a worker’s earnings on which the UI tax is levied — to fully account for inflation and wage growth over time.  As a result, the share of wages that are subject to UI taxes has declined sharply (see graph).
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States in general have become less well prepared for each successive recession. When the current economic downturn began in December 2007, total state UI trust fund reserves equaled just 0.8 percent of total wages — compared to 1.5 percent of wages prior to the 2001 recession and 1.9 percent of wages prior to the 1990-91 recession. With reserves so low, state UI systems weren’t prepared for even a moderate recession, much less the Great Recession of 2007-09. As for the Journal’s claims:
  • Federal law doesn’t bar states from reducing access to the program.  (The moratorium mentioned above protects only benefit amounts.)  In fact, several states — including Arkansas, Florida, Michigan, and Missouri — have cut the number of weeks of UI benefits available, even though this will slow these states’ economies and impose undue hardship on workers at a time when the job market is still extremely difficult.
  • Nor are UI benefit amounts high or rising.  The weekly UI benefit nationally has been the same for decades:  about a third of the average weekly wage.
Camp-Hatch would let off the hook those states that failed to prepare adequately for the recession. It would grant them large sums that they could use to pay down debt in their UI trust funds without requiring them to strengthen their UI financing systems to prepare better for future recessions.  Many states likely would accept their federal windfall while continuing to ignore their long-term financing problems.  That’s not a responsible plan. As our analysis explains, there are ways to help states prepare for the next recession while protecting UI benefits for workers and their families.  Camp-Hatch fails on both counts.