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States Cutting Jobless Benefits Hadn’t Adequately Prepared for Recession

May 28, 2015 at 12:30 PM

Most states that have cut the number of weeks of unemployment insurance (UI) benefits since the Great Recession seriously underfunded their UI systems before the recession, a recent Government Accountability Office (GAO) report found.  That helped create shortfalls that the states addressed in their UI accounts in part by cutting payments to jobless workers, in most cases permanently.

Since the 1960s, every state has allowed workers who lose their job through no fault of their own to receive at least 26 weeks of benefits, financed by a tax collected from employers.  Most states retained that 26-week standard throughout the Great Recession, but nine states have lowered their maximum below 26 weeks since 2011, to as few as 12 weeks in some cases.  (See table.)

9 States Have Cut Maximum Duration of Unemployment Insurance Benefits Below 26 Weeks Since 2011
State Previous maximum (weeks) New maximum (weeks)
Arkansas 26 25
Florida* 26 12-23
Georgia* 26 14-20
Illinois** 26 25
Kansas* 26 16-26
Michigan 26 20
Missouri 26 20
North Carolina* 26 12-20
South Carolina 26 20
*New maximum duration in these states varies depending on unemployment rate. **Illinois’ reduction to 25 weeks was temporary, and applicable to claims filed in 2012. Illinois law also sets forth a future temporary reduction to 24 weeks, which will be applicable to claims filed in 2016 and 2018. 820 Ill. Source: Department of Labor

 

GAO examined those nine states’ UI trust funds, which states are supposed to replenish during periods of healthy economic growth and then draw upon in downturns, when unemployment rises.  It found that:

  • In six of the nine states – Arkansas, Illinois, Michigan, Missouri, North Carolina, and South Carolina — trust fund balances heading into the recession were just one-third or less of the Department of Labor’s (DOL) standard for adequate preparation for a recession.  Michigan’s trust fund was empty; Missouri’s was only about 12 percent of the DOL standard; and North Carolina’s was less than one-quarter of the standard.  (In the other three states — Florida, Georgia, and Kansas — trust fund balances were at or near the DOL standard.)
  • All nine states had to borrow from the federal government after the recession hit to pay benefits because their trust funds ran out of money.  By contrast, nearly 40 percent of the states that retained the 26-week standard avoided borrowing from the federal government, despite the severity of the recession.

The states that reduced benefit weeks would have been better prepared had they raised enough revenue before the recession hit, but some of them held taxes low, the report explains.  In at least four of the nine states, “there were periods (prior to the recession) of up to several years in which employer UI taxes were held to minimal levels through means such as tax holidays, tax cuts, actions to suppress automatic tax adjustment mechanisms, and actions to distribute some trust fund revenues to employers.” 

After failing to prepare properly for the recession, these states are requiring jobless workers to absorb some of the resulting pain by cutting weeks of UI benefits.  This not only hurts those workers and their families, but it also will worsen future recessions, since all but Illinois cut their number of weeks permanently. 

As GAO says, UI plays an important role in stabilizing the economy during economic downturns; it “is highly targeted to individuals with low income and a high likelihood of spending the benefits, and it is timely because it promptly increases in periods of rising unemployment and falls as the economy recovers.”  By cutting how long jobless workers can receive benefits, even when jobs are very hard to find, these states have weakened their ability to recover from downturns.  

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