An Unemployment Insurance Balancing Act
By Christine Vestal, Staff Writer
Unemployment insurance is helping millions of Americans stay afloat while they search for jobs, but gaps in the safety net are leaving out many who need it most.
In Maryland, a new college graduate who lands her first job and gets laid off in the first nine months would be denied unemployment benefits under current state rules. The same is true for a factory worker in Michigan who just entered a training program to learn a new trade and for a single mom in Texas who can only work part-time because she cannot afford child care.
For these and other workers whose jobs may be part-time or sporadic, an unemployment check is not a sure thing. That is why the federal economic stimulus plan included $7 billion in incentive funding for states that enact, or already have on their books, so-called unemployment insurance modernization reforms. Advocates say those changes would bring 75-year-old state unemployment systems more in line with today's workplace.
"Low-wage and part-time workers, who contribute to the unemployment insurance system, are a larger portion of the workforce than they used to be, yet they are half as likely to qualify for unemployment benefits as other workers," says U.S. Rep. Jim McDermott, a Democrat from Washington and author of the incentive provisions in the stimulus act.
Despite the hefty federal incentives, the decision to expand an already overburdened unemployment system has involved careful analysis and delicate negotiations in most states. Before the ink was dry on the stimulus act last year, seven Republican governors refused the federal unemployment reform money because they said businesses would end up paying the bill for expanded unemployment benefits once the stimulus money runs out.
Still, lawmakers approved a flurry of new unemployment laws this year and last year, making 32 states eligible for $4.2 billion in federal stimulus funding so far.
In Maryland, one of five states that amended its unemployment rules this year, lawmakers found a way to trim some existing benefits that officials projected would save the state an amount equal to the cost of the expanded benefits under the new rules.
With those assurances in hand, Democratic Governor Martin O'Malley and the Democratic-led legislature worked out a compromise with business and labor leaders to offer benefits to more jobless workers starting in March 2011 — without hiking taxes. As a result, the federal government deposited $127 million in Maryland's shrinking unemployment trust fund earlier this month.
"It wasn't easy, but the governor and legislature worked with business and organized labor to come up with a cost neutral plan," says Julie Squire, Maryland's assistant secretary for unemployment insurance.
A similar kind of cost-benefit analysis took place in more than a dozen other states, yielding a thumbs-up in Alaska, Nebraska, South Dakota and Utah and a thumbs-down in eight other states. With legislative sessions over in 28 states, only Michigan, Ohio, Pennsylvania and South Carolina are still considering the reforms.
A patchwork of laws
Unemployment insurance was started in the midst of the Great Depression to temporarily provide millions of laid-off workers a portion of their previous paychecks. The federal-state program, primarily financed through state taxes on employers, has paid more than $150 billion in benefits to more than 15 million unemployed workers since the Great Recession began in December 2007.
The federal government levies a much smaller tax on businesses to cover emergency extensions of the program beyond the normal 26 weeks covered by states and to create a reserve for states to borrow from when their own unemployment trust funds run short. Before leaving Friday (May 28) for the Memorial Day recess, Congress failed to extend benefits beyond 26 weeks before the current extension runs out tomorrow (June 2).
States also administer the program, determining who is eligible and how much the benefits will be. As a result, states have widely varying benefit levels and some are more generous than others when it comes to allowing low-wage workers to collect any benefits at all.
Starting in the early 1990s, the federal government and Congress began urging states to update their obsolete unemployment laws to reflect the realities of the workforce, in which many families have more than one breadwinner and fewer people have long-term jobs. Over the last decade, nearly half of all states enacted one or more of the recommended laws. But in most of the nation, many low-wage workers continued to be left out.
The economic stimulus act incentives were designed to even out the sharp differences among states and provide a stronger safety net for a growing segment of the workforce. To qualify, states must allow people who have only brief or interrupted job histories to be eligible for benefits based on their most recent work experience.
In addition, states must enact at least two of the following reforms:
- Provide additional benefits for people with dependents;
- Cover those who can only work part-time;
- Cover people who leave their jobs for personal reasons such as relocating with a spouse, escaping domestic violence or caring for an ailing family member;
- Provide benefits to workers while they are enrolled in long-term re-training programs.
When the stimulus act was signed last February, most saw the $7 billion offer as a boon to workers and the economy. But Republican governors Bob Riley of Alabama, Bobby Jindal of Louisiana, Tim Pawlenty of Minnesota, Haley Barbour of Mississippi, Mark Sanford of South Carolina, Rick Perry of Texas and former Alaska governor Sarah Palin quickly announced they would refuse the federal money because of concerns about businesses covering the costs when the stimulus money dries up.
In most cases, however, states have concluded that the stimulus act funds will outlast the recession, allowing them to postpone business tax hikes until better times when companies can afford them. Congress also said that states could choose to repeal the laws in the future if the tax burden was too heavy.
Still, Perry last year successfully opposed legislative efforts to ease the state's restrictive unemployment eligibility rules and pull $550 million in federal dollars into state coffers — an amount unemployment officials calculated would have more than covered the costs of the reforms for at least five years.
Alabama, Louisiana, Mississippi and South Carolina have also failed to enact the reforms.
In contrast, Minnesota enacted the required new laws last year and reaped more than $130 million in federal dollars, and Palin's successor, Republican Gov. Sean Parnell, this year approved the laws needed to draw down $16 million in stimulus money.
In addition to Alaska and Maryland, Nebraska became eligible for $44 million in federal dollars this year, Utah for $61 million and South Dakota for $12 million, according to the National Employment Law Project.
But even with help from the stimulus, at least 35 states have hiked business taxes this year and 34 states have borrowed more than $40 billion from the federal government to replenish their trust funds, according to the National Association of State Workforce Agencies.
For states that have not considered the stimulus proposal, the federal government's offer is good until August 2011.