Report

The Fiscal Cliff and Unemployment Insurance Benefits

Implications for the States

The Fiscal Cliff and Unemployment Insurance Benefits

Quick Summary

Among the expiring tax provisions and scheduled spending cuts included in the fiscal cliff is the end of certain federally funded unemployment insurance (UI) benefits at the end of 2012. While the expiration of these benefits would have little direct effect on state budgets, it could affect economic activity in the states. Those impacts would vary depending on current unemployment rates and overall economic conditions within each state.

Introduction

Federal policy makers continue to debate the various tax and spending components of the fiscal cliff. Pew’s recent report, The Impact of the Fiscal Cliff on the States, examined the direct impacts many of the scheduled tax and spending changes would have on state budgets. One of the provisions that make up the fiscal cliff is the expiration of certain unemployment insurance (UI) benefits and funding at the end of 2012. Although expiration of these benefits and funding would have little direct effect on state budgets, it could have an indirect impact by affecting economic activity in the states. 

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The Unemployment Insurance System 

Unemployment insurance benefits provide income support to qualifying workers who have lost their jobs for reasons other than poor performance or misconduct. The UI system is jointly funded in part by state payroll taxes and federal taxes and currently comprises three primary programs:

  • Unemployment Compensation (UC)—The standard mechanism for providing unemployment compensation is the federal-state UC program, which provides benefits for a maximum of 26 weeks in most states.[i] Dedicated state taxes, levied on employers, pay for most of these benefits. 
  • Extended Benefits (EB)—Individuals in states meeting certain unemployment rate “triggers” may qualify for up to 20 additional weeks of benefits under the Extended Benefits program. Under permanent law, states pay for half of this program with unemployment insurance taxes, and the federal government covers the other half using revenue from federal unemployment taxes.[ii]  The 2009 American Recovery and Reinvestment Act, however, temporarily required the federal government to pay 100 percent of EB costs.[iii] The 2012 Middle Class Tax Relief and Job Creation Act (enacted in February 2012) extended this full federal funding through the end of 2012 (with a phase-out).[iv] Currently, no state meets the program triggers.[v] 
  • Emergency Unemployment Compensation (EUC)—This temporary federal program was created in 2008 to provide unemployment benefits funded entirely by the federal government for individuals who exhaust their regular state unemployment compensation.[vi] Unlike the Extended Benefits program, EUC applies to all states regardless of their unemployment rates, although longer benefit durations are available in states with higher unemployment rates.[vii] This program has been expanded and extended several times since 2008, providing up to 53 weeks of benefits at one point.[viii] Most recently, the Middle Class Tax Relief and Job Creation Act of 2012 extended the program through the beginning of January 2013.[ix] Currently, EUC provides a maximum of 47 weeks of benefits.[x] 

The Unemployment Insurance System

[1] U.S. Department of Labor, State Unemployment Insurance Benefits, updated January 13, 2010, http://workforcesecurity.doleta.gov/unemploy/uifactsheet.asp.

[2] Julie M. Whittaker and Katelin P. Isaacs, Unemployment Insurance: Legislative Issues in the 112th Congress (Congressional Research Service, September 12, 2012), http://www.fas.org/sgp/crs/misc/R41662.pdf.

[3] Ibid.

[4] Ibid.

[5] As of December 9, 2012, New York was the last state to trigger off of EB. U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Weekly Claims Report, accessed October 26, 2012, http://workforcesecurity.doleta.gov/unemploy/claims_arch.asp. Because some states allow claimants to backdate claims, some unemployed individuals in states outside of New York also received EB in November.

[6] Julie M. Whittaker and Katelin P. Isaacs, Unemployment Insurance: Legislative Issues in the 112th Congress (Congressional Research Service, September 12, 2012), http://www.fas.org/sgp/crs/misc/R41662.pdf.  States are allowed to determine whether EUC or EB programs are paid first. See Julie M. Whittaker, Emergency Unemployment Compensation (Congressional Research Service, July 11, 2008), http://assets.opencrs.com/rpts/RS22915_20080711.pdf.

[7] Julie M. Whittaker, Emergency Unemployment Compensation (Congressional Research Service, July 11, 2008), http://assets.opencrs.com/rpts/RS22915_20080711.pdf.

[8] Julie M. Whittaker and Katelin P. Isaacs, Unemployment Insurance: Programs and Benefits, (Congressional Research Service, September 19, 2012), http://www.fas.org/sgp/crs/misc/RL33362.pdf.

[9] EUC authorization expires the week ending on or before January 2, 2013. Thus, the last day of EUC availability is December 29, 2012 (December 30, 2012 for New York). Julie M. Whittaker and Katelin P. Isaacs, Unemployment Insurance: Programs and Benefits, (Congressional Research Service, September 19, 2012), http://www.fas.org/sgp/crs/misc/RL33362.pdf.

[10] Julie M. Whittaker and Katelin P. Isaacs, Unemployment Insurance: Legislative Issues in the 112th Congress (Congressional Research Service, September 12, 2012), http://www.fas.org/sgp/crs/misc/R41662.pdf.

Unemployment Insurance Benefits

[1] Pew analysis of data from the U.S. Bureau of Labor Statistics, The Employment Situation – November 2012, Table A-1. Employment status of the civilian population by sex and age. December 7, 2012, http://www.bls.gov/news.release/archives/empsit_12072012.pdf; and U.S. Department of Labor Employment and Training Administration, “Persons Claiming UI Benefits in Federal Programs (Expanded),” November 17, 2012, http://ows.doleta.gov/unemploy/docs/persons.xls.

[2] Katelin P. Isaacs, Expiring Unemployment Insurance Provisions (Congressional Research Service, February 28, 2012). The number of EUC recipients declined from 3 million in January 2012 to 2.1 million in October 2012, while the number of EB recipients declined from 475,000 to 37,000 over the same period. Pew analysis of U.S. Department of Labor Employment and Training Administration, “Persons Claiming UI Benefits in Federal Programs (Expanded),” January 28 and October 27, 2012, http://ows.doleta.gov/unemploy/docs/persons.xls.

[3] Individuals receiving 100 percent federally-funded UI benefits would lose any remaining weeks of such benefits after December 2012. See Julie M. Whittaker and Katelin P. Isaacs, Unemployment Insurance: Legislative Issues in the 112th Congress, Congressional Research Service, September 12, 2012,http://www.fas.org/sgp/crs/misc/R41662.pdf; and U.S. Department of Labor, Middle Class Tax Relief and Job Creation Act of 2012 Extension and Modification of EUC08 Program and Temporary Extension of EB Provisions Fact Sheet, 2012, http://www.ows.doleta.gov/unemploy/pdf/Factsheet_EUC&EB.pdf

[4] Congressional Budget Office, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, August 2012,  https://www.cbo.gov/sites/default/files/cbofiles/attachments/08-22-2012-Update_to_Outlook.pdf; These figures include spending for federal administrative costs, federal benefits, and state benefits.

[5] Pew analysis of data from the U.S. Department of Labor Employment and Training Administration, UI Outlook FY 2013 Budget Midsession Review, July 2012, http://www.oui.doleta.gov/unemploy/pdf/MSR.pdf.

[6] Karen Spar, Budget “Sequestration” and Selected Program Exemptions and Special Rules (Congressional Research Service, October 2, 2012), http://www.fas.org/sgp/crs/misc/R42050.pdf.

[7] U.S. Department of Labor Employment and Training Administration, UI Outlook FY 2013 Budget Midsession Review, July 2012, http://www.oui.doleta.gov/unemploy/pdf/MSR.pdf.

[8] Karen Spar, Budget “Sequestration” and Selected Program Exemptions and Special Rules (Congressional Research Service, October 2, 2012), http://www.fas.org/sgp/crs/misc/R42050.pdf.

Unemployment Facts and Figures

[1] U.S. Bureau of Labor Statistics, The Employment Situation – November 2012, December 7, 2012, http://www.bls.gov/news.release/archives/empsit_12072012.pdf.

[2] U.S. Bureau of Labor Statistics, Job Openings and Labor Turnover Survey, December 2012. This figure is for the last day of October, 2012, and subject to revision, http://www.bls.gov/jlt/.

[3] The Congressional Budget Office also estimates that under current law the unemployment rate will rise to 9.1 percent in the fourth quarter of 2013, averaging 8.8 percent for the calendar year. Congressional Budget Office, An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022, August 2012, https://www.cbo.gov/sites/default/files/cbofiles/attachments/08-22-2012-Update_to_Outlook.pdf.

[4]  U.S. Bureau of Labor Statistics, The Employment Situation – November 2012, Table A-12. Unemployed Persons by duration of unemployment. December 7, 2012, http://www.bls.gov/news.release/archives/empsit_12072012.pdf.

[5] Pew analysis of U.S. Bureau of Labor Statistics Current Population Survey, July through September 2012.  For past work on long-term (a year or more) unemployment, see Pew Fiscal Analysis Initiative, Addendum: A Year or More: The High Cost of Long-Term Unemployment, May 2012, http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Addendum_Long-Term_Unemployment_May2012.pdf.

State Impacts Would Vary

[1] U.S. Bureau of Labor Statistics Local Area Unemployment Statistics, Regional and State Employment and Unemployment – October 2012, Table 3. Civilian labor force and unemployment by state and selected area, seasonally adjusted. November 20, 2012, http://www.bls.gov/news.release/archives/laus_11202012.pdf.  

[2] Pew analysis of U.S. Bureau of Labor Statistics, Geographic Profile of Employment and Unemployment, 2011, Table 26. States: unemployed persons by sex, race, Hispanic or Latino ethnicity, and duration of unemployment, 2011 annual averages. September 2012, http://www.bls.gov/opub/gp/pdf/gp11full.pdf

[3] Pew analysis of data from the U.S. Census Bureau data and U.S. Department of Labor data, Employment and Training Administration, EUC Aggregate and EB Monthly Program Activity, accessed November 20, 2012, http://www.ows.doleta.gov/unemploy/euc.asp. The calculations here assume that the number of EUC and EB beneficiaries in a given state in a month is equal to the average of the weekly numbers of EUC and EB weeks paid in that state in the month, as reported by the state to the Employment and Training Administration.

[4] Pew analysis of data from the U.S. Census Bureau data and U.S. Department of Labor data, Employment and Training Administration, EUC Aggregate and EB Monthly Program Activity, accessed November 20, 2012, http://www.ows.doleta.gov/unemploy/euc.asp. The calculations here assume that the number of EUC and EB beneficiaries in a given state in a month is equal to the average of the weekly numbers of EUC and EB weeks paid in that state in the month, as reported by the state to the Employment and Training Administration.

 

Date:
December 14, 2012
Contacts:
Jeremy Ratner | 202.540.6507
Project:
Fiscal Federalism Initiative
Issues:
Unemployment
State:
National

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PCS.PRODUCTION.1.20140221.1210 (PEWSUWVMWAPP02)