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Missouri’s Unemployment Insurance Program:
Key Issues and Solutions
(January 2004)
By National Employment Law Project

Unemployment and the Missouri
Economy. The unemployment rate in Missouri was 4.3 percent in November 2003. By the week ending December 20, there were more than 76,000 individuals receiving weekly unemployment insurance (UI) benefits in Missouri, up from about 70,000 during the same period a year ago. The state has lost 17,600 manufacturing jobs since the recession officially ended in November 2001. In the 3rd quarter of 2003 (calendar quarter ending September 30), about 7000 claimants exhausted their UI benefits each month. Over 42 percent of the unemployed receiving UI in Missouri exhausted their UI benefits in the 3rd quarter. In order to better assist these and similar individuals in the coming years, Missouri’s UI program needs to address key issues.

Issue 1: Missouri UI Benefits Are Too Low

  • Missouri's average UI benefit for the 12 months ending with the 3rd quarter 2003 was only $205 a week. This was 32% of the statewide average weekly wage of $633 for this time period. Missouri ranked 45th in the nation (of 53 jurisdictions) in terms of its average weekly benefit amount and 44th in terms of its wage replacement ratio. (Weekly benefits are calculated as 4 percent of high quarter wages up to the statutory maximum.)

Solution: Index and Raise Maximum Weekly Benefit Level

  • The major reason for low average benefit payment levels is Missouri's maximum weekly benefit of only $250. Only five states (including Puerto Rico) had lower maximum benefits in 2003.
  • Missouri does not adjust its taxable wage base with the growth in state wages, relying instead upon legislative action. 34 states index their maximum weekly benefit to statewide average weekly wages. This ensures that the weekly benefit keeps pace with increases in the cost of living in those states.
  • Missouri should index its maximum weekly benefit amount to state wages. Of the 34 states with indexing for maximum benefits, formulas vary from between two-thirds and one half of a state’s average weekly wage. Missouri’s current maximum was only 39 percent of average weekly wages for the 3rd quarter 2003.
  • The rule of thumb for benefit adequacy is one-half of pre-layoff wages up to a maximum benefit of two-thirds of average benefits.All neighboring states have higher maximum weekly benefit caps, with some states in the region paying significantly higher maximum benefits in 2003. Arkansas had a weekly maximum of $365, Kansas paid a $363 maximum, Oklahoma’s maximum was $303 a week, Iowa paid $300 to $368 (varying by number of dependants), and Illinois had a maximum benefit of $326-$438 (varying by number of dependants).
  • Low maximum weekly benefit levels impact laid off middle class workers, forcing them to dramatically adjust their spending and life styles. Low UI benefit amounts hurt the economy by undercutting the “pump priming” function of UI programs as well.

Issue 2: Long-term Trust Fund Insolvency.

  • Missouri’s trust fund borrowed from the federal government in 2003 to maintain UI benefit payments and faces continuing solvency challenges in the coming years. This is not a new problem. Missouri ranked in the bottom five states in terms of trust fund solvency throughout the late 90s, and efforts to address solvency have met with employer resistance since 1998.
  • Missouri’s UI payroll tax rates are modest. In calendar year 2002, the average UI tax on Missouri employers (measured as a percent of total wages) was 0.37 percent. The national average was 0.54 percent. Employers in Missouri pay state UI taxes only on the first $7,500 of a worker’s earnings. Average taxes on taxable wages in 2002 were at 1.51 percent ($113.25).

Solution: Raise Taxable Wage Base, Eliminate Zero Minimum Taxes, Change Trust Fund Target

  • Because Missouri’s UI taxes are so low, they have not exceeded UI benefit payments enough to build a trust fund reserve. This means that Missouri faces recurring UI solvency challenges. In addition Missouri loses millions in federal interest on the state’s trust fund each year.
  • Forty-one states have taxable wage bases higher than Missouri’s $7500 taxable wage base. Seventeen states index their taxable wage bases. While there are no guarantees, states with indexed wage bases have a better record on solvency than states without them.
  • Higher taxable wage bases reduce the tax burden on low wages. They increase the effectiveness of experience rating and reduce cross-subsidization of high cost employers by low-cost employers. Raising the taxable wage base will produce an initial burst of trust fund contributions, but over time will lower tax rates. Missouri’s taxable wage base should be substantially raised and indexed.
  • Missouri’s trust fund has a target of $500 million. Using a target that is set as a fixed amount of dollars means that the trust fund target doesn’t keep pace with wage growth and that taxes fall before the trust fund can build reserves. The target is currently set much too low for a solvency goal and it should be set as a percent of total wages (for example, reserve ratio of at least 2.5).
  • Missouri permits a zero minimum tax rate for almost a quarter of its employers. All employers benefit from UI insurance coverage, since UI maintains consumer spending and assists jobless workers in their communities. Because all employers are insured, they should pay some premium, even if their employees have not recently received UI benefits. The zero minimum tax should be eliminated and replaced with a minimum tax of a few tenths of a percent.

Issue 3: Not Enough Jobless Individuals in Missouri Get UI Benefits

Solution 3. Expand Eligibility to Cover Part-time Workers

  • 22 states have favorable policies toward part-time workers. Missouri requires that all jobless workers be available for and seek full-time work even if they have earned qualifying wages in part-time jobs or need to work part-time for compelling reasons.
  • Part-time workers’ wages are subject to UI taxation, but they are not eligible for UI in Maryland if they limit their search to part time work. 
  • Many workers, especially working mothers, need or prefer part-time work. Many employers use part-time workers as a valuable component of their workforces.
  • UI policies requiring full-time work reflect outdated assumptions about part-time and women workers. In the past few years, states have been reexamining policies around part-time work.
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