Beyond Boom and Bust:

Financing Unemployment Insurance in a Changing Economy

A new NELP report by Marc Baldwin, Ph.D. (April 2001)

Executive Summary   Press Release In PDF and in HTML   Download the Report,   Beyond Boom and Bust: Financing Unemployment Insurance in a Changing Economy The file is in PDF and can be viewed with Adobe Acrobat Reader version 4.0 or above (download this free software). Right-click here and choose "Save Link As" or "Save Target As."  Save the file to your computer, open it from your computer in Acrobat, and read or print the report. If you cannot download the report, e-mail Allison Palmer at apalmer@nelp.org or go to NELP's PDF downloading help page.    Contacts Marc Baldwin, Ph.D. Author BaldwinEcon@home.com (360) 481-4221   Maurice Emsellem Unemployment Insurance Safety Net Project Director National Employment Law Project emsellem@nelp.org (212) 285-3025, ext. 106   NELP's Unemployment Insurance Safety Net Project   Other Unemployment Insurance Publications from NELP

 

Executive Summary

         This report is part of a series of studies by the National Employment Law Project (NELP) addressing the current state of unemployment insurance (UI) in America.  While most of the NELP studies have focused on eligibility and benefit issues, this report calls attention to the structure and outcome of UI benefits financing at the state level.  It is intended to spark interest in improving the functioning of UI finance, highlight opportunities to improve access to benefits, and provide a primer for those who are unfamiliar with the complex world of UI finance.  It calls into question the level of preparedness among the states as the US economy shows signs of slowing.

      Among the key findings are:

•  In 2000, UI taxes as a percentage of total covered wages were lower than any time in the history of the UI system.
• Although the UI system should build reserves during economic expansions and spend them down during recessions, many states have deeply cut taxes and endangered their reserves.  Tax cuts and declining tax rates have taken over $47 billion dollars out of the UI system between 1994 and 2000.
• Unemployment insurance taxes peaked at 1.4 percent of wages in 1978, falling to less than half that at .54 percent in 2000.
• Only about 40 percent of the unemployed receive UI benefits in the United States.  A combination of expanded financial capacity and improved access is needed to ensure that the UI safety net functions adequately in the next recession, especially for low-wage, part-time and women workers who are least likely to receive UI under current programs.
• UI benefit reserves vary dramatically among the states.  Most states have prudently built reserves, providing an opportunity to reverse austerity measures imposed on the benefit side of their programs in the 1980s or to move their programs in line with a changing economy.
• Many other states have made fundamental changes in the structure of their UI financing which run counter to basic principles of social insurance, such as provisions to cut benefits despite deep recessions or uncouple indexing of benefits and wage bases. 

      The trend toward low reserves and less indexing of tax systems raises political and technical problems that threaten the security of this vital insurance system.  The report concludes with recommendations to improve UI financing, including more progressive payroll taxes and indexing of benefits and tax bases.  For many states, the first step should be reversing the trend toward cutting UI taxes while under-investing in unemployed workers.

 Download the report