Unemployment Insurance in Massachusetts: Protecting Working Families and Our Economy

Protecting Working Families and Our Economy: Unemployment Insurance in Massachusetts
(October 2003) 
A Briefing Paper by the National Employment Law Project and Greater Boston Legal Services

For a .pdf version of the full report, click here.

Executive Summary

I. Unemployment insurance (UI) is the first line of economic defense in a recession.  Yet, critics often view UI benefits solely as a cost to business, ignoring its role in reducing hardships for jobless workers, targeting help to affected communities, and boosting the state's economy.

• In August, Massachusetts’ unemployment rate reached a nine year high of 5.8% after experiencing the second largest job loss in the country in 2002.  As the job market continues to struggle, Massachusetts' UI program is helping large numbers of working families, with an estimated 591,762 Massachusetts UI beneficiaries in 2001 and 2002. In August 2003, there were over 130,000 residents of Massachusetts receiving weekly state UI benefits and federal extensions.
• A fair assessment of UI must include not only its costs but its benefits as well. A 1999 study of UI's economic impact found that UI benefits produced $2.15 of increased economic activity (growth in Gross Domestic Product) for every $1.00 in UI benefits paid to laid off workers.
• Federal extensions and regular state benefit payments have given Massachusetts' economy an injection of at least $2.4 billion in additional spending during the first two years of the current downturn, making a bigger dollar-for-dollar impact on the economy than federal tax cuts.

II. Cutting UI benefits or restricting eligibility reduces the positive economic stimulus of UI programs. Calls for reducing the "costs" of UI programs translate not only to reduced economic stimulus, but greater hardship for jobless workers, their families, and communities impacted by layoffs that have brought the state’s unemployment rate to a nine-year high.

• UI benefits in Massachusetts are not too high or too generous.  Massachusetts is a high wage state --- average weekly benefits replaced only 43 percent of average weekly wages in 2002, ranking Massachusetts 20th in wage replacement of 53 UI jurisdictions.  Massachusetts' weekly UI benefit formula is in line with that of most states in replacing half of pre-layoff wages up to a weekly maximum. Massachusetts’ UI system reaches about two thirds of jobless workers – a competitive position as compared to neighboring states.
• The governor’s proposal to reduce the maximum length of benefits from 30 weeks to 26 weeks would target long-term unemployed workers least in a position to afford loss of benefits without greatly reducing overall program costs. Currently, weeks 27 through 30 are paid for by the federal government through federal extended benefits.  While Massachusetts has a potential maximum duration of 30 weeks, most workers receive less weeks of benefits with actual duration of benefits in Massachusetts in 2002 of 19 weeks and only 16.3 weeks in 2000. Some workers receive as little as 10 weeks maximum of UI benefits and Massachusetts is among the bottom dozen states with the lowest minimum duration of benefits.
• Making it harder to qualify for UI benefits would largely hurt low-wage workers who struggle to find consistent employment. At least sixteen states have monetary earnings requirements that are easier to meet than Massachusetts' current requirements for UI monetary eligibility. The state’s current requirement of distributed earnings that equal thirty times the weekly benefit amount (translating into 15 weeks of work for most workers) effectively requires work in two calendar quarters, a common requirement in most states. The amount of base period earnings required, $3000, is among the 10 highest dollar amounts required for UI eligibility of the 50 states.
• Toughening monetary eligibility requirements would disproportionately harm former welfare recipients who have been forced into the secondary labor market that is characterized by high turnover.  As a result of the two-year time limit on welfare in Massachusetts, the UI safety net is even more critical for these vulnerable workers with families.

III. The current funding difficulties of the Massachusetts UI system are due to bad financing policy decisions, not overly generous benefits.

• The tendency over the last decade to override the statutory triggers setting employer tax schedules has resulted in the current impending trust fund insolvency.  These cuts have saved the state employers over $1.69 billion in taxes. Although each tax cut was passed with assurances by the administration and employer associations that the fund’s solvency would not be jeopardized, now the administration and those same employer groups seek cutbacks on UI benefits to shore up the fund.
• Massachusetts currently only taxes the first $10,800 or 24% of the average salary. In order to secure the solvency of the UI trust fund, the taxable wage base must be increased and indexed to the average weekly wage.  The 18 other states with indexed and higher wage bases are much better poised to withstand recessions and the tax is fairer both to small businesses that tend to employ lower wage workers and to their workers whose wages are lower due to this disproportionate tax on their wages. 

IV. Although the Massachusetts UI system enjoys several positive features, important reforms are necessary to assist unemployed workers during these economically difficult times.

• The restriction on benefits for workers in part-time jobs must be ended in recognition of the needs of working families who struggle to balance work and the care of children, elderly parents and seriously ill family members.
• Access to UI benefits should not be arbitrarily denied or reduced for workers who earn fluctuating wages in two quarters, who work multiple jobs, or who are disqualified from a higher paying job and are then laid off from a lower paying job.
• Dependency allowances should not be denied to parents in low-wage families where both parents are unemployed, or where the unemployed parent earns less than 50% of the family income.  In these situations, the loss of a job, coupled with the unavailability of a dependency allowance, can leave a family in poverty.
• Less than 2% of eligible unemployed workers participate in training opportunities due in part to barriers to participation and limitations on training programs.  These problems should be immediately addressed so that unemployed workers can get the skills they need to be productively reemployed at family-sustaining wages and meet the needs of Commonwealth employers.