More State Economic Development Plays

In the last decade, the labor market has changed considerably. New employment practices and technologies have made jobs more flexible, so fewer workers hold traditional, full-time permanent jobs. Welfare reforms have sent more low-skilled workers into the workforce. And the increasingly high-tech, high-skilled labor market means more workers need to upgrade their skills when they lose their jobs. For the most part, however, state unemployment insurance (UI) systems have not adapted to these changes, and consequently, many hard-working people who have helped finance unemployment insurance cannot rely on the system when they lose their jobs.

One of the problems is that eligibility requirements are outmoded. Most states require that workers be employed full time for at least one year before they are eligible for UI benefits. Workers must meet a minimum threshold of earnings over a base period of time, typically the first four of the last five full quarters of employment. Both provisions make it difficult for people coming off welfare and low-wage and part-time workers to qualify for UI when they are laid off. While employers pay UI taxes on part-time and full-time, recently employed, and long-term employees just the same, part-time employees are one-third less likely to receive benefits if laid off, and recently employed workers often do not meet the base period requirement.

"By implementing these safeguards, we hope to avoid the present dilemma of having to consider benefit reductions and tax increases during an economic downturn when workers and employers can least afford it." -- Gov. Rod Blagojevich, Illinois

To correct these shortcomings, states should expand eligibility to cover low-wage, part-time, and other non-traditional workers. Several states offer successful models for correcting these shortcomings and expanding eligibility to cover these workers. In 2003, Maine, New Jersey, New Mexico, North Carolina, and Washington passed legislation extending UI benefits to part-time workers. As a result, at least 24 states now allow workers to look for less than full-time work under various circumstances. In the same year, three states -- Hawaii, New Mexico, and Virginia -- joined the group of 18 states and the District of Columbia that have passed legislation to enact an alternative base period for recently employed workers, using wages over a more recent period of time to determine eligibility. Also, Oregon and Washington now extend benefits to low-wage workers, allowing them to qualify based on the number of hours worked over the base period, rather than wages earned. Less than three weeks after Oregon's law was enacted, Maine followed suit with similar legislation.

Another problem is that most states' UI tax rates create a perverse disincentive for employers to keep workers. A company's UI tax rate is supposed to be "experience rated" so companies that lay off the most workers pay the highest rates. In reality, however, the rates companies pay are often not closely related to the number of workers they actually lay off. Nationally, 18.4 percent of benefits are not charged back to employers because their tax rates are already at the top level. This reduces the incentive for some employers to keep workers employed, while artificially keeping rates higher for employers who seldom lay people off.

Some states have taken steps to rectify the problem with more serious experience ratings. Rhode Island has raised the ceiling on UI taxes paid by high-layoff companies and used the proceeds to lower rates on low-layoff companies. For every high-layoff company now paying more, the new ceiling lowered the tax rates on about five companies.

State UI systems are less effective than they should be because many do not encourage or even allow workers to collect benefits while in training programs after they are laid off. While federal legislation prohibits states from denying UI benefits to unemployed workers in qualified training programs, it lets states define the term "qualified." Some states do not allow training unless a worker's skills are "obsolete," some do not consider English as a Second Language or Adult Basic Education courses as qualified training, and many do not tell workers that they can legally collect UI while in training courses.

Several states offer models for transforming UI's "safety net" into a "trampoline" by enacting legislation and administrative rules making it clear that workers in approved training can collect UI benefits. Maine, for example, clarified that workers participating in training approved under the Workforce Investment Act are automatically entitled to UI benefits without having to also seek new work. California, Massachusetts, Michigan, Oregon, and Washington allow workers enrolled in training programs to collect benefits for longer than the standard 26 weeks so that they may engage in meaningful training. In an innovative approach, Rhode Island waives tuition and registration fees for laid-off workers taking courses at any state-operated college or university.

Some innovative state policymakers are going beyond both the safety net and trampoline approach by boosting company training to prevent layoffs in the first place.

In order to encourage employers to train workers, several states, including Delaware, Louisiana, Minnesota, Massachusetts, New Jersey, Rhode Island, and Tennessee, assess a small surcharge to the standard UI tax for an employer-training fund. Rhode Island, for example, uses an additional 0.2 percent UI surcharge to fund a grants program for companies to train existing workers, with companies in multi-firm training consortia able to get large grants.

Helping companies remain competitive and avoid layoffs is ideal, but inevitably in a dynamic economy, companies will hire and fire workers. To ensure that workers have the tools to succeed in this modern economy, innovative policymakers should emulate the successful steps state policymakers have taken to update the UI system.

Resources for Action

National Employment Law Project, Unemployment Insurance Safety Net Project
www.nelp.org/ui/state/index.cfm

Center for Policy Alternatives, "Unemployment Insurance"
www.stateaction.org/issues/issue.cfm/issue/UI-Options.xml

Maine Legislative Document 240, 2003
http://janus.state.me.us/legis/LawMakerWeb/
summary.asp?ID=280008261

Maine Statutes Title 26, chapter 13, '1192: 6-E
http://janus.state.me.us/legis/statutes/
26/title26sec1192.html

Minnesota UI Program
www.deed.state.mn.us/programs/unemploy.htm

New Mexico House Bill 261, 2003 (regular)
legis.state.nm.us/Sessions/03%20Regular/bills/house/HB0261.html

Oklahoma Senate Bill 1404, 2001
www2.lsb.state.ok.us/2001-02SB/sb1404_enr.rtf

Rhode Island General Law, '28-42 through 28-44, specifically '28-42-81 and '28-43-8.5
www.rilin.state.ri.us/Statutes/
TITLE28/INDEX.HTM

Virginia Senate Bill 1040, 2003
http://leg1.state.va.us/cgi-bin/
legp504.exe?ses=031&typ=bil&val=sb1040

Amendments to State Unemployment Insurance Laws, U.S. Department of Labor
http://ows.doleta.gov/unemploy/content/strpt03-2.asp

Additional Reading

Robert D. Atkinson, Modernizing Unemployment Insurance for the New Economy and the New Social Policy, Progressive Policy Institute, February 2002
www.ppionline.org/ppi_ci.cfm?contentid=250213
&knlgAreaID=107&subsecid=175

Contacts

Maurice Emsellem
National Employment Law Project
(510) 663-5700
emsellem@nelp.org

Dr. Lee Arnold
President
The Arnold Group, LLC
747 Pontiac Avenue, Suite 204
Cranston, RI 02910
(401) 383-8113
(401) 383 8115 (fax)
larnold@thearnoldgroupllc.com

Paul Weinstein
Chief Operating Officer
Progressive Policy Institute
600 Pennsylvania Ave, SE, Suite 400
Washington, DC 20003
(202) 547-0001
(202) 544-5014 (fax)
pweinstein@ppionline.org