In our last episode, employers in the Bay State, a little sore after the passage by the Senate of a $3 per hour increase in the minimum wage, were contending that any minimum wage increase must be paired with a reduction in the Unemployment Insurance (UI) costs employers pay. After all, if workers are getting something, it would only be fair if employers got something too. And what they want is for the state to cut back in various ways on our “overly generous” UI benefits. (If you’re curious, those benefits provide a maximum of $679 per week — before federal and state income taxes are deducted — which is the equivalent of an annual salary of $35,308. Many unemployed workers who even qualify for these benefits receive far less.)
Everyone agrees (in theory at least) that the Unemployment Insurance system should be forward funded — that is, funding should grow during good economic times when unemployment is low, providing a reserve to be drawn on during bad times when unemployment is high. To that end, lawmakers adopted a schedule to determine annual UI rates for employers. The primary purpose of the schedule was to maintain the fund at adequate levels. A secondary purpose was to provide employers with certainty and the ability to plan ahead.
The problem has been that while employers may approve of the forward funding in theory, they don’t like forward funding in practice. Whether we’re enjoying good economic times or suffering through bad ones, employers feel that it’s always a good time to lower their UI rates.
Let’s climb into the Wayback Machine and go back to September, 1997. Times are good and more Massachusetts residents than ever are working. The unemployment rate is under four percent, the lowest in years. Would this not be a good time to save up for the next recession’s rainy day? No, not really. The fund is in good shape, say the employers, so in fact it is the perfect occasion to lower employer costs by cutting UI taxes. Despite warnings that a severe recession could easily wipe out the fund, lawmakers side with the employers and pass special legislation for the coming year to override the rate schedule that would have gone into effect.
And thus a tradition is born. From 1997 to 2013, with only one exception, lawmakers intervene every year to override the rate schedule. Each intervention sets a lower rate than the schedule would have provided. And when recessions arrive in 2001 and 2008 and unemployment rises, the fund is considerably less solvent than it would otherwise be, requiring the state to borrow to cover the shortfalls.
For Massachusetts employers, the prescription for UI funding has been — heads I win, tails you lose.