Progressive Unemployment Insurance Reform (One in a Series)

Update: February 6, 2014. Today the State Senate passed an Unemployment Insurance (UI) Reform bill. One important element in that bill is the increase in the amount of employees’ wages on which employers pay the UI tax, which funds the unemployment insurance system. The amount is going from the first $14,000 in wages to the first $21,000 in wages. More specifics of how that works and why it is a very good idea are in the post below. The Senate also changed the table that sets employer UI taxes so as to require employers whose employees use the UI system frequently to pay at a higher rate than employers whose employees file few claims. The Senate also commendably declined (with one limited exception) to make any cuts in UI benefits or eligibility, which was a priority of employer groups (including the Mass. High Tech Council, as in the post below).

Original Post: December 2, 2013

Following the passage by the State Senate of legislation increasing the minimum wage, business groups have been rushing to endorse House Speaker Robert DeLeo’s idea that any minimum wage increase should be paired with changes to the state’s unemployment insurance (UI) system. The latest organization to boost this plan is the Massachusetts High Technology Council, which polled itself last week on the issue and arrived at the not-at-all-surprising results that its members oppose a minimum wage increase, but that their opposition softens considerably if “sweeping reforms” to the state’s unemployment insurance system are undertaken at the same time.

Atop the list of UI changes that these business groups endorse are two that would come at the expense of unemployed workers: one proposal would make more laid-off workers ineligible for any UI benefits, and another would shorten the period of time that those laid-off workers who did still qualify could collect benefits. This business agenda, essentially, is a zero-sum game between employers and employees.

But that’s not the only UI reform agenda. A progressive UI agenda would certainly agree that our state’s UI system is in need of reform, but would propose a different solution. This alternative has been filed in legislation in the House by former Rep and current Boston Mayor-elect Marty Walsh, and in the Senate by minimum wage champion and Senate Chairman of the Committee on Labor and Workforce Development Dan Wolf. Instead of pitting employees against employers, this approach would reallocate the amount of UI taxes paid by employers. That amount is now heavily weighted against low-wage employers, who pay a disproportionately high percentage of their wages to satisfy their UI obligations.

Here’s how the Walsh/Wolf proposal works.

UI funds should be designed to be countercyclical — to be built up before recessions, drawn on during recessions, and then rebuilt during recoveries, so that the UI program can serve its purpose of stabilizing economic activity during downturns. To achieve this result, the formula for determining the annual rate that employers pay into the fund should take into account, among other factors, the wages that the employees of that employer receive, because UI benefits are calculated on that basis (the weekly UI benefit in Massachusetts is half the worker’s average wage, up to a maximum of $674).

For the past ten years, employers have paid UI taxes on only the first $14,000 of their employees’ wages. Because this is an artificially low amount and also because it has not been increased in ten years, the fund is susceptible to becoming overdrawn, particularly during severe recessions like this one. The low $14,000 amount also treats employers whose employees earn more than that more generously, and the higher the employee salary the greater the relative benefit to employers.

The bills filed by Mayor-elect Walsh and Senator Wolf adjust one factor in the formula for calculating employer contributions in order to reflect current wages and would index that factor to keep pace with future wage growth. (Policy wonks: see Section 2 of each bill.) This legislation would more fairly allocate responsibility for UI to businesses whose employees receive higher wages while working (and therefore higher UI benefits if laid off). It would also protect laid-off workers from unnecessary benefits cuts and protect the state’s economy during downturns by ensuring that families of laid-off workers still had purchasing power.

What’s not to like?

SIDEBAR: A little background on the Massachusetts High Technology Council. It’s a trade association of 100 or so members, including high technology companies and also law firms, banks, accounting firms and universities, whose mission is to make Massachusetts the world’s most attractive place “in which to create, operate and grow high technology businesses.” Its strategies for reaching that goal include keeping business taxes low while at the same time ensuring that Massachusetts always gets a healthy share of federal defense spending.

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