[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
MODERNIZING UNEMPLOYMENT INSURANCE TO REDUCE BARRIERS FOR JOBLESS
WORKERS
======================================================================
HEARING
before the
SUBCOMMITTEE ON
INCOME SECURITY AND FAMILY SUPPORT
of the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 19, 2007
__________
Serial No. 110-59
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
45-995 PDF WASHINGTON : 2009
----------------------------------------------------------------------
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COMMITTEE ON WAYS AND MEANS
CHARLES B. RANGEL, New York, Chairman
FORTNEY PETE STARK, California JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington DAVE CAMP, Michigan
JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee JERRY WELLER, Illinois
XAVIER BECERRA, California KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas RON LEWIS, Kentucky
EARL POMEROY, North Dakota KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon DEVIN NUNES, California
RON KIND, Wisconsin PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
Janice Mays, Chief Counsel and Staff Director
Brett Loper, Minority Staff Director
______
SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT
JIM MCDERMOTT, Washington, Chairman
FORTNEY PETE STARK, California JERRY WELLER, Illinois
ARTUR DAVIS, Alabama WALLY HERGER, California
JOHN LEWIS, Georgia DAVE CAMP, Michigan
MICHAEL R. MCNULTY, New York JON PORTER, Nevada
SHELLEY BERKLEY, Nevada PHIL ENGLISH, Pennsylvania
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
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or omissions. Such occurrences are inherent in the current publication
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C O N T E N T S
__________
Page
Advisory of September 12, 2007, announcing the hearing........... 2
WITNESSES
Cynthia Fagnoni, Managing Director, Education, Workforce and
Income Security, government Accountability Office.............. 13
Amy Chasanov, former staff Member, Advisory Council on
Unemployment Compensation...................................... 35
Lynette Hammond, Deputy Secretary of Commerce and Trade,
Commonwealth of Virginia....................................... 52
Vicky Lovell, Ph. D., Director of Employment and Work/Life
Programs, Institute for Women's Policy Research................ 60
Jeffrey Kling, Ph. D., Senior Fellow and Deputy Director,
Economic Studies, The Brookings Institution.................... 71
SUBMISSIONS FOR THE RECORD
Douglas J. Holmes, statement..................................... 85
Idaho Department of Labor, statement............................. 92
On Point Tech, statement......................................... 94
UWC--Strategic Services on Unemployment.......................... 94
HEARING ON MODERNIZING UNEMPLOYMENT
INSURANCE TO REDUCE BARRIERS FOR
JOBLESS WORKERS
----------
WEDNESDAY, SEPTEMBER 19, 2007
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Income Security and Family Support,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:00 p.m., in
room B-318, Rayburn House Office Building, Hon. Jim McDermott
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON
INCOME SECURITY AND FAMILY SUPPORT
CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
September 12, 2007
McDermott Announces Hearing on
Modernizing Unemployment Insurance to Reduce Barriers for Jobless
Workers
Congressman Jim McDermott (D-WA), Chairman of the Subcommittee on
Income Security and Family Support of the Committee on Ways and Means,
today announced that the Subcommittee will hold a hearing on reducing
gaps and disparities in access to unemployment insurance, especially
for low-wage and part-time workers. The hearing will take place on
Wednesday, September 19, at 1:00 p.m. in room B-318 Rayburn House
Office Building.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
The Unemployment Insurance (UI) system, established in 1935,
provides temporary and partial wage replacement for unemployed workers.
Since the establishment of the program, there has been a significant
rise in the number of women in the workforce, an increase in low-wage
and part-time employment, and a decline in manufacturing employment.
Past reports from the Advisory Council on Unemployment Compensation
and from the government Accountability Office (GAO) have highlighted
certain features in many States' UI programs that prevent them from
more adequately responding to these long-term employment trends. For
example, an estimated 31 States do not consider any wages earned by a
dislocated worker from either their last completed calendar quarter of
employment or from the quarter in which they file for benefits--
excluding up to 6 months of earnings. Not counting a worker's most
recent earnings makes it more difficult for some low-wage workers to
achieve minimum earnings levels for UI eligibility. Other barriers to
coverage include restrictions on UI receipt for former part-time
workers seeking reemployment in a part-time job and for those leaving
employment for compelling family reasons.
Subcommittee Chairman McDermott has introduced legislation, the
Unemployment Insurance Modernization Act (H.R. 2233), to provide up to
$7 billion from the Federal unemployment insurance trust funds to
encourage, assist and reward States for removing such barriers for
jobless workers.
In announcing the hearing, Chairman McDermott stated, ``Too many
workers, especially those in low-wage and part-time employment, are
excluded from the Unemployment Insurance system. Women in particular
are hampered by policies that were crafted five, six and seven decades
ago. We should actively encourage States to make further progress in
covering all unemployed workers who have worked hard and who have had
taxes paid into the system on their behalf.''
FOCUS OF THE HEARING:
The hearing will focus on policies designed to modernize the
Unemployment Insurance system and reduce barriers to coverage for low-
wage and part-time workers.
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Chairman MCDERMOTT. The Committee will come to order.
We are here today to discuss the importance of a strong and
equitable insurance system. Now that economists are openly
expressing concerns about the impact of the declining housing
market on employment, this discussion may be sort of relevant.
More relevant, actually, but the truth is that unemployment
insurance is always important. It prevents temporary periods of
joblessness from forcing families into poverty. It helps
workers stay connected to the workforce, and it mitigates the
impact that unemployment has on the economy, both legally and
nationally.
The UI system was created over 7 years ago after the worst
economic crisis in U.S. history. It was established, really, to
ensure that Americans would have some help in weathering
economic setbacks. It was created because great Americans like
Franklin Delano Roosevelt vowed Americans would stand together
and protect one another and live in a nation that really
understood the power of ``we'' versus ``me.''
Today as we look at America and how it has changed over the
years and how we can adjust the UI program to continue its role
in protecting Americans against economic hardship, as we
examine the unemployment insurance system, it is disturbing to
see a long-term trend of fewer jobless workers receiving UI
benefits. Barely over one-third of all unemployed workers
receive unemployment compensation. The rate of receiving that
benefit is even lower, much lower for low-wage workers.
I put this chart up there for everyone so you can look at
what happens to the low-wage workers. They are almost 2\1/2\
times more likely to be unemployed, and they are about one-
third as likely to get the unemployment benefits.
So, we are really talking about what happens to low-wage
workers here. The very workers who are least able to cope
financially with a spell of joblessness are also the least
likely to get unemployment benefits.
As GAO will testify today, and as highlighted by the chart
in front of you, low-wage workers are almost 2\1/2\ times more
likely to be unemployed, and one-third are likely to receive
unemployment benefits.
Now, part-time workers also have greater difficulty in
accessing UI benefits, as do individuals who leave work for
compelling family reasons such as avoiding domestic violence,
taking care of a sick child, or following a spouse to a
different part of the country. These barriers to unemployment
insurance fall particularly hard on women who are more likely
to work in part-time and/or low-wage jobs.
Now the legislation we have introduced, the Unemployment
Insurance Modernization Act, is to encourage and reward States
for implementing a few basic reforms to help low-wage, part-
time and other workers gain access to the UI system.
For example, the bill calls on States to count a worker's
most recent earnings, and to count them when calculating
eligibility for unemployment benefits by implementing a so-
called ``alternative'' base period. Not counting a worker's
most recent wages makes it more difficult for some low-wage
workers to achieve the minimum earning levels for UI
eligibility.
Under this bill, up to $7 billion would be disbursed from
the Federal unemployment trusts to the States implementing
provisions related to the alternative base period as well as to
making UI more accessible to part-time workers, making the
system more family friendly and supporting long-term training.
Those States that have already put in place an alternative
base work period would be eligible for an immediate
distribution. For example, Illinois recently enacted an
alternative base period and would therefore automatically
receive $100 million under this bill. The State would
potentially receive another $200 million depending on the
implementation of additional reforms.
Now, in addition to the $7 billion conditional transfer to
the States, the legislation also set out an automatic $500
million to help States with the administrative cost of UI,
which the Federal Government has really failed to adequately
address in recent years. Admittedly, this legislation will not
single-handedly eliminate disparities in UI coverage for low-
wage and part-time workers, but it will take a meaningful step
in the right direction without a single Federal mandate and
without raising the Federal debt by one penny.
The bill accomplishes this task simply by extending the
current law unemployment tax that has been on the books for
over 30 years. It costs employers $14 per year, per employee.
The FUTA tax was last extended by the Republican Congress in
1997, and President Bush has proposed that it be extended this
year in his current budget.
My bill differs in only one way from the past extension and
President Bush's budget proposal. Under my legislation, States
were eligible to receive every dime of revenue raised from the
extension of the FUTA test.
Well, I have one more page here I would like to tell you
about.
There are certainly some policies that we can examine to
help dislocated workers, but we really have to start by having
a more effective unemployment insurance system. We have had
this for generations and it is time for some very common sense
reforms.
I remember making them when I was in the State legislature
when we were squeezing down on the system. It used to be you
could work in the summer, get some unemployment benefits, and
live all through the college year on your unemployment
benefits. Those kinds of things are no longer happening, but
there are some common sense things that ought to happen now.
Chairman MCDERMOTT. I yield to my Subcommittee Ranking
Member, Mr. Weller.
Mr. WELLER. Thank you, Mr. Chairman, and I thank you for
convening today's hearing. Before I make my opening statement,
I want to extend a congratulations to you. You and I have
spoken a little bit, but this is the first formal meeting of
our Subcommittee since you were given a great honor in Africa,
and I do want to congratulate you on your knighthood granted to
you by the King of Losoto. As one who has known a long time of
your personal interest in developing countries, particularly
Africa, it is nice to see it recognized.
You and I may disagree on policy. I enjoy working with you
as my Chairman and having the opportunity to work together. I
know your family is very proud of you, as are your friends.
Today is one area in which we do disagree.
I noted when the Subcommittee put out a press release
announcing this hearing, it suggested that it was about, quote,
``modernizing unemployment benefits,'' and apparently it
appears my Democratic colleagues think modernizing means
increasing taxes, in this case by $7 billion over the next 5
years.
I would note almost every other major Democratic initiative
this year, from energy to food to children's health policy,
includes tax increases. So, the majority party's position has
been a consistent one so far this year.
Another apparent feature of modernization means more of the
same of our Washington-knows-best attitude. On the legislation
we will discuss today, only States that choose to provide
benefits to certain, quote, ``federally approved categories of
unemployed workers'' would get a share of the $7 billion in tax
increases back. That is despite the fact that those taxes are
collected in each and every State and amount to lost wages for
American workers. This naturally creates State winners and
losers, with the Federal Government deciding who wins and who
loses.
As several of our witnesses today will note, many States
have already decided to broaden eligibility for unemployment
benefits in the ways promoted by the Chairman's bill. This
suggests that as the economy has changed, States have adapted.
Many, like my home State of Illinois, adopted newer technology
that allows them to count more recent wages in determining
worker eligibility for benefits. Others provide benefits to
part-time workers or certain individuals who have quit their
jobs, but when States have done so, they knew they needed to
increase payroll taxes in the long run to cover increased
benefits costs.
The Chairman's bill masks those true costs behind the
shield of incentive payments today, quote, ``incentive
payments,'' which is really a promise to raise State payroll
taxes tomorrow to cover higher long-run costs.
It is not too late for us to take a different and decidedly
more pro-worker and more pro-work direction. As we will hear
today, we can and should do a much better job helping laid-off
workers get back on the job.
Mr. Chairman, you were on to something when you proposed
the creation of a new wage insurance program to assist laid-off
workers who return to work at lower wages. It is my
understanding that this idea is not unanimously endorsed on
your side of the aisle, but it seems to me at the very least we
should encourage States to test whether this enhanced safety
net can help workers.
That is the principal legislation I have introduced in H.R.
1513, the Unemployment Compensation Improvement Act. Recent
research confirms that, especially for older workers, helping
them get back to work quickly can be key to recovering their
former level of earnings.
In contrast of tax increases that are proposed today, my
legislation is cost-neutral and does not raise taxes, and I
believe it is worth testing out.
In my view, the real test of a modern unemployment benefit
system is not how many people we can sign up for unemployment
benefits. Instead, the real test is how many people we help get
back on the job quickly and at good wages, especially since
unemployment benefits average only about half of what workers
earn in wages. That should leave workers, firms, and the
economy all far better off by getting them back to work at good
wages.
I look forward to the hearing today, and I look forward to
hearing the witnesses' testimony.
Chairman MCDERMOTT. Thank you.
[The information follows:]
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Chairman MCDERMOTT. I want the other Members to know if
they have statements they want introduced in the record, they
simply need to submit them.
We are going to have votes in about, we think, 35 or 40
minutes. I am going to stay pretty tight to the 5-minute rule
here. In the past, I had been somewhat loose and let people go
on at some length, but we are not going to do that today. It is
because we want to get you all in before the time runs out, and
then we can maybe expand on what you have to say.
Your full testimony will be put into the record. Ms.
Fagnoni.
STATEMENT OF CYNTHIA FAGNONI, MANAGING DIRECTOR, EDUCATION,
WORKFORCE AND INCOME SECURITY, GOVERNMENT ACCOUNTABILITY OFFICE
Ms. FAGNONI. Thank you, Mr. Chairman. I am happy to be here
this afternoon, Mr. Chairman and Members of the Subcommittee,
to talk about the extent to which low-wage and part-time
workers receive unemployment insurance benefits.
The UI program is a Federal-State partnership designed to
partially replace lost earnings of individuals who become
unemployed through no fault of their own and to stabilize the
economy during economic downturns. Unemployment insurance has
been a key component in ensuring the financial security of
America's workforce for over 70 years.
Since the UI program was established in 1935, the nature of
both work and unemployment has changed in fundamental ways.
There have been increases in the share of low-wage jobs, the
incidents of temporary and contingent work, the number of women
in the workforce and two-earner families and the average
duration of unemployment.
Given these changes, questions arise about the types of
workers who are most likely to receive benefits. My remarks
today will focus on, first, the overall trend in UI receipt;
second, the likelihood that low-wage workers will be unemployed
and receive UI benefits, especially when compared to higher
wage workers; and third, the likelihood that unemployed part-
time workers will receive UI benefits. My testimony today is
based primarily on our September 2007 report as well as work we
did in 2000.
Regarding the first issue, the UI recipiency rate declined
gradually from 1950 through the mid-1980s. While about 50
percent of the unemployed filed for UI in the fifties, about 29
percent did so in 1984. Since the mid-1980s, the UI recipiency
rate has shown a modest increase and was about 35 percent in
about 2005.
Several factors are considered significant in the decline
of UI receipt, including the decrease in the number of workers
employed in manufacturing jobs, the decline of union membership
in the workforce, and population shifts of workers from
northeastern to southern States where unemployed workers are
less likely to apply for UI benefits.
Turning now to our second area, low-wage workers, we found
that they were less likely to receive UI benefits than higher
wage workers. Between 1992 and 1995, low-wage workers were
about half as likely to receive UI benefits than higher wage
workers. For the years 1998 to 2003, they were about one-third
more likely. Moreover, the gap between the two groups has not
narrowed over time. That is, UI receipt has gone down by about
the same for both groups of workers over the years.
Low levels of UI receipt among low-wage workers can be
explained by a variety of factors, including States'
eligibility criteria and how they vary. In determining
eligibility, many States only consider wages earned in four of
the last five completed quarters. As a result, the worker's
most recent work history is not used in making eligibility
determinations. For low-wage workers with sporadic work
histories, excluding recent earnings may make it more difficult
for them to reach the minimum earning level necessary for
eligibility. Also, to be eligible for UI, workers must have had
good cause for leaving work. Certain temporary family crises,
such as having a sick child, may cost some low-wage workers to
quit their jobs. However, many States do not recognize serious
illness or disability of a family member as a good cause for
leaving employment.
In those cases where low-wage workers do have an earnings
history that allows them to qualify for UI benefits, other
factors could still result in a lower likelihood of their
receiving UI benefits.
In general, UI receipt is associated with higher earnings
before unemployment, longer job tenure and more education.
Earnings and job tenure are associated with longer job searches
and possibly the decision to rely on UI benefits during that
search.
Greater levels of education may be associated with greater
awareness of the UI program and success in navigating the
system.
Prior UI receipt also may play a role. Receiving UI
benefits in one period of unemployment increases the likelihood
of using UI again, we found in prior studies.
With respect to the third issue, part-time workers, we
found they were significantly less likely to collect UI than
those who were full-time regardless of whether they were low-
wage or higher-wage.
State eligibility criteria are a factor here as well. About
two-thirds of States do not consider workers to be eligible for
UI if they are only available for part-time work and, like low-
wage workers, some part-time workers may have difficulty
meeting the requirement that they have a certain level of
earnings within a given time period in order to be eligible.
Mr. Chairman, this concludes my remarks, looks like right
on time. I would be happy to answer any questions you or
Members of the Subcommittee may have.
Thank you.
[The prepared statement of Ms. Fagnoni follows:]
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Chairman MCDERMOTT. Ms. Chasanov.
STATEMENT OF AMY CHASANOV, FORMER STAFF MEMBER, ADVISORY
COUNCIL ON UNEMPLOYMENT COMPENSATION
Ms. CHASANOV. Chairman McDermott and distinguished members
of the Subcommittee, I appreciate being invited here today, and
I welcome the chance to testify about this bill. It is a
legislative proposal that encourages States to strengthen their
unemployment insurance programs and rewards those States that
have already chosen to do so.
My name is Amy Chasanov, and from 1993 to 1995 I served as
a staff member to the Advisory Council on Unemployment
Compensation. I want to emphasize at the start that the Council
was bipartisan, with members appointed by the President, the
House, and the Senate. The Council's 11 members represented
various groups of stakeholders that included business, labor,
State government, and the public.
The Council had a broad mandate, looking at all aspects of
the unemployment insurance system. During its relatively short
lifespan, it held nine nationwide public hearings, visited
numerous State offices and also sponsored significant legal and
economic research in the area.
The Council met on 13 separate occasions, held intense
deliberations, and published three annual reports which
discussed its findings, and presented 50 recommendations to
improve the UI program.
My testimony today focuses on the Council's findings and
recommendations that relate to the proposed legislation.
At the outset, I should highlight that the Council either
directly or indirectly endorsed all of the features of the
House's UI Modernization Act that is being discussed today.
Before getting to those recommendations, let me mention two
overarching issues, one of which Chairman McDermott already
raised.
The first is that there have been dramatic changes in the
workforce since 1935. We have moved from a workforce that was
made up primarily of married, full-time male workers to one
where part-time and contingent and women workers now make up
the majority. The Council noted repeatedly that the States' UI
programs have not always kept up with these important changes
in the workforce.
I would also like to mention that the Council focused much
of its time on the Federal-State relationship in the UI
program, which is unique, and about the appropriate division of
responsibility between the States and the Federal Government.
The Council believed that some national interests
transcended State interests, and in those cases it was
appropriate to establish Federal minimum standards. In
particular, two of those national standards were minimum
eligibility and benefit levels and also ensuring macro-economic
stabilization.
The bill today represents a carrot and, honestly, the
Council had more of a stick approach mandating Federal minimum
standards. Whatever approach is considered, however, the
outcome is undoubtedly similar.
Let me now turn to the Council's specific recommendations.
First, the Council was deeply disturbed that 3 to 6 months
of a worker's most recent earnings were disregarded when
determining monetary eligibility in most States, and that low-
wage, part-time and temporary workers were particularly harmed.
The Council recommended that all States adopt an alternative
base period that considers the four most recently completed
calendar quarters of work.
Second, the Council believed that workers who met States'
monetary eligibility requirements should not be disqualified
simply because they were looking for part-time as opposed to
full-time work.
Third, the Council recommended that the FUTA tax revenues
per worker increase, not decrease, over time. They proposed a
revenue-neutral adjustment that will increase the Federal
taxable wage base from $7,000 to $9,000 and eliminate the 0.2
percent surtax at that time. They also recommended annual
increases in the Federal wage base. I do not believe based on
the Council's discussions that they would ever allow the FUTA
surtax to expire without a simultaneous increase in the Federal
taxable wage base.
Fourth, the Council recommended extending UI benefits for
individuals who are long-term unemployed when they are
participating in education and training services and activities
that enhance their reemployment prospects.
Finally, although it was not a formal recommendation, the
Council expressed concern over many States disqualifying
workers from benefits if they quit their jobs due to domestic
violence or to personal or compelling family reasons.
I encourage you to look at my written testimony which
discusses the Council's reports in much more detail and also
discusses two additional recommendations which are not part of
the bill but should be considered.
It was a pleasure to talk to you today about the Council's
work.
[The prepared statement of Ms. Chasanov follows:]
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Chairman MCDERMOTT. Ms. Hammond, who is the deputy
secretary of commerce and trade in the Commonwealth of
Virginia.
STATEMENT OF LYNETTE HAMMOND, DEPUTY SECRETARY OF COMMERCE AND
TRADE, COMMONWEALTH OF VIRGINIA
Ms. HAMMOND. Mr. Chairman, Ranking Member, and Members of
the Ways and Means Subcommittee on Income Security and Family
Support.
I am pleased to be here today to testify in support of H.R.
2233, the Unemployment Insurance Modernization Act. Governor
Kaine supports this measure and the incentives it provides for
States to address the compelling needs of our citizens who
become unemployed through no fault of their own.
The Governor also requests that the Subcommittee consider
restoring adequate funding to administer the unemployment
compensation and job services program.
Much has changed since 1935 when the unemployment insurance
safety net was first established. Information technology means
that States no longer have to wait months to make sure they
have an employee's wage records. Families are more likely to
depend on the wages of more than one worker. Workers are more
likely to not only change jobs but change locations during
their careers.
In Virginia we have seen that changes in the global economy
have eliminated whole classes of jobs, leaving workers stranded
with outdated skills and crippled one-industry towns.
Virginia has been comparatively fortunate in recent years.
Our economy is robust, our unemployment rate is one of the
lowest in the Nation, and our State has been recognized for 2
years in a row as the most business-friendly in the Nation by
Forbes.com.
Still, our statewide statistics mask large pockets of high
unemployment. Local unemployment rates in Virginia range from
1.8 percent in Arlington to 8.7 percent in Martinsville.
Southside and southwest Virginia are still reeling from the
loss of furniture and textile industry jobs that were the
mainstays of their economy.
In other areas of the State, growth and change present
their own challenges. In Northern Virginia, for example, a
tight labor market makes it more difficult for employers to
find workers. In these areas, as demand on the unemployment
insurance system decreases, the demands on the job service
system increase to help place workers in jobs.
Also in Virginia, at Fort Belvoir and Fort Lee, we are
preparing for a large influx of military personnel, including
military spouses who need jobs, have increased family
responsibilities, and who must move frequently as their spouse
is assigned to different duty stations.
Despite these challenges, during this decade we have seen
the Federal commitment to the Federal-State partnership erode
between the year 2000 when the unemployment was 2.3 percent in
Virginia, and 2006 with 3 percent unemployment. Federal funding
for Virginia's unemployment insurance system fell from 35.5
million to 34.4 million in unadjusted dollars.
Congressman McDermott's bill would temporarily help to
remedy Virginia's difficult financial situation caused by
persistent Federal underfunding of the State system. Moreover,
the legislation would provide significant incentives for States
to change their benefit eligibility requirement to recognize
the changes in our economy.
example, Virginia has implemented the alternative base
period, and did so in 2003, recognizing that information
technology allows claimants to use their most recent wages when
determining eligibility. Since the enactment of the alternative
base period, Virginia has paid $13.3 million in unemployment
benefits to low-wage claimants who would not have qualified
otherwise. This $3.3 million average yearly cost also
undergirds what the State's basic principle is, that
unemployment compensation should strengthen attachment to the
workforce.
In order for claimants to qualify, they have to already
demonstrate attachment to the workforce. For weekly benefits,
they have to show they have been searching for work and are
following through on any job leads provided by the job service.
We feel these requirements help services and services help
claimants find new jobs sooner and help keep them in the
workforce. This is especially important for new entrants and
lower-wage workers, and those are the ones that are most likely
to be disqualified by the standard base period.
We found during consideration of the Virginia legislation
that those disqualified by the standard base period also tend
to be young, low-income females with dependents, and these are
the very people the State is working to help move toward
independence in our TANF and food stamp programs.
In conclusion, Governor Kaine supports H.R. 2233 to
encourage States to modernize their UI programs. While it is
premature to speculate what the general assembly might do, we
have found that (or projected that) providing unemployment
compensation to all trailing spouses, for example, would cost
about $3 million per year and providing benefits to part-time
workers seeking part-time jobs would cost about $8.1 million a
year. This totals $11.1 million a year, and with those changes,
Virginia would qualify for $128.2 million Reed Act distribution
and $64.1 million that the State would qualify for having
enacted the base period.
However, we also recognize the State is in the process now,
because of persistent underfunding, of contracting the services
that we can provide to the unemployed, not expanding them. So,
providing adequate administrative funding would also be an
incentive to States to upgrade the systems.
Thank you.
[The prepared statement of Ms. Hammond follows:]
Statement of Lynette Hammond, Deputy Secretary of Commerce and Trade,
Commonwealth of Virginia
Mr. Chairman, Ranking Member, Members of the Ways and Means
Subcommittee on Income Security and Family Support:
My name is Lynette Hammond and I am Deputy Secretary of Commerce
and Trade for the Commonwealth of Virginia. I am pleased to be here
today to testify in support of HR 2233, the Unemployment Insurance
Modernization Act. Governor Kaine supports this measure and the
incentives it provides for states to address the compelling needs of
our citizens who become unemployed through no fault of their own. The
Governor also requests that the Subcommittee consider restoring
adequate funding to administer the unemployment compensation and job
services programs.
As you know, the unemployment insurance program was created as part
of the Social Security Act of 1935. At that time, Congress had the
foresight to fashion a unique federal-state partnership that has been a
major strength of the program for more than 70 years. The unemployment
compensation system has also endured because the Congress established
the program as a social insurance program rather than a means-tested
program, recognizing that everyone who is attached to the workforce may
need a safety net should they find themselves unemployed through no
fault of their own.
Under this federal-state partnership, the federal government
establishes broad standards that all states must meet, provides program
oversight, collects an excise tax from employers to fund state program
administration and various U.S. Department of Labor activities, and
provides grants to the states to administer the program. States
establish their own eligibility and qualification requirements in
conformity with applicable federal standards, assess a payroll tax on
employers to fund benefits to workers who become unemployed through no
fault of their own.
The unemployment insurance program has served our country well for
more than seven decades. Its success is due in no small measure to the
federal-state partnership that was established by the Social Security
Act--a partnership that avoided both the inflexibility of a ``one size
fits all'' national federal program and the economic chaos that could
have ensued if the states had enacted a multitude of laws without any
common policy underpinnings or legislative framework.
However, as the years have gone by our economy and workforce have
changed significantly. While these changes do not warrant discarding a
program that has worked so well for many years, they do necessitate a
re-examination of the goals, objectives, and program funding to ensure
that the evolving needs of our dynamic economy and workforce will be
met in the 21st century.
Much has changed since 1935 when the Unemployment Insurance safety
net was first established. The vast capabilities of information
technology mean that states no longer have to wait months to be sure
they have an employee's wage records. Families are more likely to
depend on the wages of more than one worker, placing more stress on
workers as they try to balance work and family needs. Workers are more
likely not only to change jobs, but to change locations during their
careers. Changes in the global economy have eliminated whole classes of
jobs, leaving workers stranded with outdated skills in crippled one-
industry towns.
But the basic principles underlying the unemployment insurance
safety net haven't changed--that workers deserve a buffer against
economic dislocation. The need for a counter-cyclical stimulus when a
community loses a major employer is still valid, and Virginia continues
to see that need in rural areas as manufacturing jobs leave the
country. I sincerely hope the notion is not outdated that if you work
hard, pay taxes, and support your family, you won't be cast adrift if
you lose your job through no fault of your own.
Virginia has been comparatively fortunate in recent years. Our
economy is robust, our unemployment rate is one of the nation's lowest,
and our state has been recognized for two years in a row as the most
business friendly in the nation by Forbes.com. Still, the statewide
statistics mask large pockets of high unemployment. Local unemployment
rates in Virginia ranged from 1.8 percent in Arlington to 8.7 percent
Martinsville. In Southwest and Southside Virginia, the unemployment
rate is often double the statewide rate. These regions are still
reeling from the loss of furniture and textile industry jobs that were
mainstays of the economy.
In other areas of the state, growth and change present their own
challenges. In Northern Virginia, the tight labor market makes it
difficult for employers to find workers. In these areas, as the demand
on the unemployment insurance system decreases, the demand for job
matching and employer assistance increases. At Fort Belvoir and Fort
Lee, we are preparing for a large influx of military personnel,
including military spouses who need jobs, have increased family
responsibilities, and who also must move frequently as their spouse is
assigned to different duty stations. As service members muster out of
the military at Virginia bases, we must provide services and benefits
to help them transition back to civilian life.
Despite these challenges, during this decade we've seen the federal
commitment to its federal-state partnership continuously erode. Between
2000, when the unemployment rate was 2.3 percent and 2006 with 3
percent unemployment, federal funding for Virginia's unemployment
insurance system fell from $35.5 million to $34.4 million in unadjusted
dollars.
Congressman McDermott's bill would temporarily help to remedy
Virginia's difficult financial situation caused by persistent federal
under-funding of state unemployment compensation administration.
Moreover, the legislation would provide significant incentives for
states to change their benefit eligibility requirements to recognize
the changes in our economy that have occurred over the past seven
decades.
For example, Virginia implemented the alternative base period in
2003, recognizing that information technology allows the agency to use
a claimant's most recent wages when determining eligibility. In 1935,
wage reporting involved manual record-keeping and mailing time. At that
time, it was practical to use the first four of the last five completed
calendar quarters because more recent wage data was not available. Now
with automated systems, using the most recent wages is not difficult.
Nearly all employers report wages electronically and they are entered
onto the state's wage records electronically.
Since the enactment of the alternative base period, Virginia has
paid $13.3 million in unemployment insurance benefits to low-wage
claimants who would not have qualified otherwise. The $3.3 million, or
45 cents per employee average yearly cost of the alternative base
period also under girds the state's basic principle that unemployment
compensation should strengthen attachment to the workforce.
In order to qualify for compensation, claimants must demonstrate
sufficient wages to show attachment to the workforce. To be eligible
for weekly benefits in Virginia, a claimant must show that they have
been searching for work. They must also register with the Job Service
and follow up on any job leads. These requirements and services help
claimants find new jobs sooner and keep them in the workforce. It sends
the message that their work matters.
This is especially important for new entrants in the workforce and
lower wage workers--those most likely to be disqualified by the
standard base period. We found during consideration of the bill, that
those disqualified by the standard base period also tended to be young
females with dependents. These were the very people that the state was
working to help move towards independence in our TANF and food stamp
programs. Clearly, we did not want to send the message to these
claimants that low pay means their work doesn't count.
The measure passed 35 to 5 in the Senate and unanimously in the
House. The average annual cost has been slightly less than projected.
Based on our experience, if Congressman McDermott's bill gives
incentives to other states to adopt the alternative base period, they
are likely to find the money well spent.
HR 2233 will also provide incentives to states to allow
unemployment compensation for good cause shown. Virginia already
provides eligibility for many of these cases through its administrative
adjudication process. Examples of ``good cause shown'' in case
decisions include leaving a job to escape family violence, and leaving
a job to care for dependents. However, Virginia's statute specifically
excludes from good cause leaving a job to accompany a spouse who finds
work in a new location--trailing spouses.
In 2004, the Virginia General Assembly considered legislation to
allow benefits for military spouses in cases where the service man or
woman is transferred to a new duty station. Arguments against the bill
at the time were that unemployment compensation eligibility would be a
disincentive to hiring military spouses, and that it would subject
employers to separations that are beyond their control. In response,
the bill was amended to provide that benefit costs be assigned to the
state's pool instead of the most recent employer. Members also
expressed concern that Virginia would be paying benefits to military
spouses from states that did not similarly treat their own military
spouses moving to new duty stations. In response, the authorizing
committee amended to bill to provide benefits only when the spouse
moved to a state that provided similar benefits.
The Warner administration recognized that Virginia's military
spouses have been making tremendous sacrifices. Their wages are
essential to keeping the family afloat, especially when the
servicemember is assigned to duty overseas. Moreover, members of the
military have the only job in the state where a worker can be
prosecuted if he or she refuses to transfer. Clearly, the spouses of
Virginia's military men and women do not consider it optional to move
to a new duty station when the orders come.
The legislation to provide benefits to military trailing spouses
did not pass the General Assembly. After a hard-fought and narrow
approval by the House of Delegates, the sponsor pulled the bill in
response to questions about the cost projections. Had the McDermott
bills incentives been available, the outcome might well have been
different. As it is, we risk telling military spouses--mostly low-
income women--that accompanying your spouse to a new duty station is
not good cause for leaving a job.
In conclusion, Governor Kaine supports HR 2233 to encourage states
to modernize their Unemployment Insurance programs. While it is
premature to speculate what the Virginia General Assembly might enact
if the bill were to become law, preliminary projections indicate the
following:
Extending unemployment compensation to all trailing spouses is
projected to cost approximately $3 million per year. The National
Employment Law Project estimates that paying benefits to separated
part-time workers seeking part time employment would cost $8.1 million
per year. By making these changes, totaling $11.1 million, Virginia
would qualify for a $128.2 million Reed Act distribution in addition to
the $64.1 million the Commonwealth would receive for having enacted the
alternative base period. These enhanced benefits would go primarily to
low income workers--workers who've lost their job through no fault of
their own.
However, the General Assembly also knows that under the current
federal funding, the unemployment compensation and job service systems
are being forced to contract, not expand the assistance we can provide
to the unemployed. Remedying the persistent under funding of the
state's Unemployment Insurance and Job Services program will also go
far as incentives for states to modernize their systems and benefits.
Thank you for your time.
Chairman MCDERMOTT. We will now turn to Vickie Lovell, who
is the director of employment and Work/Life programs, Institute
for Women's Policy Research. I want to enter into the record a
letter from 60 organizations that--organizations that are in
support of this piece of legislation because of what it does
for women.
[The information follows:]
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STATEMENT OF VICKY LOVELL, Ph.D., DIRECTOR OF EMPLOYMENT AND
WORK/LIFE PROGRAMS, INSTITUTE FOR WOMEN'S POLICY RESEARCH
Dr. LOVELL. Thank you, Chairman McDermott, Ranking Member
Weller, and Members of the Subcommittee. Thank you for
providing me with the opportunity to present research from IWPR
and others on the need to modernize the UI system to better
meet its original objective for working women.
H.R. 2233 addresses two key facts about women. First, women
are disproportionately represented in our low-wage workforce;
and second, women continue to be our primary family care
givers. These two facts put women in a different position than
men on average in terms of both employment and unemployment.
Most of our low-wage workers are women, and nearly one-
third of working women earn a poverty-level wage or less. Women
are more likely than men to be low earners because pay in some
jobs that are considered to be women's work is depressed by the
fact that women are doing the work. Take child care, for
instance.
In other instances where men and women do the same job,
women continue to be paid less than men. For example, in
dishwashing, women receive 87 cents for every dollar earned by
men.
We have just heard that although low-wage workers are more
likely than higher wage workers to suffer unemployment, they
are significantly less likely to receive unemployment insurance
benefits. Thus, unemployed women are at greater risk of not
receiving support from UI when they are unemployed than is the
case for men. Women's UI recipiency rate is more than 10
percent lower than men's, and in some States, the gender gap in
UI recipiency rates is much higher, up to 44 percent.
Adoption of an alternative base period would help address
this, because ABP helps low-wage workers qualify for benefits
in a timely fashion. We have heard about adoption of the ABP in
Virginia, and my written testimony discusses this issue in some
detail so I would like to make one point about the ABP now.
Arguments against the alternative base rate often assume
that workers are in complete control of their job tenure. That
is, that the worker who meets an employer's job performance
expectations can hold a job indefinitely. From this
perspective, workers with relatively short job tenure are seen
as having weak job attachment. The realities of today's labor
market, however, include higher job instability even when the
economy is strong. In some industries, high turnover is a
fairly commonplace occurrence, in part because of the way jobs
are structured and scheduled.
In this context, frequent movement into and out of jobs
does not necessarily reflect workers' desires but may instead
be an artifact of the types of jobs made available by
employers. With fewer opportunities for long-term employment, a
gap in a worker's earnings record should not be interpreted as
a lack of labor force attachment, and UI benefits should not be
denied or postponed on that account.
Two other reforms address women's work caring for families.
The first is coverage of part-time workers. In many States
UI claimants looking for part-time work are not eligible for UI
even if they have historically worked part-time and would
qualify for UI based on that work history, or if they have
family obligations that preclude full-time work.
Here again, our 21st century economy is creating jobs that
are often excluded from UI coverage regardless of workers'
intent. More than one in every six workers is on a part-time
schedule, and contrary to common misperception, these are not
only young workers who are still in school; 12 percent of part-
time workers are on part-time schedules involuntarily. They
would rather work full-time but can't find a full-time job.
Thirty-five percent of part-time workers are women in their
prime working ages of 25 to 54 years, and a quarter of them
cite child care problems and other family or other personal
responsibilities as the reason for working a reduced schedule.
When workers looking for a part-time job are denied UI
benefits, women are the primary losers because 67 percent, or
two-thirds, of all part-timers are women.
H.R. 2233 would also encourage States to provide UI
benefits to workers whose jobs end because of compelling family
situations or domestic violence.
These changes would provide benefits to workers caring for
a seriously ill or disabled family member or moving with a
relocating spouse. Again, these are modest UI reforms that
would disproportionately benefit women, and this is why the
Committee has received a letter of support from women's
organizations for this bill.
While job loss in these situations is described as a
voluntary quit, in a very real sense it is not voluntary. It is
a worker's only option, given the obligations at home or in the
face of sexual violence. I encourage the Subcommittee to
incorporate sexual assaults and stalking into this language to
ensure that all victims of domestic violence, as defined by the
Violence Against Women Act, are supported by UI.
In addition, the requirement for reasonable and
confidential documentation of domestic violence should be
carefully defined to avoid imposing onerous burdens on women
whose safety is in jeopardy due to domestic violence.
I would also like to see job termination that is caused by
a lack of child care included in the list of compelling family
reasons. This would address situations in which child care
arrangements suddenly fall apart or workers cannot accept a
shift change because child care is not available.
Our UI system has been amended many times at both the
Federal and State levels in order to expand coverage, reflect
changing norms, respond to fiscal realities and stay aligned
with the changing economy.
One of my favorite examples of this was in the forties when
many States made women ineligible for unemployment insurance if
they were fired from their jobs because they became pregnant or
got married.
The UI system is one that should be updated periodically to
continue to be effective as the workforce and economy evolve.
H.R. 2233 will help return the UI system to its former coverage
levels, improve income stability for many families, and move
this important program in the direction of greater equity and
improved adequacy.
Even if the Subcommittee chooses to explore wage insurance
policies, there will continue to be a role for our existing UI
approach to provide a known, effective safety net for all
workers.
Chairman MCDERMOTT. Thank you very much for your testimony.
[The prepared statement of Dr.Lovell follows:]
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Chairman MCDERMOTT. We will now go to Jeffrey Kling who is
a senior fellow and deputy director of economic studies at the
Brookings Institution. Dr. Kling.
STATEMENT OF JEFFREY KLING, Ph.D., SENIOR FELLOW AND DEPUTY
DIRECTOR, ECONOMIC STUDIES, THE BROOKINGS INSTITUTION
Dr. KLING. Chairman McDermott, Representative Weller,
Members of the Subcommittee, thank you for the opportunity to
testify.
I fully support the efforts of this Committee to modernize
UI. Improving coverage for low-wage and part-time workers,
making UI more family friendly and improving skills are all
worthwhile, but I also believe that there are higher priorities
for modernization than those addressed in the Unemployment
Insurance Modernization Act. So, the main themes of my remarks
are these:
The modern UI system should focus more on the larger longer
term consequences of job loss. This reorientation will
ultimately require a much more ambitious set of UI reforms. The
current agenda should include measures that lay the ground work
for these fundamental reforms.
In looking toward the future of a modern system, we have to
have clear goals, and in 1936 the Federal Government powerfully
articulated what I believe to be the key goal of unemployment
insurance. That is, ``to lighten the burden which now so often
falls with crushing force upon the unemployed worker and his
family.''
Seventy years later the nature of this crushing force has
changed. Maintaining living standards immediately after job
loss, the original focus of UI, is no longer the major
difficulty associated with unemployment. In the 21st century
economy, the situation has changed in at least three key ways.
First, job loss is now more likely to be permanent and
associated with large drops of wages for the long term and not
just short-term income loss. Second, the unemployment duration
has increased. Third, people have greater ability to borrow to
tide over periods of short unemployment.
These three facts, more permanent job loss with large wage
losses, longer unemployment durations, and greater ability to
borrow, suggest a shift in resources toward larger, longer-term
consequences of unemployment should be the priority of efforts
to modernize the UI system.
The most effective way to target long-term loss is to
implement a wage loss insurance system similar to that recently
proposed in the Worker Empowerment Act introduced by Chairman
McDermott, where a fraction of the difference in wages between
an old and new job is paid for a period of years.
A wage loss insurance system can better target the largest
losses while simultaneously providing more benefits to workers
in the lower half of the income distribution.
It would also be valuable to improve the mechanisms that
trigger extended benefits for those with longer unemployment
spells. These benefits could be triggered more frequently and
the durations could be modulated to last for shorter and longer
amounts of time.
Smaller, shorter term consequences of unemployment can be
managed in ways other than through UI benefits. Increasing the
number of waiting weeks before UI benefits begin or
establishing personal accounts from which one could borrow and
repay from future earnings are two possible mechanisms for
redirecting UI resources toward larger, longer term losses.
These approaches would also promote reemployment by removing
the incentive to stay unemployed that is created by UI benefit
receipt.
My analysis of studies of the responsiveness of
unemployment spells to UI benefits suggests that unemployment
durations would decline by 10 to 15 percent if UI benefits were
fully replaced at some point by personal accounts. These
accounts, if implemented along with loans, could ensure the
maintenance of living standards during the first 6 months after
a job loss that would be at a level equal to that under the
current UI system.
Once mechanisms for supporting living standards are in
place, the key issue is then how to target assistance to those
with the largest long-term losses.
I have found that only one-third of unemployment insurance
benefit payments currently go to those who have lower wages
over the 10 years after job loss, and I think we can do better
than that.
I have submitted written testimony which makes three
additional points about modernizing UI. The payroll tax base
for UI should be broader, with lower tax rates. Compensation
insured by UI should include the value of major employer
benefits. A system of temporary earnings replacement accounts
and wage loss insurance is feasible for the future, and its
components merit demonstration and evaluation.
Even if the focus of the UI Modernization Act remains on
broadening eligibility and other issues currently envisioned,
additional provisions could be added to begin to explore the
fundamental modernization I have described today.
It would be extremely beneficial to facilitate
experimentation by States interested in focusing on larger
longer term losses, payroll tax-base broadening, incorporation
of employer-provided benefits, or other priority areas for
modernization.
Just 2 percent of funds in the UI Modernization Act would
provide $140 million of investment in testing new ideas that
could provide valuable guidance for the major decisions that we
will encounter when thinking about fundamental modernization in
the future.
I would be happy to talk more about any of these issues.
Thank you.
Chairman MCDERMOTT. Almost perfect.
[The statement of Dr. Kling follows:]
Statement of Jeffrey Kling, Ph. D., Senior Fellow and Deputy Director,
Economic Studies, The Brookings Institution
Chairman McDermott, Representative Weller, and Members of the
Subcommittee, thank you for the opportunity to testify at this hearing
on Unemployment Insurance (UI) modernization. I fully support the
efforts of this committee to modernize UI. Improving coverage for low-
wage and part-time workers, making UI more family friendly, and
improving skills are all worthy endeavors. But I also believe that
there are higher priorities for modernization than those addressed in
the Unemployment Insurance Modernization Act. The main themes of my
remarks are these:
The modern UI system should focus more on the larger,
longer-term consequences of job loss.
This reorientation will ultimately require a much more
ambitious set of UI reforms.
The current agenda should include measures that lay the
groundwork for these more fundamental reforms.
Focusing on larger, longer-term consequences of unemployment
In looking toward the future of a modern system, we must have clear
goals. In 1936, the federal government powerfully articulated what I
believe to be the key goal of unemployment insurance: ``to lighten the
burden which now so often falls with crushing force upon the unemployed
worker and his family.'' \[1]\
---------------------------------------------------------------------------
\[1]\ Advisory Commission on Unemployment Compensation.
Unemployment Insurance in the United States: Benefits, Financing,
Coverage. Washington, DC, 1995. (Quoting a statement by the U.S. Social
Security Board in 1936.)
---------------------------------------------------------------------------
Seventy years later, the nature of this crushing force has changed.
Maintaining living standards immediately after job loss, the original
focus of UI, is no longer the major difficulty associated with
unemployment. In the twenty-first century economy, the situation has
changed in at least three key ways. First, job loss is now more likely
to be permanent, and associated with drops in long-term wages, not just
short-term income loss. Second, unemployment duration has increased.
Third, people have greater ability to borrow to tide over short periods
of unemployment. These three facts--more permanent job loss with large
wage losses, longer unemployment durations, and greater ability to
borrow--suggest a shift in resources toward larger, longer term
consequences of unemployment should be the top priority of efforts to
modernize the UI system.
The most effective way to target long-term losses is to implement a
wage-loss insurance system similar to that recently proposed by H.R.
2202, the Worker Empowerment Act, introduced by Chairman McDermott,
where a fraction of the difference in wages between an old and new job
is paid for a period of years. A wage-loss insurance system can better
target the largest losses while simultaneously providing more benefits
to the lower half of the income distribution. It would also be valuable
to improve the mechanisms that trigger extended benefit payments for
those with longer term unemployment spells. These benefits could be
triggered more frequently, and the durations could be modulated to last
for shorter or longer amounts of time.
Smaller, shorter term consequences of unemployment could be managed
in ways other than with UI benefits. Increasing the number of waiting
weeks before UI benefits begin or establishing personal accounts from
which one could borrow and repay from future earnings are two possible
mechanisms for directing UI resources toward larger, longer term
losses. These approaches would also promote re-employment by removing
the incentive to stay unemployed that is created by UI benefit receipt.
My analysis of studies of the responsiveness of unemployment spells to
UI benefits suggest that unemployment durations would decline by 10 to
15 percent if UI benefits were fully replaced at some point by personal
accounts. These accounts, along with forgivable loans, could ensure the
maintenance of living standards during the first 6 months after job
loss at a level equal to that under the current UI system. \[2]\ Once
mechanisms for supporting living standards are in place, the key issue
is how to target insurance to those with the largest long-term losses.
I have found that only one-third of unemployment insurance benefit
payments currently go to those who subsequently have lower wages over
the 10 years after job loss. We can do better than that.
---------------------------------------------------------------------------
\[2]\ Kling, Jeffrey R. ``Fundamentally Restructuring Unemployment
Insurance: Wage-loss Insurance and Temporary Earnings Replacement
Accounts.'' Hamilton Project Discussion Paper 2006-05, September 2006.
---------------------------------------------------------------------------
I have submitted written testimony which makes three additional
points about modernizing UI:
The payroll tax base for UI should be broader.
Compensation insured by UI should include the value of
major employer benefits.
A system of temporary earnings replacement accounts and
wage-loss insurance is feasible for the future, and its components
merit demonstration and evaluation.
Even if the focus of the UI Modernization Act remains on broadening
eligibility and other issues currently envisioned, additional
provisions could be added to begin to explore the fundamental
modernization I have described today. It would be extremely beneficial
to facilitate experimentation by states interested in focusing on
larger, longer term losses, payroll tax base broadening, incorporation
of employer-provided benefits, or other priority areas for
modernization. Just 2 percent of funds in the UI Modernization Act
would provide $140 million of investment in testing new ideas now that
could provide valuable guidance for major decisions about fundamental
modernization in the future.
I would welcome further discussion on any of these issues. Thank
you.
Additional testimony submitted for the record
UI is the primary form of insurance for job lossin our country. The
basic structure of our UI system has remained essentially the same
since it was established 70 years ago. Our economy, however, has
changed a great deal over this time, creating a need for modernization.
\[3]\
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\[3]\ For an overview, see Stone, Chad, Robert Greenstein, and
Martha Coven, ``Addressing Longstanding Gaps in Unemployment Insurance
Coverage.'' Center on Budget and Policy Priorities (August 7, 2007).
http//www.cbpp.org/7-20-07ui.pdf
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Today more job losses are permanent and more unemployment spells
are long ones. For instance, looking at similar points in the business
cycle 1961 and 2002, the percentage of UI recipients exhausting their
benefits (often after 26 weeks of unemployment) increased from 30
percent to 43 percent. \[4]\ Perhaps most importantly, many workers can
find new jobs only at reduced wages. In 2002 over one-fourth of job
losers had earnings losses of 25 percent or more eighteen months after
the job loss. \[5]\ It is the devastation of permanent income declines
after job loss is that is the crushing force of unemployment in today's
economy.
---------------------------------------------------------------------------
\[4]\ http:workforcesecurity.doleta.gov/unemploy/hb394.as (accessed
September 17, 2007)
\[5]\ Kling (2006).
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Meanwhile, financial innovations ranging from credit cards to home
equity loans have made it possible for many individuals to borrow funds
to maintain living standards in the weeks immediately after job loss.
For example, the first credit cards were issued in 1951. By 1983, over
one-third of lower-income households (and about two-thirds of UI
recipients) had at least one credit card; by 2001, over one-half of
lower income households (and about three-quarters of UI recipients) had
a credit card.[6] Since it is increasingly feasible to borrow during
unemployment, larger UI payments could be targeted to those who will
have difficulty in repaying, rather than spending UI resources on those
who have an unemployment spell and go on to have higher income than
prior to job loss.
---------------------------------------------------------------------------
\[6]\ The percentage of households in the lowest third of the
income distribution with a head younger than 60 where someone in the
household has a credit card was 34 percent in 1983 and 54 percent in
2001. The percentage of households receiving unemployment insurance or
worker's compensation with a head younger than 60 where someone in the
household has a credit card was 65 percent in 1983 and 76 percent in
2001. (Karen Dynan, personal communication, September 17, 2007).
---------------------------------------------------------------------------
Broadening the payroll tax base for UI
In 1937, the maximum amount of taxable earnings for Social Security
and for UI both was $3000. Today the taxable earnings base for Social
Security is $97,500, while the taxable base for UI is $7000. The narrow
earnings base for UI translates into high tax rates for low earners.
\[7]\ The UI tax rate is over 2.5 percent for the bottom quarter of the
wage distribution and less than 1 percent for the top quarter of the
wage distribution. Shifting from the current earnings base to the
Social Security earnings base could collect the same amount of revenue
while allowing tax rates to fall. The tax rate on the bottom quarter of
the wage distribution could be cut approximately in half, making the
tax much less regressive. The UI taxable wage base has not increased
since 1983; it is one of the features most in need of modernization and
would be relatively simple to address. Leadership by the federal
government would likely motivate states to make adjustments as well.
---------------------------------------------------------------------------
\[7]\ Anderson, Patricia M., and Bruce D. Meyer. Unemployment
insurance tax burdens and benefits: Funding family leave and reforming
the payroll tax. National Tax Journal 59:1 (2006), 77--95.
---------------------------------------------------------------------------
Regarding UI taxes, note that my recommendations for modernizing
the UI system are not at all contingent upon whether the temporary FUTA
surtax is extended. In past hearings before this Committee I have
observed the testimony from witnesses degenerate into discussion of a
change in tax revenue. However, an order of magnitude more is being
spent on the underlying program itself, and opportunities to engage in
public discourse about the fundamental structure of the unemployment
insurance system have been missed. Even if large-scale changes are not
feasible at this moment in time, there are things we can and should do
now to set the stage for making informed choices about fundamental
modernization in the future.
Compensation insured by UI should include the value of major employer
benefits
In 1950, pension and health plans were about 3 percent of total
compensation; in 2006, employer contributions to pension and health
plans had increased to 15 percent of total compensation. \[8]\ When an
individual loses a job however, these contributions are lost. Moreover,
UI benefits are based on earnings, and do not incorporate the value of
these employer contributions. Partly as a result, the loss of health
insurance can be a particularly difficult aspect of unemployment.
---------------------------------------------------------------------------
\[8]\ Gary Burtless, personal communication, September 15, 2007.
---------------------------------------------------------------------------
The rising importance of fringe benefits over time has not been
incorporated into the UI system, and their incorporation would be a
valuable addition to a modernized system. Employers could include
pension contributions and the per-employee costs of employer provided
health benefits in quarterly reports of compensation. States could then
either collect more revenue and increase outlays based on the total
compensation (which would be higher than earnings alone) or adjust
their tax rates and outlays to reach desired targets.
Temporary earnings replacement accounts and wage-loss insurance
In recent work I have discussed issues involved with a fundamental
shift toward insurance for persistent, long-term effects of job loss,
based on the core principle that smaller, short-term needs can be met
through savings, borrowing, and repayment, so that the funds for
insurance can be targeted to assist those facing larger, longer term
losses. \[9]\ This is not a change that I recommend making immediately,
but it outlines a direction for modernization that suggests key issues
that merit exploration, experimentation, and demonstration.
---------------------------------------------------------------------------
\[9]\ This section draws upon Kling (2006).
---------------------------------------------------------------------------
In the remainder of this section, I outline what would be involved
in creating a future system where two-thirds of the financial resources
currently used for UI would be shifted to wage-loss insurance to
augment the hourly wages of individuals who find new jobs at wages
lower than their previous jobs. Temporary Earnings Replacement Accounts
(TERAs) would provide the same amount of cash as under UI to be
withdrawn during unemployment. Unemployment would be reduced by
removing subsidies for temporary layoffs and by creating stronger
incentives to return to work. The proposed system would provide a
significantly greater share of net program benefits to workers in the
lower half of the income distribution when compared to the current
system of UI benefits alone. By targeting system resources to those
whose hourly wages are lower on their new jobs after an involuntary job
loss, significant hardship would be reduced.
To compare current UI with this proposed modernization in the
context of a concrete example, consider an aircraft assembly employee
in California who was making $14 per hour and working 40 hours per week
before her plant closed and she was laid off. If she were to apply for
UI under the existing system, the state would check to see that she
worked for an employer covered by UI, that her earnings in the past
year were above a threshold, that her employment was terminated
involuntarily, and that she is available now to work. When verified as
eligible, she would receive benefits replacing half of her income--in
this case, $280 per week. Benefits are financed by a payroll tax on the
wages paid to employees at all covered firms, with the firm's tax rate
depending in part on the amount of UI benefits paid to former employees
of the firm. Payroll taxes from firms are paid to the government, and
the government pays UI benefits to eligible individuals. The workings
of the proposal are illustrated by continuing with this example, first
taking the viewpoint of the individual, then the firm, and then the
government.
From the individual's viewpoint, during the course of her 10 years
of employment at the firm, the worker voluntarily contributed $2,000 to
her TERA. (The default on initial employment was a payroll deduction of
1 percent of pretax earnings contributed to her TERA, and she did not
opt out of this contribution schedule.) The account was maintained by
the government, and her investments were in government bonds. Funds in
the account were excluded from asset tests for food stamps, Medicaid,
and other government programs, so they did not reduce any potential
eligibility for assistance from these programs.
After being laid off from her aircraft assembly job, she could
apply to receive the same amount of income as under UI--$280 per week,
replacing half of her previous earnings. This amount is treated as
taxable income as it would have been under current UI. The eligibility
criteria would also be the same as under UI. The difference is that the
funds would come from a combination of previously accumulated savings
in the TERA and borrowing against future employment income. Say that
she remains unemployed for 10 weeks, receiving $2,800. She thus draws
down the $2,000 in her TERA and borrows an additional $800, leaving her
TERA balance at negative $800. She then takes a new job that pays $10
per hour. Her new firm deducts 5 percent of her earnings from her
paycheck until she has repaid the $800 (plus interest).
The proposal's other main component involves wage-loss insurance.
To be eligible for wage-loss insurance payments, a period of
unemployment between the involuntary job loss and the next job would
not be required, but all other requirements for initial UI eligibility,
such as requirements regarding earnings history and nature of the job
loss, would still need to be met. In addition, wage-loss insurance
would be available only to those with at least 1 year of tenure with
their previous employer; obviously, individuals would need to have
taken a new job with a different employer. The amount of the wage-loss
insurance per hour worked on the new job would be based on an insured
wage rate--either the wage on the previous job or the fixed amount of
$15 per hour, whichever is lower--and calculated as 25 percent of the
difference between the insured wage rate and the hourly rate on the new
job. The insured wage for each individual would be adjusted each
quarter for price inflation, as would the level (initially at $15) of
the fixed maximum potential insured wage for future claimants and other
parameters of the system based on dollar values.
In this example, the aircraft assembly worker experiences a $4 per
hour reduction in wages ($14 per hour at the previous job, $10 per hour
at the new one). Assuming no inflation, her wage-loss insurance
payments are 25 percent of this $4 reduction--in other words, the wage-
loss insurance payment amounts to $1 per hour. These payments are
initially deposited directly in her TERA. They would be used first to
repay her incurred $800 loan, which would take about 14 weeks of work
at the new job. She would then receive the wage-loss insurance payments
for 6 years, which is a period based on total hours of work in her 2
years prior to job loss (3 hours of insurance coverage for each hour
worked, excluding hours worked in the first year on the job). After her
TERA balance reached a maximum threshold ($5,000), additional payments
from wage-loss insurance would be sent to her by check. Assuming her
wage rate did not change, her income drop would be reduced from 28
percent (based on labor earnings falling from $14 to $10 per hour) to
21 percent (including the $1 per hour insurance payment) over the 6
years she receives payments. If her wage in the new job did rise or
fall, the wage-loss insurance payments would be adjusted as well, so
that the wage-loss insurance payments in each calendar quarter would be
based on the average hourly wage since job loss through that quarter.
The amounts of transfer payments would vary with individual
circumstances. Generally speaking, transfer payments to individuals
would be smaller under this proposal than they would be under
traditional UI for those experiencing unemployment spells followed by
employment at wages the same or higher than at the time of layoff.
Transfer payments would be the same to minimum wage workers and those
who never return to work following a period of unemployment, and
transfer payments would be larger after permanent job loss for those
working at a new job with a lower hourly wage.
Four special conditions that don't apply to our hypothetical
aircraft assembly worker are worth noting here. First, those with very
low wages on their previous job would receive supplemental assistance
if they needed to borrow funds from their TERA. The members of this
group are unlikely to benefit much from wage-loss insurance because the
wages of their previous jobs were already so low, limiting their
potential wage losses at new jobs, given minimum wage laws. The
coinsurance rate for this supplemental assistance would run on a
sliding scale, such that someone earning $5.15 per hour would not have
to repay any borrowing from the TERA--but also would not receive any
wage-loss insurance payments. Such a worker would be in exactly the
same position under current UI and under the proposed system.
Second, if our hypothetical worker reached retirement age and filed
for Social Security benefits, any positive balance remaining in her
TERA would be transferred to an Individual Retirement Account (IRA) for
her. If her earnings had been too low to repay any loans from her TERA
at the point she would begin collecting Social Security, then TERA
repayment insurance would pay off the remaining balance.
Third, if she had opted out of making payroll contributions to her
TERA, instead of accepting the default option of making such
contributions, her withdrawals during unemployment would have been
entirely a loan from her TERA, which she would repay with interest
through deductions from paychecks at her new job.
Fourth, if she held two or more jobs with separate employers, each
job would be separately insured. Withdrawal amounts would be based on
earnings at the specific job that was lost, and the insured wage for
wage-loss insurance would be set based on earnings and hours on the
lost job. A new job started a week before being laid off from one's
main job and a job started a week after a layoff would be treated the
same way for the purposes of wage-loss insurance eligibility and
payments, with calculation of the post--job loss hourly wage beginning
in the calendar quarter after job loss.
From the firm's viewpoint, the aircraft-manufacturing firm laying
off the individual in the example would submit three types of payments
to the government over time. Initially, the firm would send payroll
deductions for voluntary saving to the TERA; these deductions reflect
contributions made by workers who do not opt out of the default saving
mechanism for the TERAs. Taxes based on the firm's payroll, as under
the current UI, would support the administration of the system and
finance two types of payments: repayment insurance to pay off loans for
individuals who retire but who had earnings too low to fully repay
their TERA withdrawals, and low-wage coinsurance to reduce potential
TERA repayments for those with low hourly wages.
Regarding the flow of funds for wage-loss insurance, firms would
reimburse the government for wage-loss insurance claims of former
employees, and the government would pay the employees. Firms would also
be required to purchase insurance on the private market to cover wage-
loss insurance claims in the event that the firm became insolvent, and
the insurer would then make payments to the government in the event of
firm insolvency.
In total, firms would make payments to the government for wage-loss
insurance, repayment insurance, assistance on TERA repayments for those
with low wages, and other costs of the proposed system that would be
approximately the same as the current UI system. In terms of funds
currently paid in UI benefits, nearly two-thirds of the money would be
reallocated to wage-loss insurance, about 30 percent would go to
repayment insurance, and 6 percent would be used for supplemental
assistance for TERA withdrawals by those with wages near the minimum
wage. Thus, revenue from new payments for wage-loss insurance
reimbursement would combine with reduced revenue from the payroll tax
so that a change to the proposed system would be revenue neutral.
The UI taxable earnings base would be increased from the current
caps (e.g., 27 states had caps on taxable earnings of $10,000 or less
in 2005) to the Social Security earnings base (which was $90,000 for
2005, and which increases annually with the national wage index). The
reduced revenue needs from the UI payroll tax combined with the broader
tax base would allow average payroll tax rates to be substantially
reduced. UI tax rates would continue to vary by firm as under
traditional UI (according to previous use of TERAs by former employees,
as opposed to previous payments of UI benefits to former employees).
These rates would be more tightly linked to firm layoff histories
through the combination of lower average tax rates and a lowering of
the minimum rates that states require firms to pay. Since firm-varying
rates would be less constrained by the floors and ceilings that
characterize the current system, firms that lay off workers would see
higher UI payroll taxes in the future.
A firm that hired a previously unemployed worker would carry out
mandatory payroll deductions for repayment of loans when that
employee's TERA withdrawals had resulted in negative TERA balances.
Such deductions would appear on pay stubs as pretax deductions, similar
to health insurance, retirement plans, and dependent care expense
accounts.
From the government's viewpoint, UI is run under current law by the
states under the oversight of the federal government, and this pattern
would remain in place under this proposal. States would continue to be
responsible for verifying a person's eligibility for unemployment
benefits. States would also determine how much each unemployed person
could withdraw from his or her TERA per week. States would continue to
collect payroll taxes, which would be used for TERA repayment insurance
and low-wage coinsurance.
The flows of funds to the government from firms and insurers and
from the government to individuals would involve individuals making
TERA withdrawals and receive wage-loss insurance payments. It is
sometimes proposed that a minimum size should be set for the level of
payments because, for example, very small wage losses could lead to
very small payments. However, once an employee has borrowed from a TERA
and the wage-loss insurance program has been established, the
administrative cost of making these payments would be very low. Once a
claim has been approved, benefit amount determination and deposits can
essentially be automatic, based on employer reports of earnings and
hours for each quarter.
The federal government would manage the TERAs in this system. The
government can take advantage of economies of scale to keep costs low,
and it can avoid TERA transfers when individuals change employers or
move across state lines. The interest rate on government bonds would be
the rate of interest required for repayment of borrowed funds.
Funds in the TERAs would be invested and earn a rate of return on
positive balances. The automatic default investment would be in
government bonds. Such a safe default investment seems appropriate
given that job loss is an unpredictable event and the savings may be
needed at any time. For positive TERA balances, workers could opt into
a portfolio with a mixture of stocks and bonds, where the portfolio
composition varied depending on the retirement age of individual,
modeled on the federal Thrift Savings Plan's life-cycle funds. Changes
from bonds to life-cycle funds would be allowed once per calendar
quarter.
The federal government would also have the power to authorize
extending the standard 26-week period in which the unemployed person
can make withdrawals from a TERA, just as the federal government now
can extend eligibility for unemployment benefits when the economy is in
or near a recession. During the extended period, individuals could
continue to make withdrawals and borrow from their TERAs. Firms would
not have their future payroll tax rates increased because of
withdrawals during the extended period. federal unemployment taxes
would contribute to the repayment insurance that would cover borrowed
funds that were not repaid.
The transition to a system of TERAs and wage-loss insurance would
phase in naturally. In the first year of the program, firms would be
charged the full amount of withdrawals by their former employees from
TERAs because the former employees would initially have no savings and
the system would need funds to loan out from TERAs. Wage-loss insurance
payments would not be paid in the first year, however, so total outlays
by firms would not increase.
In the second year of the program, some workers would begin to
qualify for wage-loss insurance and firms would begin to make wage-loss
insurance reimbursement payments to the government. The parameters of
the system could be set so that the combined cost to firms for TERA
withdrawals and wage-loss insurance payments would be no larger than
the firms' costs under the current UI system.
The proposal could be adopted by one or more states, while other
states could opt to remain with the existing system. Coverage for
compensation after involuntary job loss would be determined by the
location of the employing establishment at the time of job loss, just
as under the traditional UI system. Individuals who worked in a state
adopting this proposal would be covered under it even if they relocated
to a state that had not adopted this proposal.
Chairman MCDERMOTT. Since I don't know when this thing is
going to be going off, and we are going to have to go over and
vote, I am going to give the first chance to ask questions to
Mr. Weller.
Mr. WELLER. Thank you, Mr. Chairman, and recognizing we may
be under time constraints for all of the members to have an
opportunity to ask questions, I will try and wrap this up
before the vote break and direct my questions to Dr. Kling.
Dr. Kling, essentially your message in your testimony was
it is important to promote workers in getting back to work
quickly as opposed to collecting more unemployment benefits.
Can you go more into greater detail on why you feel that is
the approach we should be looking at as we work to do a better
job at unemployment benefits?
Dr. KLING. Sure. Unemployment insurance is an insurance
system. So, fundamentally what we want to do is have a way of
providing insurance when there is a loss. The best way to
prevent there being a loss is to have people who are going back
to work quickly, in a good job, and if they are doing that,
then there is no loss. So, that is the number one priority.
Then when that doesn't work out, either because the labor
market isn't rewarding the skills that somebody has at the
level that it used to, or if it is taking a long time in order
to find a new job, then providing some benefits in that case is
sort of what the insurance part is for. The primary way of
avoiding the need to do that in the first place is really to
get people back to work.
Mr. WELLER. What does the worker benefit? What is his
benefit if he is in a program designed to give him the
opportunity to go back into the workplace?
Dr. KLING. Are you asking about how can the system provide
additional assistance to workers in terms of, say, providing
more job search assistance?
Mr. WELLER. I also know you have several initiatives that
you drew attention to in your testimony. If you would like to
discuss those, because those are new ideas.
Dr. KLING. Sure.
Mr. WELLER. Perhaps your wage insurance proposal, your
accounts proposal.
Dr. KLING. Right.
The way to shift assistance toward the larger, longer term
losses really has two components in what I outlined. One is to
make sure that there is enough cash availability at the time
when there is job loss. So, you can do that through accounts
that have the savings element or an ability to borrow. That is
a way of making sure that people are able to make their
mortgage payments and buy their groceries and do things that
they need to do.
So, once those needs are being taken care of, then the real
challenge is how to target assistance toward people who have
the largest losses. In order to do that, wage insurance is a
very nice targeting mechanism because it really does give
assistance to people who have demonstrated they have had a
large loss and have had it for a long time.
In order to make this work, another thing that is helpful
is really to think about what are the incentives that people
have when they are looking for a job. Right now, there is an
incentive that is built into the UI system that if you stay
unemployed longer, then you are receiving more benefits.
Shifting more toward an account system changes those
incentives. So, when you are unemployed, then you are either
drawing on your own savings or you are doing some borrowing,
and that gets people to think about a way of engaging in job
searches that are probably getting people toward the choices
that will lead to both having a good job and getting there
quickly.
So, I think that one of the key things is really to figure
out how to structure a wage loss insurance system that is
viable in the long run, and having some demonstrations about
that either allowing States to experiment with that----
Mr. WELLER. So, you would support giving clear authority to
the States to experiment with wage insurance or account
programs such as you have suggested. Do you think that is a
good idea?
Dr. KLING. I think that is an excellent idea. One of the
things we are really lacking right now is an experience base in
UI about how we would do these things. States have been very
good in the past about doing that kind of experimentation and
then letting us really see what works and what doesn't.
Chairman MCDERMOTT. Ms. Berkley.
Ms. BERKLEY. Thank you.
Given the time, can I submit my opening statement?
Chairman MCDERMOTT. Of course. I want to get you and Mr.
English in.
[The information follows:]
[GRAPHIC] [TIFF OMITTED] 45995A.052
[GRAPHIC] [TIFF OMITTED] 45995A.053
Ms. BERKLEY. Our Nevada Department of Employment training
and Rehab, when we spoke to them about this proposal,
officially they are neutral on the McDermott bill but they
think it would--they express strong support for Federal
proposals that would provide Federal funding so that they could
modernize our State programs, and receipt of Federal incentive
funds would greatly assist Nevada in implementing modernization
to its unemployment insurance program.
Having said that, Nevada, since we don't meet any of the
criteria right now under your bill, Mr. McDermott, I am kind of
curious. I don't care who answers this, but as we know, in
order to qualify for the first third of the funding offered in
the proposals, we have--the States have to meet the alternative
base period and look at the applicant's last quarter wages. In
Nevada, that doesn't exist right now. Nothing else exists in
the proposal, although it would give us great incentive.
Here is my question. Nevada, it has a biannual session that
lasts for 120 days. Our 2007 session is long over, and we are
not meeting again until January of 2007.
We are also in the middle of a modernization of the
computer system and everything because we are still doing
paper. That is going to take 4 to 6 years.
Given that problem, given the circumstances, do you think
Nevada is going to be at a terrible disadvantage of receiving
Federal funds under this proposal?
Chairman MCDERMOTT. Having served in the State legislature,
maybe the Governor could call a short special session of 1 week
to bring in the members and pass some changes.
Ms. BERKLEY. Having served with our Governor here in the
Congress, that would be a remote possibility, Mr. Chairman.
Short of a special session, that is not ever going to happen.
Chairman MCDERMOTT. One of the things you have to say is
they can come in compliance anytime in the next 5 years. So, it
is not a ``one time, and that is it, they lose it.''
Ms. BERKLEY. For a State like Nevada that doesn't already
provide benefits to individuals who lost full-time jobs but are
now looking for part-time employment or that bases coverage on
the first of four of the last five completed quarters, how
large of a difference in coverage would this represent, Mr.
Chairman.
Chairman MCDERMOTT. It would be about a half a million
people. If every State cut the option, it would be about a half
a million people in the country that would be covered.
Ms. BERKLEY. Dr. Kling, having come from a family that was
low-wage earners, the idea that they would have any money to
save in order to be part of an insurance program, that is also
as likely as having a special session of the legislature. It is
a great idea but----
Dr. KLING. Let me add that--in particular, what I had
written down in the written part of the testimony is that for
the very lowest wage workers, there would be essentially
something that works like current UI, where because there is
really no way for someone who is earning minimum wage to have a
wage loss, the program can't really be beneficial to them.
Ms. BERKLEY. I am not talking about minimum wage workers. I
am talking about two people working in a family, who have a few
kids and a mortgage and everything else. Things are tight out
there right now. They don't have extra money. A third of the
people don't even have health insurance. They are sure not
going to put money into a rainy day fund. They are not going to
make the mortgage if they do that.
Chairman MCDERMOTT. Mr. English.
Mr. ENGLISH. Thank you. I want to thank the Chairman for
opening up this issue.
There have been, for many years, proposals out there to
extend unemployment benefits to part-time workers.
Ms. Fagnoni, one of the issues that has always been raised,
given the design of the unemployment insurance system in which
people are being taxed on their job, in effect to give them job
security in the form of the potential for unemployment benefits
if they are laid off from full-time work; is there not a
problem that when you extend these benefits to part-time
workers, you will create the potential for full-time jobs to
subsidize part-time work? How do you design a system that
avoids that form?
Ms. FAGNONI. We haven't done any work directly on that. I
would say that with part-time work--in any of these proposals,
one would need to consider how to balance the goals of wanting
to support those people who find themselves out of a job and
who have, to some extent, paid into the system, or their
employers have for them, and trying to look at what one would
call the individual equity to how much somebody had put into
the system.
Of course, there are experience ratings to try to take care
of who pays in the most and who takes out the most.
It is clear, though, that the nature of the workforce has
changed and there are more part-time jobs now than there were
at the beginning when UI was first developed, as well as other
kinds of work changes. I think it is a legitimate discussion to
have to think about those----
Mr. ENGLISH. It is indeed. You anticipated my next
question.
What issues would be raised in adjusting experience rating
if you were to move toward providing these benefits to part-
time work? After all, there is the potential for employers to
design jobs that in effect take advantage of the subsidy.
So, how would you change experience rating in order to
anticipate this problem?
Ms. FAGNONI. You are correct in that with any kind of
changes, one would want to take a careful look. In the interest
of helping one group of people, one doesn't want to run the
risk of creating unintended effects, if you will, including not
just subsidies, but also perhaps in order to avoid the kind of
experience rating that would result in a certain kind of worker
being less likely to be employed.
So, one would need to carefully consider--I certainly agree
with the idea of demonstrations. We can often learn a lot from
what States do to test different things and think about all of
those interactions.
Mr. ENGLISH. Ms. Chasanov, in the last report of the
Advisory Board, there was a significant amount of time devoted
to the question of State solvency. There were many States that
in effect had been utilizing Federal subsidies pretty
aggressively, and the Advisory Board had recommended raising
the solvency standards for States to participate in the Federal
system.
I didn't notice any reference to that in your testimony. Do
you believe currently there is a need to strengthen the
solvency of the Federal system by increasing the standard set
for the States to participate?
Ms. CHASANOV. At the time the Advisory Council was convened
in the early nineties, they were certainly looking at a
different set of post-recessionary trust fund balances as they
looked across the States. So many of the States were in much
worse shape than they are at this point.
My testimony today has been focused on this bill, but I
would say that the Council thought that the macro-economic
stabilization role of unemployment insurance was critical. What
often happened and what we had seen in the research that we had
done was that, as State trust fund solvency began to decline,
that ended up either increasing employer tax rates at the wrong
time in the middle of a recession or ended up crunching down on
eligibility or benefits for workers.
So, the main purpose of those solvency standards was to
help forward-fund the system, and that was a goal that was
throughout the Council's report.
Mr. ENGLISH. Is that not a relevant goal now?
Ms. CHASANOV. I certainly believe that that is one of many
things that could be improved in the unemployment insurance
system today.
Mr. ENGLISH. I notice you testified with regard to extended
benefits, but I am out of time so I will certainly bounce this
back.
I do believe it is very important as we move forward on
reform that we consider carefully how to reform and protect the
extended benefits program.
I thank you, Mr. Chair.
Chairman MCDERMOTT. Ms. Hammond, you had some comment
relevant to that discussion that Mr. English was having?
Ms. HAMMOND. I wanted to point out as far as the experience
rating is concerned, in Virginia when we have problems that are
not the employer's fault--it is not the employer's fault that
her spouse found a job and she has to move with him. It is not
the employer's fault that, for example, somebody has to leave
for compelling family circumstances.
In those cases, what Virginia does is to noncharge those
benefits to the individual employer and charge them to a
statewide pool so it spreads the cost over a larger pool and
doesn't make that single employer responsible.
Chairman MCDERMOTT. We thank you all for your help today
and we appreciate your written testimony. I am sorry that we
are--I have to cut short but we have to go over to vote.
So, thank you all very much for coming.
[Whereupon, at 1:55 p.m., the Subcommittee was adjourned.]
[Submissions for the Record follow:]
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Statement of Idaho Department of Labor
Idaho comments on the special transfers in fiscal years 2008
through 2012 for Modernization based on modifications of law.
Tying conditions to Reed Act distributions seems akin to blackmail,
the federal government needs to recognize that states should be
entitled to these funds without prejudice. Currently, the federal
government does not return even 50 percent of the FUTA money collected
from the respective state's employers.
All the combinations and permutations of this bill make it
difficult to nail down the exact cost to the fund. Collectively we
estimate (not knowing the IT/IS costs) the impact to the fund may be
offset by the estimated disbursements of $25M over five years. Our
concern is the impact after 2012 since our tax formula already puts the
fund in a soft position. With these disbursements ($25M to $30M) it may
be able to handle it. However, following the final disbursement in 2012
it is likely we will continue to live with the changes without further
disbursements to offset the law changes and fall into a deficit
financial hole we could never get out of.
(2) The State law of a State meets the requirements of this
paragraph if such State law-
(A) uses a base period that includes the most recently completed
calendar quarter before the start of the benefit year for purposes of
determining eligibility for unemployment compensation;
We are not in favor of allowing an alternate base period unless the
claimant is first not eligible using a ``regular'' base period.
Currently, employers file wage lists once a quarter with a due date of
the last day of the month following the end of a quarter. Wages for the
most recently completed quarter are not known until the due date plus
the time it takes accounting to process the wage lists. It takes
accounting 6 to 8 weeks to punch the wages lists. If we adopt this
change accounting will have to change their process to punch wage lists
in a shorter time frame. We may also need to adopt rules to encourage
(or mandate) electronic filing so wages are available as soon as the
report is filed. The first month of each quarter, when reports are not
yet due for the most recently completed quarter would require staff to
contact employers for wage information before a monetary determination
is made. This would be an administrative burden on the department,
drive up costs and become a huge inconvenience for employers if needed
for every claim filed.
or
(B) provides that, in the case of an individual who would not
otherwise be eligible for unemployment compensation under the State law
because of the use of a base period that does not include the most
recently completed calendar quarter before the start of the benefit
year, eligibility shall be determined using a base period that includes
such calendar quarter.
We find this much more palatable than ``A'', and we are not opposed
to this concept. This option has the same problems as ``A'', but
reduces the administrative burden since fewer claimants would be
eligible for the alternate base year. However, this would place an
additional burden on tax collection staff and the employer community.
Additionally, there would be costs associated with programming our
legacy system as well as training of staff for administration.
(3) The State law of a State meets the requirements of this
paragraph if such State law includes provisions to carry out at least 2
of the following subparagraphs:
(A) An individual shall not be denied regular unemployment
compensation under any State law provisions relating to availability
for work, active search for work, or refusal to accept work, solely
because such individual is seeking only part-time (and not full-time)
work, except that the State law provisions carrying out this
subparagraph may exclude an individual if a majority of the weeks of
work in such individual's base period do not include part-time work.
We are not opposed to extending coverage to part-time workers as
long as the work was in covered employment and there are rules in place
to stipulate they must seek work that provides a potential for a
minimum number of hours, comparable to work used to figure base period
eligibility, to be worked each week. Idaho currently has very low
criteria for base period wage qualification. We are concerned about
higher administrative costs as proper administration would require
employers to report hours as well as wages on their quarterly reports.
The department would also have to integrate hours worked into our
current systems used for claims processing. There would also be an
impact to the trust fund; potentially significant impacts since many
workers have more than one part-time job. Additionally there is the
argument that if we allow part time work seekers to accept only part
time work to supplement their income, shouldn't we also allow people
working full time to receive unemployment insurance to supplement their
income?
(B) An individual shall not be disqualified from regular
unemployment compensation for separating from employment if that
separation is for compelling family reasons. For purposes of this
subparagraph, the term `compelling family reasons' includes at least
the following:
(i) Domestic violence (verified by such reasonable and confidential
documentation as the State law may require) which causes the individual
reasonably to believe that such individual's continued employment would
jeopardize the safety of the individual or of any member of the
individual's immediate family.
We are opposed to broadening the eligibility due to purely personal
reasons. This goes against the basic concept of UI being a program to
assist workers who are unemployed through no fault of their own due to
actions of the employer. UI is not an entitlement program. Enactment of
this concept would set the stage for UI to become another employer
funded welfare program. This expansion goes too far in defining
eligibility and blurs the line between entitlement and the insurance
concept. It begins to move UI to more of a social program rather than
unemployment insurance based on job attachment/reemployment.
(ii) The illness or disability of a member of the individual's
immediate family.
This proposal also extends coverage beyond the ``covered'' claimant
to allow benefits when a person that is fully able and available to
work chooses not to in order to care for an ill family member. This
would add additional fact finding when adjudicating claims and
potentially impact timeliness. Additionally, we believe it would be an
extremely hard sell to the employer community as well as have a
negative impact on tax rates in the long run. While funding would not
come directly out of the individual employer's account in the short
run, in the long run (they would be relieved of chargeability), it
would ultimately have to be socialized--potentially negatively
impacting the tax rates for every employer.
(iii) The need for the individual to accompany such individual's
spouse----
(I) to a place from which it is impractical for such individual to
commute; and
(II) due to a change in location of the spouse's employment.
We are in favor of allowing benefits only to the spouse of military
personnel who must quit their job to follow the spouse.
(C) Weekly unemployment compensation is payable under this
subparagraph to any individual who is unemployed (as determined under
the State unemployment compensation law), has exhausted all rights to
regular and (if applicable) extended unemployment compensation under
the State law, and is enrolled and making satisfactory progress in a
State-approved training program or in a job training program authorized
under the Workforce Investment Act of 1998. Such program shall prepare
individuals who have been separated from a declining occupation, or who
have been involuntarily and indefinitely separated from employment as a
result of a permanent reduction of operations at the individual's place
of employment, for entry into a high-demand occupation. The amount of
unemployment compensation payable under this subparagraph to an
individual for a week of unemployment shall be equal to the
individual's average weekly benefit amount (including dependents'
allowances) for the most recent benefit year, and the total amount of
unemployment compensation payable under this subparagraph to any
individual shall be equal to at least 26 times the individual's average
weekly benefit amount (including dependents' allowances) for the most
recent benefit year.
We are opposed to providing initial additional weeks of benefits
beyond what the claimants initially qualify for. This is a disincentive
for them to seek and accept work. This would reward workers who have
not demonstrated a firm attachment to the labor market. There are
already programs in place (WIA & Trade) to assist these types of
workers. We do not have the UI resources to perform the type of case
management this would require.
Statement of On Point Tech
Having spent most of my adult lifetime involved with the Nation's
Unemployment Insurance (UI) program, I want to take this opportunity to
commend you on your sponsorship of the Unemployment Insurance
Modernization Act [HR2233]. The passage of this legislation will
remediate several of the most troublesome shortcomings of the UI
program, which are brought about by developments that could not have
been envisioned at the time of the passage of the initial legislation
in 1935.
These are critically important issues given the changes that have
taken place in the composition of the labor force, the transient nature
of employment, and the proliferation of part-time employment that now
characterize our economy. The $7 billion in new funding that you
propose will enable the states to improve their programs dramatically,
particularly in light of the flat and diminished funding that the UI
program has suffered during the past several years.
However, I fee obligated to call your attention to the need to
strengthen the fraud detection and management component of the UI
program nationwide. U.S. Government Accountability Office (GAO) Report
GAO-07-635T shows UI fraud to be $3.9 billion in FY2004, $3.3 billion
in FY2005, and $3.4 billion in FY2006. As new classes of recipients are
brought into the system and the amount of automation deployed
increases, the amount of fraud should increase significantly.
Modernized UI Benefits systems lean more heavily on new processes
like taking claims over the Internet. The number of staff actually
observing claims for signals of fraud taking place drops off, almost to
the point of non-existence. Over the years, almost all major fraud
incidents uncovered involved diligent UI staffers processing claims by
hand who notices patterns in the claims data that were unusual and
unexpected. This ``eyes and hands'' approach disappears with automated
systems and must be replaced by automated fraud detection software.
(Disclosure: My firm, On Point Technology, Inc., is the major provider
of fraud detection and overpayment recapture software to the UI
community.)
The above mentioned GAO report data comes from the U.S. Department
of Labor's Employment and Training Administration's Benefit Accuracy
Measurement (BAM) program which samples and reviews individual UI
claims and reports on the improper payments found. The type of fraud
disclosed is what we refer to as individual fraud. In other words,
individual fraud occurs when one person misreports information on their
personal claim in order to qualify for benefits. What is not being
reported by these figures is organized fraud.
Organized fraud is when dozens or hundreds of UI claims are filed
with the direct intent to embezzle funds from the UI program. These may
be cases of group identity theft or fictitious employer schemes where
UI employer accounts are established and taxes paid, where the only
intent is filing claims against the fictitious accounts. (A $50,000
investment paying IU taxes for 100 fake employees can return over $1
million in fraud profits. The same scheme can be repeated concurrently
in multiple states with the same 100 Social Security Numbers.) The
individual claims appear to be properly processed and paid. Only by a
macro or pattern level examination can this fraud be readily found.
Multiple schemes from $3 million to $12 million have been found. The
State of California is currently prosecuting a scheme perpetrated by
one extended family that was reported in a conference to be in excess
of $80 million. (Since it is still under investigation, public
information has not been released.)
Be it $3.4 billion in individual fraud or an unknown amount of
organized fraud, expanding the UI program and modernizing the claim and
payment process will certainly increase the volume of fraud. I urge you
and the Committee to consider the multi-year or permanent funding for
controlling UI fraud and improper payments.
I am available to expand on the thoughts contained in this letter
and would appreciate very much the opportunity to meet with your
Committee staff to share both my concerns and remedies. Thank you very
much for the opportunity to communicate with you on this very important
national issue.
Statement of UWC--Strategic Services on Unemployment & Workers'
Compensation
Chairman McDermott, Ranking Member Weller, and Members of the
Subcommittee on Income Security and Family Support, thank you for the
opportunity to submit comments with respect to proposals to reduce
barriers to unemployment insurance for jobless workers.
I am Douglas J. Holmes, President of UWC--Strategic Services on
Unemployment & Workers' Compensation (UWC). UWC counts as as a broad
range of large and small businesses, trade associations, service
companies from the Unemployment Insurance (UI) industry, third party
administrators, unemployment tax professionals, and state workforce
agencies.
UWC fully supports efforts to maintain a sound unemployment
insurance system and to assure that individuals who become unemployed
through no fault of their own are able to apply for, and if otherwise
eligible, receive unemployment compensation as temporary support during
periods of unemployment.
The UI system was designed to provide temporary cash support to
individuals who become unemployed after a period of employment
sufficient to meet workforce attachment requirements. Although UI
provides a social safety net, it is an insurance program financed by
employers through payment of state unemployment and federal
unemployment taxes. It was never intended to be the universal source of
cash payments for individuals that have no or insufficient attachment
to the workforce to qualify for unemployment compensation benefits
under the applicable state law, nor should it be. It is axiomatic that
an individual must first be employed in order to be unemployed.
In addressing the issue of ``barriers'' to unemployment insurance
it is important to first define the population that is not benefiting
from unemployment compensation payments. A close examination of the
actual workings of the unemployment insurance system reveal that the
number of individuals who ``should'' receive unemployment compensation
payments but do not because of state law restrictions is very small.
The ``Recipiency Rate'' methodology is not a valid statistical measure
of those who should be paid unemployment compensation who are
not
Measurements such as the ``recipiency rate'' that are used as a
basis for arguments that there are large numbers of individuals who
``should'' receive unemployment compensation but do not, fail to take
into consideration that many individuals who are counted as
``unemployed'' for purposes of the Total Unemployment Number should not
be included among those that could or should be paid unemployment
compensation.
For example, the total number of unemployed used in the calculation
of the recipiency rate includes 1) individuals who were discharged for
just cause from their jobs, 2) those who quit work without just cause,
3) those who have refused suitable work, 4) new entrants to the
workforce that have no employment history, 5) reentrants to the
workforce whose work history is not recent enough to be counted for UI
benefit eligibility, 6) individuals unemployed due to a labor dispute
other than a lock-out, 7) individuals receiving severance or separation
pay, 8) those who have exhausted unemployment compensation benefits, 9)
individuals who have chosen for whatever reason not to claim
unemployment compensation, 10) self-employed individuals, and 11)
undocumented aliens. None of these individuals are typically eligible
to be paid weekly unemployment compensation, yet the calculation of the
``recipiency rate'' which compares the insured unemployment number with
the total unemployment number seems to imply that all of these
individuals should be paid benefits.
A study of the ``recipiency rate'' methodology conducted for the
New Hampshire Employment Security Economic and Labor Market Information
Bureau in 1999 details the shortcomings of the ``recipiency rate''
methodology.
There are many individuals who may not be working who are not and
should not be eligible for unemployment compensation.
In addition, it should be noted that there are some individuals who
are paid unemployment compensation who are not counted in the total
unemployment rate, including individuals who file for partial
unemployment benefits ( i.e. they had some earnings with respect to a
week of unemployment compensation that they claimed). This group
typically includes low wage and part-time workers who are receiving
partial unemployment compensation benefits.
The actual percentage of individuals who may be eligible for
unemployment compensation who are not paid unemployment compensation is
more appropriately estimated by a review of the percentage of ``job
losers''. The percentage of ``job losers'' who are paid unemployment
compensation has historically fluctuated with economic cycles in the 80
percent to 90 percent range.
The enactment of the new minimum wage legislation significantly
reduces the number of individuals with lesser workforce attachments who
may not qualify for unemployment compensation.
The recent enactment of federal and state minimum wage legislation
has the effect of significantly reducing the number of individuals
working 20 hours or more per week on average who may not qualify
monetarily to establish a benefit year.
An individual earning $7.00 per hour working 20 hours per week for
29 weeks during a four quarter base period meets the minimum wage
requirements for unemployment benefit eligibility in all states. Many
states have minimum wage requirements that are much lower; as low as
$130 a year in Hawaii. Thirty-four states have minimum wage
requirements for a year of $2400 or less.
The effect of new federal requirements to pay unemployment
compensation to a new group of individuals would be to reduce benefits
to existing claimants and/or increase state unemployment taxes paid by
employers.
The effect of federal mandates with respect to the use of
alternative base periods, relaxed work search requirements, payments of
unemployment compensation to those who choose to quit work during
periods of domestic violence, payment of unemployment compensation to
those whose separation from employment results from the illness or
disability of a member of the individual's family, or payment to those
whose separation from employment results from a need to accompany a
spouse, will be to reduce unemployment compensation benefits that would
otherwise be paid to claimants with greater workforce attachments and/
or increase state unemployment compensation tax rates.
This is true because unemployment compensation benefit coverage and
benefit payments are determined under state law and each state is
responsible to enact legislation that assures that there is sufficient
dedicated funding in the state's unemployment compensation benefit
account to pay unemployment compensation benefits.
Many states have enacted these provisions already without federal
requirements as the result of state level negotiations between
employers, legislators, governors, and representatives of organized
labor and worker advocacy groups. As a practical matter, state laws
balance the interests of all of these groups in determining benefit
eligibility and unemployment tax rates.
Responsibility and accountability for these decisions has been
maintained at the state level for decades and should remain with the
states.
The costs of program and system changes related to conversion to an
alternative base period system are significant
As Unemployment Insurance Director in Ohio in 1988, I was directly
responsible for conversion of Ohio's benefit system to provide for the
alternative base period. In order to pay for the cost of the state law
change implementation, Ohio applied for and received funding from the
USDOL. Federal funds were provided by USDOL but the amount provided did
not fully cover the costs of the conversion.
Issues in implementation included 1) policies procedures and forms
to be used in obtaining the most recent quarterly wage data from
employers, 2) the use of claimant affidavits in lieu of employer
quarterly reports to assure timeliness of benefit application
determinations, 3) revised charging of employer accounts to reflect the
alternative base period, 4) policies and procedures needed to address
transitional claims, and 5) system design, programming, system
capacity, staff training, testing, and interstate coordination.
An analysis and projection of costs to states and employers of
implementation of alternative base periods is needed before determining
the amount of administrative funds needed to assist states choosing to
adopt alternative base period legislation.
The increase in unemployment compensation benefits resulting from
an alternative base period varies by state, depending on a number of
factors, including the composition of the state workforce and the
overall benefit eligibility provisions already in place.
The additional cost in states with low minimum qualifying
requirements would be more limited than states with higher minimum
qualifying requirements because fewer individuals are disqualified in
the first place.
Studies of the increase in benefit costs associated with
alternative base periods have estimated the increase in unemployment
compensation benefit pay-out as a result of the alternative base period
provision in the range of 1.1 percent to 6 percent annually.
An analysis of the increased unemployment compensation benefit
costs resulting from the implementation of alternative base periods is
needed in determining the impact on state trust funds and employer
taxes on a state by state basis. Without such an analysis a state
considering whether to enact an alternative base period would not be
able to properly assess the cost/benefit with respect to any special
Reed Act distribution funding that might be available.
The focus of efforts to assist low wage and part-time workers
should be to identify and remove barriers to employment.
Individuals with minimal workforce attachment, particularly those
with families to support, will not significantly benefit from
unemployment compensation benefits. An individual working 20 hours a
week and paid $7.00 an hour, if monetarily eligible, would typically
qualify to be paid unemployment compensation of $70.00 per week, which
may be reduced by partial earnings from part-time work during the week.
This level of support is insufficient to assist in removing barriers to
employment.
Other governmental and privately funded support programs for low
wage workers, particularly those providing support for workers with
families, are much more significant and targeted in removing barriers
to employment. Such individuals are typically eligible to receive
services under the Workforce Investment Act (WIA), the Food Stamp Act,
and the Temporary Assistance for Needy Families (TANF) program.
Services under these programs include cash support payments for
workforce participation, payment of travel expenses to employment,
education and training, assessment services, treatment for substance
abuse, English as a second language instruction, job readiness
training, and subsidized child care. Many of these individuals may also
benefit from the Earned Income Tax Credit (EITC) and the Workforce
Opportunity Tax Credit (WOTC).
A review of the array of programs designed to serve low wage and
part-time workers, particularly those with families is needed to
properly evaluate any gaps in the social safety net that should be
addressed.
The cost to states and employers of the new federal requirements
with respect to alternative base periods and other benefit provisions
should be determined before enacting new federal requirements.
It has been proposed that if states already have enacted
alternative base period provisions or enact new alternative base
provisions and other benefit provisions, that states will receive a
pre-designated share of a $7 billion special distribution into the
qualifying state unemployment trust fund account and will receive a
pre-designated share of $100 million per year in additional
administrative funding.
There is no relationship between these distributions and
appropriations and the increased administrative cost and increase in
benefit costs associated with the new federal requirements.
As a result, some states will receive a windfall in additional
funding while others will be shortchanged or receive no supplemental
funding if they elect not to enact the required provisions. It should
be noted that four of the five states with the highest minimum
qualifying wage requirements are also alternative base period states. A
special distribution to these states would have no impact on reducing
the number of low wage or part time workers and effectively reward
states that have made it more difficult for low wage workers to qualify
for benefits.
This is inconsistent with the UI Federal/State partnership designed
to properly share responsibility for funding of administration and
benefit costs between states and the federal government. It sets up a
series of winner and loser states and exacerbates the existing
imbalance in administrative funding.
In addition, it should be noted that state UI administration is
already under funded by at least an estimated $300 million per year. An
additional $100 million per year is insufficient to properly fund the
UI system in the first place, let alone to fund the additional
administrative costs of implementing alternative base periods or other
federally required provisions.
There are currently no projections on a state by state basis of the
long term costs of alternative base period benefit increases and the
other benefit provisions included in the new federal requirements to
compare against the one-time special distributions. Without these
projections, the cost of these proposals to states and employers as
compared to the one-time distribution can not be determined.
Also, to the extent that the $7 billion one-time distribution is
greater than the costs associated with the new federal requirements,
the federal unemployment trust fund accounts will be unduly depleted,
putting the fund at risk of insolvency in the event of new legislated
extended unemployment compensation that may be enacted during a future
recession.
States with the lowest percentage of the distribution that do not
currently have alternative base periods would bear a higher burden of
implementation.
Conclusion
An updated evaluation of the number of individuals with workforce
attachment who are not paid unemployment compensation is needed. The
evaluation should include a breakdown of the individuals who are not
working and are not receiving unemployment compensation by causation to
determine the numbers of individuals who have become unemployed through
no fault of their own, who are otherwise eligible, and are not being
paid unemployment compensation benefits through the federal/state UI
system.
The review should also address the array of other programs,
including TANF, WIA, Foodstamps, Medicaid, EITC and WOTC under which
many individuals who have minimal workforce attachment or are working
in low wage or part-time jobs.
Careful analysis of the costs to states and employers of
implementation and benefit increases due to alternative base periods
and other benefit provisions on a state by state basis is needed to
determine the appropriate federal funding to be provided. Without such
an analysis, states and employers will be short changed in funding and
federal unemployment trust fund accounts will be unduly depleted.