Getting Back to Work: Reforming Unemployment Insurance to Increase Employment

Posted on January 26, 2004 | Type: Policy Report | Author: William B. Conerly
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Dr. Conerly's work is supported by the American Institute for Full Employment .


A suitable unemployment insurance (UI) policy should work to promote employment. Essentially unchanged since its inception in the 1930s, the existing UI system actually works against employment. The current system increases average time spent unemployed and leads to a substantial number of temporary layoffs.

The federal unemployment insurance tax pulls dollars out of states to fund wholly unrelated programs. In 2000, Arizona received back only $51 million in administrative funds after paying $127 million in federal UI taxes. The system also limits the state's flexibility to spend money in ways that reduce the need to pay out benefits.

Perhaps worst of all, the UI system does little to help people find work. Programs specifically designed to help the unemployed find jobs can be effective, and can save more money than they cost.

In Arizona, the average time spent receiving UI benefits is longer than the national average, despite having a slightly lower unemployment rate than the national average. Even more remarkable is the state's overpayment of $60 million in unemployment insurance benefits last year. Average benefit levels in Arizona are below the national average. The benefit computation, however, is actually in the middle of the national distribution, making Arizona benefits typical for lower-income families. In fact, when compared to other states, Arizona's benefit formula is more generous to those with irregular wages.

Arizona's congressional delegation should support changes that make the entire national UI system more workoriented. The president's New Balance proposal would eliminate the federal unemployment insurance tax and give states more authority over their use of administrative funds. Congress should also allow states to receive waivers for experiments in alternative systems, such as individual accounts and private provision of unemployment insurance.

Meanwhile, Arizona needs to refocus its policies to promote employment. More face-to-face contact with UI recipients is needed to encourage rapid reemployment. Also, the state should resist the temptation to increase its maximum UI benefit. The burden of unemployment insurance taxes is ultimately borne by workers. Taking more money from working Arizonans will only impede new employment opportunities.

Read Getting Back to Work here.

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