Unemployment Insurance: The Wrong Medicine?

Unemployment benefits are more generous in Washington than 36 other states. That's not good for the economy or workers, say businesses, lawmakers and researchers. Photo: kateH

Washington employers carry a relatively high financial burden of providing insurance to jobless workers while they seek new employment. In 2015 businesses in the state were projected to pay about $1.25 billion in unemployment insurance (UI) funds. Critics say UI benefits paid in Washington are excessively generous, and can dampen job-seeking and strategic reinvestment of employer capital.

Bigger Benefits, Bigger Unemployment

Nationally, the state ranks high on UI benefits paid as a percent of total wages, and high on unemployment rate over the last 12 months.

As Lens has reported, 36 states ranked better than Washington in controlling UI costs from 2010 to 2014. The Washington Economic and Revenue Forecast Council’s 2015 Economic Climate Study said that is “due to the state having one of the most generous unemployment insurance programs in the country in terms of benefits, eligibility and duration.”

‘Very Claimant-Friendly’

“Washington is very claimant-friendly,” said Sarita Veach, account manager at Equifax Workforce Solutions, and is “lenient in giving out unemployment claims,” even to those who “don’t really deserve it.” Equifax is an authority in human resources, payroll and tax management and represents employers who buy its services for assistance in unemployment claims.

In 2016, Washington state employers pay unemployment insurance taxes on the first $44,000 of each employee’s earnings, although the Federal Unemployment Tax Act only mandates they be paid on the first $7,000 earned.

State Rep. Matt Manweller (R-13) told Lens if businesses were able to spend less on UI benefits, the result would be more employment, higher salaries and more capital investment that creates more jobs. He is the ranking minority member on the House Labor and Workplace Standards Committee.

“Unemployment insurance is a cost and if that goes down, then labor is less expensive,” and businesses can afford to employ more workers, said Manweller.

UI As A Disincentive To Work

There is also the issue of UI as a disincentive to work.

In December 2013, Congress failed to reauthorize a UI benefits extension program within its two-year budget deal. According to a 2015 paper for the National Bureau of Economic Research, the restriction of benefits to 26 weeks resulted in jobs in 2014 for 2.1 million Americans. 

About half would have been looking, but half would not have, without the cut. “More than 1.1 million of these workers would not have participated in the labor market had benefit extensions been reauthorized,” wrote the paper’s authors.

Currently, the Washington Employment Security Department (ESD) requires verification of three employer contacts or job search activities per week to qualify for benefits. However, verification is required only after the first five weeks have passed.

Strengthening Job-Seeking Verification Failed In House

Earlier this year, state lawmakers debated how to change verification provisions for UI. State Rep. Laurie Jinkins (D-27) introduced a bill to allow college career counselors to verify job search activity for UI benefits. Jinkins’ legislation cleared the House but stalled in the Senate.

Manweller introduced an amendment to Jinkins’ bill which would require UI beneficiaries to provide evidence of their job search history within the first five weeks. Manweller said it was introduced at the request of ESD officials. Yet, the amendment failed.

Rate Structure Is Punitive

Generally, employers with a history of more benefit claims pay a higher unemployment tax rate. 

Jan Gee, president and CEO of the Washington Food Industry Association, told Lens the rate system keeps employers from discharging workers they may no longer need or want.

There is little incentive to keep marginal workers employed if employers are “not paying the penalty of the unemployment tax structure,” said Gee.

Employees must have worked at least 680 hours in the state during the past 18 months to qualify for UI and are entitled to a maximum of $681 in weekly benefits. Most benefit claims last 13 to 26 weeks in Washington. The ESD determines eligibility for a claim based on the explanation for unemployment.

Mark Streuli, associate director of government relations at the Washington Farm Bureau, told Lens the problem with agricultural worker UI benefits is the seasonal nature of the work.

“Instead of collecting unemployment, we want to make sure those folks are taking jobs when they are available to work,” said Streuli.

David Groves, communications director for Washington State Labor Council AFL-CIO, said that losing hundreds of jobs from one business not only hurts families, but also community businesses which may suffer as a result of decreased spending on rent or other expenses.

“…it underscores how important the safety net is not just for affected families, but to businesses as well,” said Groves.

President Obama earlier this year proposed to expand unemployment insurance. Obama’s plan would require state UI programs to cover part-time workers, newer labor market entrants, and workers that leave work for family reasons or due to domestic violence. Under the White House proposal, insurance benefit durations would be extended to a minimum of 26-week coverage.

Disincentives To Hire

John Tamny, editor at Forbes and Real Clear Markets, writes in his book Popular Economics, “…workers will remain unemployed if generous transfer payments prevent them from adjusting their wage demands to market realities…every dollar the unemployed receive from the government is an extra dollar that employers must offer to lure workers back into the workplace.”

According to the U.S. Bureau of Labor Statistics (BLS), from the third quarter of 2015 through the second quarter of 2016, Washington had the 15th worst “U-6” unemployment rate, 10.7 percent.

BLS defines U-6 as including total unemployment from the standard U-3 measure most often reported, plus “marginally attached workers” who want work and have looked for it since their last job ended, plus a sub-set of the marginally attached called “discouraged workers.” They also want work but have stopped looking.

To get the U-6 unemployment numbers, the sum of workers in these groups is calculated and then expressed as a percent of the civilian workforce plus both categories of marginally attached workers.

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