The Challenge Facing the Unemployment Insurance Financing System

"This working paper examines the performance of the state unemployment insurance (UI) financing system during and after the Great Recession of 2007-2009. It documents the patterns of borrowing by the states and the response of UI taxes and other policy actions to restore state UI trust fund balances. The final section explores alternative policy options for improving the long run solvency of state UI programs." (Abstractor: Author)

To summarize, five factors have combined to yield a sluggish revenue response for the 13 largest states in the aftermath of the Great Recession. 1. Two states were already on their highest tax rate schedule at the start of the Great Recession (California and North Carolina). 2. Five have enacted legislation that reduced the growth in revenue that would have occurred automatically under the state’s experience-rating statute (Florida, Massachusetts, Michigan, New Jersey, and Ohio). 3. Six emphasized benefit reductions as a way to defer and/or reduce the level of future UI taxes (Florida, Georgia, Illinois, Michigan, Pennsylvania, and Texas). 4. Although five did institute higher taxable wage bases, the increases were either automatic due to indexation (New Jersey and North Carolina) or small (Florida, Illinois, and Michigan). 5. Three have already committed to borrowing in the private bond market (Illinois, Michigan, and Texas). The issuance of private debt instruments will reduce loans owed the Treasury but will not per se improve these states’ long run trust fund balances. (p.31) (Abstraction: Author and Website Staff)

• Last Updated:
• Created:
• Resource Publication Date: 2012
• Author(s): Vroman, Wayne
• Organizational Author(s): Urban Institute
• Funding Source: Ford Foundation, Urban Institute
• Resource Availability: Publicly available
• Posted by: Laura Aron
• Posted in: Workforce System Strategies