Unemployment Assistance Part III: Current System

Given tyrannical powers, what, if any, changes would you make to the current public unemployment system (a.k.a unemployment insurance)?

Before answering, it would be to our benefit to understand the current public unemployment assistance in the United States. I would challenge you to write down responses regarding the current system and compare to actual findings detailed below:

1) Who qualifies for unemployment assistance?

• Part time workers? Individuals who were fired? quit?

2) How are benefits calculated?

• Based on income from last month? year? years?

3) How long may a recipient receive benefits?

• Weeks? Months? Years?

4) Who pays for unemployment benefits?

• State taxes? Federal taxes? Employees? Employers?

I believe it is wise to know where we have been and where we are before proposing changes to current systems. Thus, I will initially outline the current federal and State of Minnesota unemployment insurance programs. In following posts, I will provide rational for proposed changes I would support and debate who I believe should pay for unemployment benefits.

To Preface:

As covered previously in Food Assistance Part I (please read to have a general idea of my plan), I believe:

1. It is the role of the federal government to ensure each citizen's basic needs are met.
2. Individuals, family/friends, private charities, and state/local governments should go above and beyond the following proposed federal system to provide a level of public assistance they prefer.

Current system (warning: long...):

I singled out the State of Minnesota as each state has a unique public unemployment program and I am a resident of Minnesota.

As exact numbers, formulas, and requirements are difficult to find, I have provided as many links as possible to where I have searched for and found information. In addition, the majority of detailed information I located was found in the State of Minnesota’s Law Chapter on Unemployment Insurance . As this text can be lengthy, I have provided options for expandable text if you wish to read the law manual excerpts. Please forward me any additional information you may be aware of and I will incorporate it into my analysis.

Federal requirements:

For states to be eligible for federally funded unemployment benefits (extended unemployment compensation [EUC], extended benefits [EB]), as well as subsidized loans when a state’s unemployment trust fund is exhausted, states are required to meet federal standards with their unemployment system. A 19 page overview may be found here:

• U.S. Deparatment of Labor - Office of Unemployment Insurance

Thus, while the current system has the element of flexibility and freedom, in reality it is severely restricted as if states want to receive federal funding (which they do, free money…), they are limited in their unemployment system designs to meeting the minimum standards as outlined by the federal government.

Only the facade of freedom, not actual freedom.

Benefit Breakdown

• State's unemployment insurance program/trust fund
• Covers initial 26 weeks
• 100% state funded

• Extended Unemployment Compensation (EUC)
• Extended to 1/1/14
• Based on current unemployment rate (see link above)
• Ranges from 14 to 47 additional weeks (at one time was up to 53 weeks)
• Minnesota currently receives 14 extra weeks from EUC
• 50/50 federal/state funded originally, now 100% federal funding
• The American Recovery and Reinvestment Act of 2009 began temporary 100% Federal funding of extended benefits. Subsequent legislation, most recently P.L. 112‐96, the Middle Class Tax Relief and Job Creation Act of 2012, authorized continuing 100% Federal funding of extended unemployment benefits to June 30, 2013, the statutory end date under the phase‐out.

• Extended Benefits (EB)
• Extended to 12/31/13 (although no states currently utilizing/eligible at this time)
• 100% federal funding
• 13 additional weeks with 7 optional (total of 20)
• States are required to offer EB if: 
• 1) Their “insured unemployment rate” (IUR) exceeds a certain threshold.
• Minnesota IUR threshold: 6%
• IUR is calculated by dividing the number of individuals making a weekly claim for unemployment insurance benefits by the number of jobs covered by unemployment insurance laws (covered employment)
• 2) State unemployment rate over the most recent three months is at least 10 percent higher than it was during the same three-month period in any of the previous three years.
• Minnesota specific link with extended benefit eligibility criteria:
• House Research Department

State of Minnesota Unemployment Insurance:

• Eligibility Requirements:
• Work hour requirement: < 32 hours in last week
• Made at least $2400 in base period (1 year)
• Able to work
• if not able would be directed towards disability – future blog post :)
• Reason for unemployment
• Must be unemployed through no fault of your own (lack of work)
• Cannot have been fired or voluntarily left/quit
• May appeal if denied
• Roughly 30% success rate of appeals in 2003
• Bench & Bar of Minnesota

• Benefit Amounts (May 2012)
• Maximum: 
• $610 per week ($31,720 per year)
• Maximum per benefit period is lower of:
1. 33.3 percent of the applicant's total wage credits in applicable base period (1 year)
2. 26 times the applicant's weekly unemployment benefit amount (calculated below)
• Remember, after 26 weeks, 100% federal funding of unemployment benefits through EUC and EB come into play
• Actual amount: 
• Estimate: ~50% of recipients wage
• Average weekly benefit nationwide in 2011 was $295.71
• Actual calculation
  
  • Assumptions: 

  • State of Minnesota Statewide Average Weekly Wage (SAWW): $916
  • Current as of 10/2012
  • Base Period:
  • Last year of wages
  • Higher of:
  1. 50 percent of the applicant's average weekly wage during the base period, to a maximum of 66.7 percent of the state's average weekly wage ($610)
  2. 50 percent of the applicant's average weekly wage during the high quarter, to a maximum of 43 percent of the state's average weekly wage ($394)
  • This amount is subtracted by 55% of any wages earned during the prior week.
  • If recipient was eligible to receive $400 per week, and received $200 in wages during the prior week, the individual would receive $400 - 0.55($200) = $400 - $110 = $290.

• Minnesota compared to other states:
• Data from FileUnemployment.org
• Data from 09/2009
• Maximum weekly payments
• Highest $967 - Massachusetts
• Lowest: $235 - Mississippi
• Median: $427 - New Hampshire
• Minnesota: $610 

• Maximum benefit duration
• Data from Wall Street Journal Blog
• Data from 11/2008 through 11/2012
• Nation
• Current: 73 weeks
• Peak: 99 weeks
• Minnesota 
• Current: 40 weeks
• Peak: 86 weeks

Current:

Peak:

• Maximum lifetime limit
• None
• Must meet base period wage eligibility requirement ($2400) in new benefit year before collecting unemployment benefits again.
• Funding source
• Employer taxes
• Will detail pros and cons of employer tax system in future post.
• Repayment Plan
• None
• Employers pay prospectively into system such that benefits are available when employee needs them. Once recipients acquire full time employment, their employer will also resume contributing to unemployment fund.

By reaching this point in my post, I applaud your mental fortitude. The inherent complexity coupled with a lack of transparency for the lay person to obtain information outlining the details of our public unemployment assistance program, placed upon me a large burden of data gathering. This has been without question the most difficult post for me to write as evidenced by finding myself reading the State of Minnesota Law Manual.

Given the current system as a backdrop, I will detail what I see as the pros and cons of our public unemployment system in my next post. I again want to thank you for your patience and mental fortitude if you have made it this far. Your reward is another quiz :). In modifying the current system, or designing an entirely new unemployment assistance system:

1) Who qualifies for unemployment assistance?
2) How are benefits calculated?
3) How long may a recipient receive benefits?
4) Who pays for unemployment benefits?

Next Post Topic: Unemployment Assistance Part IV: Pros and Cons