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

Unemployment Assistance Part II: Roles and Goals

What would life look like if no public unemployment assistance existed? The United States in particular and the world in general is still suffering from “The Great Recession”. Without the availability of public unemployment insurance, how would life be different?

Before determining the roles and goals of unemployment assistance I believe it would be wise to address the question: Should public unemployment assistance exist?

While difficult to locate and often conflicting, there does exist a limited body of evidence based research addressing the beneficial and detrimental effects of public unemployment assistance. In summary, most agree the benefits are humanitarian and not economical.

• The Regional Economist
• CATO Institute
• Unemployment Insurance in a Free Society - Conerly
• Optimal Unemployment Insurance - Hopenhayn; Nicolini

In synthesizing my own feelings with the available literature,  I would give the following answer in response to if a public unemployment system should exist:

Short Answer: Yes, in combination with a repayment plan and a maximum lifetime limit. (Long answer with details forthcoming in future posts.)

When you know who you are. you'll know what to do.

- Mark Driscoll

Prior to constructing an unemployment assistance program, I believe it first needs to acquire an identity and given roles and goals. Flowing from a general identity, specific policies may be designed to accomplish the stated roles and goals.

According to the Federal Unemployment Insurance website, the role of Unemployment Insurance is to:

"In addition to helping workers and their families, the Unemployment Insurance programs play a key role in helping businesses, communities, and the nation's economy. It was created in 1935 in response to the Great Depression, when millions of people lost jobs. They couldn't buy goods and services, which contributed to more layoffs."

"Now, as then, the program helps cushion the impact of economic downturns and brings economic stability to communities, states, and the nation by providing temporary income support for laid off workers."

Additional Information

Providing leadership, direction and assistance to state workforce agencies in the implementation and administration of state unemployment insurance (UI) programs, Federal unemployment compensation programs, and other wage-loss, worker dislocation and adjustment assistance compensation programs.

Managing strategically in order to ensure high performance, greater public accountability, service quality, and customer satisfaction.

Working collaboratively with partners and stakeholders in business, labor, and state governments by:

Providing oversight, guidance, and technical assistance for the federal-state unemployment compensation system and providing budget and legislative support to state workforce agencies to administer their UI programs and assist individuals to return quickly to suitable work.

Similar in nature, the State of Minnesota Unemployment Insurance Office stated purpose:

"The Minnesota Unemployment Insurance (UI) Program provides a temporary partial wage replacement to those Minnesota workers who become unemployed through no fault of their own. It is an economic stabilizer/stimulator in times of economic downturn and helps maintain an available skilled workforce for employers."

Mission Statement: "Enhance workforce development and economic strength of Minnesota by providing unemployment insurance for individuals and employers."

My vision - 

"Provide sufficient and timely aid allowing for individuals to transition to new employment and if needed, standard of living after other available resources have been exhausted."

Goals –
While the purpose of various unemployment assistance programs provides a birds eye view, goals further focus the intended purpose of the program. In respect of your time, I have limited the content of federal and the State of Minnesota's goals by providing links to them immediately below.

State of Minnesota Unemployment Insurance Website

Federal Sites -
Home Page
About Unemployment Insurance
FactSheet
Administration Breakdown - Interesting flow sheet representing the hierarchy of federal unemployment insurance. Take note, the bottom half is composed of teams. All paid positions...


My Goals -

• Goal #1: Empower state and local governments
• State and local governments will be encouraged to go above and beyond the national unemployment assistance program.
• One size does not fit all and each community should be encouraged to tailor a system to fit their constituents needs.
• Goal #2: Funds reach recipient in < 2 weeks
• Most people will have their last paycheck cover them for ~2 weeks.
• Goal #3: Sufficient/Generous payments
• Maximize recipient's ability to find reemployment, not stress over ends meet.
• Goal #4: Flexible benefits
• Recipients may choose how much and how long to receive benefits.
• Goal #5: Time from initial request for assistance to completion of initial request averages < 1 hour.
• Simplify eligibility and verification requirements.
• Goal #6: Encourage personal responsibility
• Functions as quinary safety net (more on this later).
• Goal #7: Efficient delivery of benefits
• Reduce administration costs.
• Reduce waste, fraud, and abuse.
• Goal #8: Eliminate additional employer burdens
• Not popular, but I would be considered pro-business
• I do not agree with the government dictating who and why businesses hire and fire. Applying penalties to cutting workers is the government meddling in the affairs of private individuals attempting to manage their own business.

5 things unemployment system is and 5 things it is not -

Is not:

• Designed to make all people happy
• Designed to cover worst-case scenarios
• Primary safety net of unemployed individuals (or secondary, or tertiary, or quartenary)
• A penalty or burden to businesses
• Free ride

Is:

• Designed to make some people happy
• Quinary safety net designed to provide timely and sufficient assistance to those in need
• Compliment to state/local government unemployment systems
• Temporary
• Exchange of freedom for security

Hopefully you were able to acquire a perspective on the roles and goals I desire a public unemployment system to fulfill. I encourage you to read the articles listed above, of which are written by individuals with much less naivety, more education, and more experience than me (Why I need this blog). My next post will present details of our federal and the State of Minnesota's unemployment assistance programs.

Next Post Topic: Unemployment Assistance Part III: Current System