The complexities of modifying, not even initially designing, a national unemployment system has further driven me to believe a one size fits all, national unemployment assistance program should be the quinary safety net in event of reduced or lost employment.
I encourage you to grasp the spirit or heart of my proposed changes rather than the actual calculations. However, for those with great perseverance and endurance I have laid out the extensive calculation process.
I will attempt to answer the second question in my original series of questions:
1) Who qualifies for unemployment assistance?
2) How are benefits calculated?
- Based on income from last month? year? years? Based on another metric other than income such as poverty level?
3) How long may a recipient receive benefits?
- Weeks? Months? Years?
4) Who pays for unemployment benefits?
- State taxes? Federal taxes? Employees? Employers?
To answer this question I will present:
- General framework for disbursement amount calculation
- Goofy Case Study
- Bob the Builder Case Study
General disbursement calculation framework -
Maximum weekly benefit is lower of:
- Hard cap of $600 per week
- Calculated cap of 90% of individual’s calculated loss of average weekly wage (AWW)
Calculated cap is determined utilizing two separate methods. One for loss of all hours, and a second for a reduction in hours, or loss of some hours.
Disbursements will be taxed the same as other sources of income.
- The decision to have benefits treated as taxable or tax exempt income has been difficult to answer. Currently I support taxing unemployment benefits, a stance the U.S. Government has currently adopted as well.
- Reasons I support treatment as taxable income
- As mentioned in Unemployment Assistance Part VI, I believe those who have been given much, much will be expected. Thus in the setting of our progressive income tax brackets, I support those individuals making greater incomes to have a greater responsibility as individuals to protect themselves from needing national unemployment insurance. I see individuals as the primary safety net in the event of a loss of income. By taxing disbursements, higher income individuals will be taxed at a higher rate and be responsible for repaying a larger percentage of disbursements to cover taxes as opposed to individuals with lower incomes.
- Without taxing unemployment assistance, an individual could have a greater income while receiving unemployment assistance than when was working. A scenario I do not believe is wise, nor desired by the majority.
- Reasons against treatment as taxable income
- Due to progressive nature of tax scales, individuals will not receive an equal proportion of assistance as those with higher incomes will bear a greater tax burden. Again, I am in support of this, but it could be considered unfair treatment.
Goofy Case Study (easy)
- Important Dates -
- Today’s Date: February 6th, 2014
- Last Pay Day: August 31st, 2013
- First Pay Day: June 1st, 2009
- Look back period: 52 weeks
- August 31st, 2012 – August 31st, 2013
- More recent of 12 months prior to last pay date (8/31/12) or first pay date (6/1/09)
- Total gross earnings in look back period from all employment (August 31st, 2012 – August 31st, 2013)
- Springfield Nuclear Power Plant (NPP): $20,800
- Other employment: $0
- Average weekly wage (AWWinitial) = $20,800 / 52 weeks = $400
- Reduce AWWinitial by 10% (calculated cap)
- $400 x 0.9 = $360
- Maximum Weekly Disbursement = $360
- Lower of hard cap ($600) and calculated cap ($360)
- Thus, until Goofy finds new employment, he would qualify for up to $360 in unemployment assistance per week until reaching maximum lifetime benefit of $7200 (see Unemployment Assistance Part VI)
- Goofy had previously utilized the national unemployment system and has an outstanding balance of $1600. Thus, Goofy would be eligible to receive a total of $5600 ($7200 - $1600) amounting to 15 weeks of unemployment benefits at maximum weekly disbursements ($5600 / $360 = 15 weeks)
- Flexibility
- Since Goofy will be required to repay all benefits plus a surcharge, he is free to choose the amount he will receive each week, up to his maximum of $360 per week. Goofy has cut his living expenses and chooses to only receive $200 per week.
- By taking a reduced amount, Goofy is still able to receive a total of $5600 in unemployment payments. Thus, by taking $200 a week, Goofy would be able to receive 28 weeks of unemployment benefits at $200 per week: $5600 / $200 = 28 weeks.
- My next unemployment assistance post will detail when Goofy is no longer eligible to receive further payments including:
- Reemployment
- Last pay date > 1 year ago
- Reached maximum lifetime limit
Meet Bob the Builder. Bob the Builder presents more difficulties in determining a maximum weekly benefit amount. Although he is still employed by Acme Construction, his hours have been cut in half secondary to a severe reduction in new home starts. Hopefully Bob the Builder will further highlight the need for higher level safety nets to provide individualized unemployment assistance, thus supporting a one size fits all national unemployment system as a quinary safety net.
- Important dates
- Today’s Date: February 6th, 2014
- First Pay Date: June 1st, 2011
- Self defined “last pay date before reduced hours”: January 1st, 2014
- Individual selects date when wages were reduced. Selected date is labeled as “last pay date before reduced hours”
- Look back period: November 6th, 2014 – January 1st, 2014 (8 weeks)
- Look back period is 8 weeks prior to self defined “last pay date before reduced hours”
- Total gross earnings at all places of employment in look back period (8 weeks)
- Acme Construction: $1600
- Menards: $512
- Gross earnings at all places of employment since look back period (5 weeks: January 1st, 2014 – February 6th, 2014)
- Acme Construction: $500
- Menards: $320
- Initial Average Weekly Wage (AWWinitial) = Gross earnings in look back period / 8 weeks
- ($1600 + $512) / 8 weeks = $264 per week
- New Average Weekly Wage (AWWnew) = Gross earnings since look back period / number of weeks since look back period
- ($500 + $320) / 5 = $164 per week
- AWWnew will be recalculated each week
- AWWdiff = AWWinitial – AWWnew = $100
- $264 - $164 = $100
- AWWdiff will also be recalculated each week
- Total projected lost wages: (AWWdiff) x (weeks since “last pay date before reduced hours”) = $500
- Number of weeks since “last pay date before reduced hours”: 5 weeks (January 1st, 2014 – February 6th, 2014)
- $100 x 5 weeks = $500
- Check eligibility
- Unemployment assistance balance < $7200: $0
- First pay date is > 8 weeks from “last pay date before reduced hours”
- Projected yearly loss of income > $2600 : AWWdiff x 52 weeks
- $100 x 52 = $5200
- Total projected lost wages x 0.9 > Unemployment assistance received since “last pay date before reduced hours”
- Projected wages lost since "last pay date before reduced hours" x 0.9 = $450
- Unemployment assistance received since "last pay date before reduced hours = $0
- $450 > $0 - Bob the Builder may receive up $450 in unemployment assistance as of current week
- Each week total will be recalculated
- This prevents individuals from having a greater income than they were making prior to lost wages through addition of unemployment assistance to new employment or extra hours at other employment.
- To be expanded upon in future blog post
- Actual payment = AWWdiff - 10%
- AWWdiff = $100 x 0.9 = $90 per week
- Bob the Builder would be eligible to receive up to $90 in weekly unemployment assistance
As demonstrated by Goofy and Bob the Builder, I believe the benefits of moving away from a one size fits all, national unemployment assistance system outweighs the risks. Impersonal rules, formulas, and flowcharts cannot meet individual needs in a satisfactory and equal manner without adding extreme complexities and confusion to determination of benefits. Applying my proposed changes to fictional examples has reinforced my belief a nationalized unemployment system should function as the quinary safety net behind individuals, friends/family, private charities, and state/local governments.
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