Unemployment Assistance Part VII: Payment Specifics

What could be more confusing that determining if someone is eligible for unemployment assistance? Determining the amount of assistance they may receive.

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.

Ideally, rather than an impersonal set of rules, formulas, and flowcharts found in a one size fits all national unemployment insurance program (public funds), private funds would be collected and dispersed by an actual competent person reviewing each individual case. The highly variable and personal nature of each case creates endless complexities in designing a one size fits all system to meet the specific needs of > 300 million U.S. citizens.

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?

• Unemployment Assistance Part VI: Eligibility Specifics

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:

1. Hard cap of $600 per week
2. 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)

What is the maximum unemployment assistance Goofy is eligible for each week? 

• 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 (AWW_initial) = $20,800 / 52 weeks = $400
• Reduce AWW_initial 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

Bob the Builder Case Study (difficult)
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 (AWW_initial) = Gross earnings in look back period / 8 weeks
• ($1600 + $512) / 8 weeks = $264 per week
• New Average Weekly Wage (AWW_new) = Gross earnings since look back period / number of weeks since look back period
• ($500 + $320) / 5 = $164 per week
• AWW_new will be recalculated each week
• AWW_diff = AWW_initial – AWW_new = $100
• $264 - $164 = $100
• AWW_diff will also be recalculated each week
• Total projected lost wages: (AWW_diff) 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.

Next Post Topic: League of Legends 

Unemployment Assistance Part VI: Eligibility Specifics

Peter Gibbons: Michael! Michael! You said the thing was gonna take two years! What happened? You said the thing was supposed to work.
Michael Bolton: Well, technically it did work.
Peter Gibbons: No it didn't!
Samir: It did not work, Michael, okay?
Michael Bolton: Okay! Okay! Okay!
Samir: Okay?
Michael Bolton: Okay! I must have put a decimal point in the wrong place or something. ****! I always do that. I always mess up some mundane detail.
Peter Gibbons: Oh! What is this fairly mundane detail, Michael?
Michael Bolton: Okay, quit getting pissed at me, all right? This was all your idea, asshole!
Peter Gibbons: All right. Okay. All right. Let's try not to get pissed off at each other, all right? Let's just calm down. Let's try to figure this thing out together.

While mundane details can be difficult to endure, they are none-the-less essential to the success of most all endeavors. In an effort to avoid retrospective hysteria, today I will start a 3 part blog series outlining the specific details of eligibility, payment amounts/duration of benefits, and a repayment system.

To preface, the specific changes listed below only apply to a nationalized unemployment system functioning as the quinary safety net behind: 

• Individuals, friends/family, private charities, and local/state governments. 

Second, consistent with serving as a quinary safety net, my proposed changes are NOT designed to cover worst case scenarios. Rather they aim to provide a reasonable amount of support in the event of higher level system failures (individuals, friends/family, private charities, local/state governments).

Meet Goofy. Goofy was one of many laid off employees from Springfield’s Nuclear Power Plant (NPP) following growing animosity towards nuclear power after Japan’s Fukushima's nuclear meltdown and the country’s prolonged recession.

Goofy, being a wise man, had personal savings stored for a rainy season. However, Goofy has burned through all of his savings and exhausted available aid from friends and family. Local private charities have been overrun by high demand for assistance and with only 1 dependent, Goofy is not a priority candidate for local private charity funds. Local and state governments are running record deficits and Goofy has exhausted the paltry 4 weeks of benefits given by local and state governments.

Goofy thus arrives to our office requesting information on national unemployment assistance. We need to determine:

• Is Goofy eligible?
• How much assistance does Goofy qualify for?
• For how long?

Eligibility -

One tool in our kit to prevent waste, fraud, abuse, and misuse of public funds earmarked for unemployment assistance is to reduce utilization through use of qualification criteria.

While I am a proponent of implementing qualification criteria, as detailed in Unemployment Assistance Part V: Proposed Changes it is my aim to increase the number of individuals eligible for assistance as compared to our current unemployment insurance system, not tighten restrictions to eligibility.

Is Goofy eligible?

1) Does individual have document loss of taxable income in last 12 months?

I believe it is a reasonable and realistic expectation for an individual to modify their standard of living and find new employment in 1 year’s time. Again, national unemployment assistance is designed to function as quinary safety net and is not designed to cover worst case scenarios. Higher level safety nets (private charities, local/state governments, etc.) would be encouraged to provide additional benefits as they deem prudent.

2a) Did individual earn > $2600 at places of lost employment in 12 months prior to last pay date and/or projected to lose > $2600 in earnings in the next 12 months?

2b) Was individual employed for > 8 weeks?

Administrative costs are associated with running an unemployment system. Similar to actual payments, administrative costs primarily come from public funds. In an effort to reduce administrative costs, individuals would need to have a significant loss of income. I have defined a significant loss of income as loss of a single 8 hour shift, once a week, for one year’s duration at minimum wage or greater:

• $2668 = $7.25 / hr x 8 hours x 46 weeks
• Amount earned in 1 year if person worked 8 hours a week for 46 weeks (6 weeks vacation/sick leave) at minimum wage ($7.25).

How are individual earning amounts calculated? I was hoping you wouldn't ask… (very confusing calculation)

First, determine last pay date or self-disclosed last pay date prior to cut hours. Then sum actual or projected loss of earnings.

Case 1: Lost employment in full

Look back period - Furthest back of 12 months or first pay date

• Sum earnings, must be > $2600

Case 2: Retained employment, but hours reduced

Have individual determine "last pay date before cut hours"

• Look back 8 weeks prior to "last pay date before cut hours" for calculation of initial average weekly wage (AWWinitial)
• AWWinitial = sum of earnings / 8 weeks
• Next, sum earnings after identified "last pay date before cut hours" and divide by number of weeks following determined "last pay period before cut hours" (AWWnew)
• Take AWWinitial - AWWnew x 52 weeks = Projected loss of income over 1 year
• This must be > $2600
• Estimated loss of income over course of 1 year must be greater than $2600 to be deemed eligible

3) Has individual reached maximum lifetime assistance limit of $7200?

Functioning as a quinary safety net, national unemployment assistance is neither designed to provide indefinite benefits, nor cover worst case scenarios. Rather, it is purposed to provide a reasonable amount to accommodate a change in standard of living and/or transition into new employment.

• $600 = $15 / hr x 40 hours / week
• $7200 = $600 x 12 weeks
• Lifetime limit is set to provide maximum weekly benefits ($600/week) for 12 weeks. An indirect duration cap of 52 weeks is also set by measure of only including replacement of lost income in last 12 months. After 12 months from last pay date, individuals are no longer eligible for assistance for that particular past employment (would be eligible for unemployment benefits from other losses of taxable income in the preceding 12 months).

Why a set amount rather than a set duration?

Currently, U.S. unemployment insurance uses a combination of a flat maximum weekly payment ($610 for Minnesota - see Unemployment Assistance Part III: Current System) and a flat duration recipients are eligible to receive payments (typically 26-40 weeks, but has been up to 99 weeks – see Unemployment Assistance Part III: Current System). 

I believe in the principle of those who have been given much, much will be expected. Thus, I am a proponent of keeping the flat maximum weekly payment, but rather than a flat duration of benefits to be received, I favor a maximum lifetime dollar limit. I feel a flat dollar amount is more equal and just than a flat duration.

A person making $7.25 an hour should be able to receive the same amount of maximum lifetime assistance than a person making $35 an hour. I feel this way as I believe the person making $35 an hour has a greater responsibility, expectation, and ability to steward their resources well and be in a position to either 

1. Downsize expenses quickly or
2. Save a greater amount

4) Is individual sufficiently competent to work?

If individuals are deemed unable (unwilling does not qualify) to competently perform activities needed to successfully work, they will be directed to disability assistance.

Goofy -

1. Loss of taxable income in last 12 months – yes
2. Amount earned in last 12 months of employment > $2600 – yes
1. Earnings at Springfield NPP 12 months prior to last pay date - $20,800
3. Current outstanding assistance balance < $7200 - yes
1. Outstanding balance – $1600
4. Able to work – yes

Even though we have determined Goofy is eligible for national unemployment assistance, many questions remain to be answered: How much aid is Goofy eligible to receive? How long may Goofy receive aid? What responsibilities does Goofy have if he chooses to receive aid?

In preparation for additional details of proposed changes to the unemployment system, I encourage you to write out your answers to the a fore mentioned questions as well as answering for yourself the dilemma of who is and who is not eligible to receive unemployment assistance.

Next Post Topic: Unemployment Assistance Part VII: Payment Details

Unemployment Assistance Part V: Proposed Changes

Very few of us enjoy change. It often forced upon us rather than a path we choose and I for see the crushing burden of our nation’s debt forcing change upon our public assistance programs, including our unemployment system.

Even though our nation’s debt may serve as the impetus for change, as detailed in Unemployment Assistance Part I, federal unemployment insurance constituted only 4.2% of total federal expenditures ($156 billion), and 11.3% of welfare expenditures in 2012. Thus, my proposed changes to the unemployment system are primarily motivated by decreasing waste, fraud, abuse, and inefficiencies, not solving our national debt crisis.

Prior to reading my proposed changes, I request you review my previous unemployment assistance posts:
Part I: Overview
Part II: Roles and Goals - Please especially read this post as it details what I see as the functions of a federally funded unemployment system
Part III: Current System
Part IV: Pros and Cons

Tldr:

• Costs of unemployment system have ballooned in recent years. Between 2000 and 2010, a 1017% increase in dollars spent and a 698% in percent of GDP was realized.
• Current system is very complex. I had to go to law manuals to get information...

Proposed Changes -

To preface, these changes are only for a national unemployment system and do not reflect my beliefs on how other groups (friends/family, private charities, local governments) should administer unemployment assistance. Today I will cover general rationale and aim for changes. My next post will go into the nuts and bolts, and dollars and cents of how to implement stated changes.

1) Increased participation of individual, friends/family, private charities, and state/local governments

I believe nationalized unemployment assistance should be the quinary (5th) safety net behind those listed above. I do not believe one size fits all. I would strongly encourage private charities and state/local governments to extend and increase benefits as they see fitting. In addition to tailoring assistance to the specific community in need, I believe empowering other groups would propel creative designs for unemployment assistance.

States already have the authority to offer additional unemployment assistance. The federal government simply needs to step out of the way. I find it interesting no states offer longer benefits than mandated or subsidized by the federal government.

2) Benefit repayment

As covered in Food Assistance Part I and Part 2, I believe implementing a repayment plan largely retains the benefits of public unemployment assistance in providing sufficient and timely aid, while minimizing the risk of waste, fraud, abuse, and inefficiency.

3) Reduce maximum duration

Consistent with functioning as quinary safety net, recipients would be eligible to receive benefits for 12 weeks. Again, private charities and local governments would be encouraged to extend benefits longer as they deem appropriate.

4) Increase eligibility

All individuals with documented loss of taxable income are eligible for benefits. While less common today, part-time workers may be disqualified from collecting unemployment benefits. Please see State of Minnesota's Guidelines for working while collecting unemployment benefits.

5) Maximum lifetime limit

Individuals would be eligible for 12 paid weeks of unemployment. Individuals would accumulate additional eligibility (up to 12 weeks) as they repaid the benefits they previously received. Mathematically this gets complicated and these specifics will be covered in my next blog post. 

6) Increase flexibility

Recipients would be able to choose (up to maximum limit) amount and duration of benefits. Rather than our current system where there is little incentive to take reduced benefits, with the addition of a repayment plan, individuals would have an incentive to only take those benefits they need.

Change recap

• Increase individual, friend/family, private charity, and local government involvement
• Implement repayment plan
• Decrease duration of benefits
• Increase eligible participants
• Enact maximum lifetime limit
• Increase payment flexibility

Tldr: I support a federally funded unemployment system, however, I believe it should be the quinary (5th) safety net behind:

1. Individual
2. Friends/family
3. Private charities
4. Local governments 
5. National government

Advantages and disadvantages of proposed changes

Advantages -

• Greater flexibility and creativity by moving away from the one size fits all structure
• More citizens would be eligible for benefits (part time workers)
• Decreased risk of waste, fraud, and abuse
• Disincentives in place to reduce unnecessary utilization
• Less dependence on national government
• I see this as an advantage although some would argue it is a disadvantage

Disadvantages -

• May increase confusion with a number of states, cities, and private charities each creating and administering their own system
• Things may get worse before they get better
• Infrastructure may not be in place for private charities and local governments to pick up slack at this time

I do not believe there is a panacea for our nation’s unemployment system. Each individual case is simply too complex and varied to have a cookie cutter system. I do believe the closest we can get is giving individuals and communities the greatest freedom to design and implement a system they see most fitting. Hence my rational for proposing changes removing the federal government as the primary provider of unemployment assistance and empowering others. 

Admittedly, unemployment assistance is a very complex and difficult subject. In my next post I hope to further eliminate confusion with my proposed changes by getting into specific dollars and cents what my proposed national unemployment assistance system would look like. Meanwhile, keep your stick on the ice.

Next Post Topic: Unemployment Assistance Part VI: Change Specifics