Can We Stop Attacking People Who Lost Their Job Because of the Recession?

Mark Price |

Capitolwire reports (paywall):

House Majority Leader Mike Turzai, R-Allegheny, said there are ways to reform unemployment compensation… Turzai said: “Without a doubt, we have to look at enrollment…We have to look at what the array of benefits are and how they compare to competing jurisdictions.” He also said he favored a “strong work-search requirement” for unemployment, echoing one of the major points made by [Governor Tom] Corbett and business organizations.

Hundreds of thousands of working- and middle-class Pennsylvanians lost a job in the last three years for reasons beyond their control. The more people who are out of work, the longer it takes to find a job and thus the longer the period that people remain unemployed. This is why I stress time and time again that the chief challenge in the economy right now is the scarcity of job openings relative to job seekers. Concerns over whether unemployment insurance is a disincentive to find work are just not relevant when we have four unemployed people competing for each job opening.

The work-search requirement referenced in the Capitolwire story was dumped years ago at the insistence of employers because it was too costly to report to the state when a job applicant had inquired about an opening. It is very odd that Harrisburg’s business lobbyists are now seeking to re-impose this costly regulation on the Commonwealth’s employers. Of course, maybe they are responding to data that illustrates clearly that the time people in Pennsylvania spend unemployed far exceeds that of other states?

Maybe not.

The figure below plots the median duration of unemployment measured in weeks in 2009 against the unemployment rate in 2009 for all 50 states. What you see here is a very strong correlation between the duration of unemployment and the level of unemployment. The more people are looking for work, the longer the period of time people remain unemployed. And what you see in the figure is that the period of time that people remain unemployed in Pennsylvania is pretty normal considering our unemployment rate. Instead of focusing on these facts, far too many conservative politicians are instead attempting to demonize unemployed working- and middle-class people who through no fault of their own have been laid off.

And what about before the recession began, did we have a problem of too many Pennsylvania workers remaining unemployed for too long relative to other states?

As the next figure illustrates, the answer to this question is clearly no! Even in good times, Pennsylvania does not have a problem of too many people choosing to remain unemployed for long periods of time.

Pennsylvania’s unemployment insurance system performed pretty well over the last two decades, but the Great Recession was just too much for the system to handle, causing the state to run short of revenue. Rather than propose pointless and costly new regulations to solve problems that we don’t have, lawmakers need to focus on reforms that address actual problems with the system.

Sharon Dietrich of Community Legal Services has outlined a reasonable set of reforms to help strengthen the program. Below is her discussion of what to do about the revenue base:

In early 2009, the UC Trust Fund ran out of money, because of high benefit costs as a result of the recession and inadequate revenue. UC benefit costs increased from $2.8 billion in 2008 to a record high $4.8 billion in 2009, a 71% increase. Revenues were not up to this extraordinary demand, especially because the taxable wage base that is the bread and butter of UC financing has not increased from $8,000 since 1984.

Consequently, the state has borrowed more than $3 billion from the federal government to date to continue payment of benefits to the unemployed. Having to borrow money from the federal government to pay UC benefits has consequences. Most notably, beginning in 2011, Pennsylvania employers will have to pay interest on the federal loan, which is anticipated to total $446 million between 2010 and 2012. In addition, they will begin to lose increasing amounts of their FUTA tax credit every year that the federal loan remains unpaid. Finally, employers and employees are paying additional taxes, and unemployment benefits are being reduced, as a result of the triggering of solvency measures in place in the UC Law.

Pennsylvania will have to grapple with determining the solution to the broken financing system for the UC program. The possibilities appear to be tax increases and benefit cuts. Enormous benefit cuts would be needed even to stop federal borrowing, much less to repay the $3 billion debt. UC benefits already replace only 50% of wages at most, so a significant benefit cut would reduce them to a small percentage of lost income – not nearly enough for unemployed families to keep their heads above water.

Moreover, federal extended UC benefits are based on state payments. With the recent announcement of a deal to extend the federal program for an additional 13 months, if Pennsylvania were to cut state benefits, our long-term unemployed would experience a comparable loss of extended benefits paid entirely by the federal government during those 13 months.

Instead, the taxable wage base—the amount of wages on which UC taxes are paid—must be significantly increased. It has not increased from its current level of $8,000 in 26 years. If it had kept pace with statewide wage increases, it would currently be $20,000. Pennsylvania’s $8,000 taxable wage base compares poorly to the other states around the country, where the national average is $12,214. Thirty-nine states have a higher taxable wage base, including 14 states that have taxable wage bases over $20,000 (the highest taxable wage base being $36,800, in Washington State). Pennsylvania must come into the mainstream on the level of its taxable wage base to resolve its solvency problems.