Unemployment and the Stimulus Plan

A recent article on National Public Radio (NPR) notes that the unemployment rate has reached 8.5%, the highest it has been since 1983. In the month of January, 741,000 people lost their jobs, the largest number of layoffs in a single month since October of 1949. With numbers like these, it can cause a bit of head-scratching to hear that governors in some states are refusing stimulus money included in the American Recovery and Reinvestment Act which provides substantial financial incentives to states that reform their unemployment benefits programs.

What specific reforms are required for a state to receive funding? In order to receive one-third of the funding, states must implement an “alternative base period” policy, which would take into account more recent wages in determining eligibility. Many states currently don’t count the most recent three months of earnings in determining if a worker is eligible. According to a briefing from the National Employment Law Project, over 40% of workers who fail to qualify for benefits because of insufficient wages would qualify under the “alternative base period” policy. There seems to be little objection to implementing this policy.

However, in order to qualify for the additional two-thirds of funding, states are required to implement policies that have proven more controversial in the eyes of some governors.
States would have to extend benefits to two of four potential groups in order to qualify: 1) part-time workers; 2) workers who leave work for compelling family reasons, such as illness or disability of a family member, domestic violence, or moving to accompany a spouse after a job change; 3) workers who have exhausted their benefits as a result of long-term unemployment, and who are enrolled in an approved job training program; 4) workers with dependents, who are receiving benefits, but whose benefits would be increased to help them care for their families.

The governors who are rejecting the additional two-thirds of funding seem to be doing so primarily because they believe expanding unemployment insurance will create a future tax burden on businesses when the federal funding runs out. The National Employment Law Project has responded with a press release entitled “Get The Facts Straight Governors”. In it, the NELP makes several points important points regarding the governors’ refusal of funding.

First, there is no requirement in the bill that the States make the expansions permanent. If they find the changes to be too costly in the future, they can repeal the expansions. Second, some states are at risk of dropping below the minimum level of the funds required in their unemployment trust funds. If this happens, those states will be forced to raise taxes on businesses to return the fund to the minimum required level. Therefore, considering the rising numbers of unemployment insurance claims, refusing to accept stimulus money may mean higher taxes. Also, the federal funding would cover the cost of the expansion for several years (up to 66 for some states). That would give states a buffer period to both evaluate the expansion and work to find reforms that would not require increased business taxes.

The expansion of unemployment insurance is intended to help a greater number of people through this economic crisis, during a time of high job loss and weak job market. Governors who choose to protect businesses from potential, future tax increases, instead of expanding unemployment benefits to those who are in need right now seem to missing the point regarding who truly needs protection now.

- Brian Gilmore, AmeriCorps VISTA