Unemployment Insurance as a Potential Safety Net for TANF Leavers:
Evidence from Five States

Chapter I:
Introduction

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Content

1. The UI Program: Complex and Varying by State
2. UI and Low-Wage Workers
3. Study Questions and Key Findings

Endnotes

To a large extent, one of the primary goals of welfare reform has been accomplished—many individuals have been moved from dependency to employment and self-reliance. Since mid-1996, welfare caseloads have declined by more than half, from 4.4 million families in August 1996 to slightly more than 2 million in July 2003, and the vast majority of those who exited the welfare caseloads have obtained jobs. Even though researchers and policymakers may disagree about the relative contribution of welfare reform versus that of the economy in facilitating this shift from welfare to work, they generally agree that the dramatic effects of welfare reform could not have been accomplished in the absence of the strong economic conditions prevailing during much of the early years of welfare reform.

Evidence that job retention is a challenge for many welfare recipients has increased concern about how welfare recipients will cope with job loss, especially in light of the recent weaker economic conditions and subsequent “jobless recovery.” Time limits on welfare receipt have reduced the attractiveness of a return to welfare as an option. Furthermore, as former welfare recipients become increasingly “mainstreamed” into the labor force, albeit into the low-wage labor market, they must rely on the support available to all workers who lose jobs—the Unemployment Insurance (UI) system. However, there is some concern that the UI system may not adequately address the needs of former recipients who have left welfare for work. Because of their low earnings and intermittent employment histories, many welfare recipients may not have sufficient employment or earnings to qualify for UI.

This study uses data on welfare recipients who have exited welfare for work in five sites (Phoenix County, Arizona; Cook County, Illinois; Baltimore County, Maryland; Philadelphia County, Pennsylvania; and Tarrant County, Texas) to examine the extent to which these individuals have monetary eligibility for UI.⁽¹⁾ Specifically, we examine the extent to which welfare recipients who exited welfare and held jobs potentially would have monetary eligibility for UI at subsequent points in time, as well as the amount of benefits for which they would have been eligible. We also examine the sensitivity of monetary eligibility to changes in UI program parameters. Before describing the study questions in detail, we provide background on the UI program and discuss the reasons why there is concern that former welfare recipients may be less likely than other workers to be eligible for the program. Specifically, we examine the extent to which welfare recipients who exited welfare and held jobs potentially would have monetary eligibility for UI at subsequent points in time, as well as the amount of benefits for which they would have been eligible. We also examine the sensitivity of monetary eligibility to changes in UI program parameters. Before describing the study questions in detail, we provide background on the UI program and discuss the reasons why there is concern that former welfare recipients may be less likely than other workers to be eligible for the program.

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A. The UI Program: Complex and Varying by State

The UI program, the largest worker protection or insurance program for job loss, was designed to help cushion the impact of an economic downturn, and to provide temporary wage replacement for people who have been laid off from their jobs. It is not means-tested, and it is available to all workers who qualify. In most states, benefits are financed by employer taxes, and firms are required to contribute to an unemployment fund, based on some percentage of each employee’s wage. To encourage greater stability in employment and to create a financial disincentive to employers to lay off workers, firms whose workers frequently draw from the fund are charged a higher rate.

UI program eligibility rules and payment rates are complex and vary by state (Table I.1). The federal government sets broad guidelines, but states may define their eligibility requirements and establish benefit levels. Three factors determine a person’s UI eligibility: (1) the individual’s earnings and length of employment, (2) the reason for job separation, and (3) the individual’s availability to work. In general, people can have their wages partially replaced with UI benefits if they have worked for a certain period of time and have had a minimum level of earnings; have lost their jobs through no fault of their own; and are able to, and available for, work.

Table I.1.
How UI Programs Vary Across States

Qualifying Wages	Most states require claimants to have earned a minimum amount during the year before the claim (the “base period”), and to have earnings during at least two calendar quarters. Most states have a high-quarter earnings requirement. A few states also require claimants to have worked a minimum number of weeks or hours. The minimum base-period earnings required to qualify for UI ranged from $130 to $3,400 in 2001.
Reason for Job Separation	Workers who are laid off or who otherwise leave their jobs involuntarily generally are eligible. Those fired for misconduct may not be eligible; those who voluntarily leave jobs without good cause are not eligible. Definitions of misconduct and good cause vary among states. In most states, good cause includes only employment-related reasons; personal reasons generally are not acceptable.
Benefit Levels
Weekly benefit amount	The weekly benefit amount ranges from 40 to 60 percent of average weekly wages. It typically is set equal to 50 percent of the average weekly wage in the high quarter, up to a maximum. Twelve states have dependent allowances. Maximum weekly benefits ranged from $190 to $477 (excluding dependent allowances) in 2001.
Potential duration (weeks)	Weeks of potential duration, typically based on base-period earnings or weeks worked, range from 4 to 30 weeks. Most states have a 26-week maximum.
Continued Eligibility	Most states require claimants to be able and available to work, and to seek full-time work during each week that a benefit is claimed. About 20 states allow part-time workers to receive benefits.
Recipiency Rate	Recipiency rates (the percentage of the unemployed claiming UI) vary from less than 20 percent to more than 50 percent. The average recipiency rate in 2000 was 38 percent.
Source: Comparison of State Unemployment Insurance Law (U.S. Department of Labor 2001) and chartbook of UI data, available on line at [http://ows.doleta.gov/unemploy/content/chartbook/home.asp].

• Earnings and Employment Requirements. In most states, to be eligible for UI, claimants must have the required base-year earnings. That is, they must have earned at least a specified amount during a one-year “base” period, frequently defined as the first four of the past five completed calendar quarters. Most states also require individuals to have worked in at least two of the base period’s quarters. In addition, several states have a “high-quarter earning requirement,” which requires that a worker have earned a certain amount during at least one of the base period’s quarters. Some states also may require a certain amount of earnings outside of the high quarter in the base period.
• Separation Reasons. Workers who leave their jobs voluntarily without good cause typically are not eligible for UI. In most states, workers who are fired for a reason other than gross misconduct are likely to be eligible, while those who quit are likely to be ineligible.⁽²⁾ In a few states, however, workers who quit for personal reasons, such as having child care problems, or employment-related reasons, such as changes in work schedule or shift, are eligible.
• Availability for Work. Most states require that claimants actively look for full-time work. Workers who are available only for part-time work generally do not qualify, with some exceptions. In some states, those looking for part-time work can qualify if the typical hours of their occupation require them to work part time.

Benefit levels vary widely by state and generally are 40 to 60 percent of average weekly wages, up to a maximum. In 2001, maximum payments ranged from a low of around $200 per week in Alabama, Arizona, and Mississippi to a high of around $500 per week in Massachusetts and Washington.

The states included in this study cover a relatively wide range of program rules (Table I.2). For instance, Maryland’s minimum qualifying earnings of $900 during the base period is at the bottom decile across all states in the country, while those of Arizona, Illinois, and Texas are fairly close to the median of $1,600. Pennsylvania’s minimum qualifying requirement of $1,320 during the base period places that state somewhat below the median state. In addition to the rule on qualifying earnings, all five study states require workers to have employment in two quarters of the base period. With respect to benefits, in 2001 the maximum weekly benefit amount of $205 that Arizona offered was the lowest; by contrast, Pennsylvania offered $430 in that year. Potential duration also varied across the states, with some states having a uniform duration of 26 weeks, and others setting their durations between 40 to 60 percent of weeks worked in the base period, up to a maximum of 26 weeks.

Table I.2.
UI Program Rules for States Included in This Study

	Minimum- Qualifying Wages	High-Quarter Earnings Reported	Minimum Wages Outside High Quarter	Required Number of Quarters with Earnings in BP	WBA Replacement Rate of Weekly Wages	Maximum WBA	Potential Duration
Arizona	$1,500	$1,000	—	2	.56	$205	.63 x wks in BP
Illinois	1,600	—	440	2	.49(a)	296	Uniform (26 weeks)
Maryland	900	600	—	2	.55	280	Uniform (26 weeks)
Pennsylvania	1,320	800	One-fifth of base-period wages	2	.52-.59	430	Uniform (16 weeks or 26 weeks)(b)
Texas	1,776	—	—	2	.52	294	.52 x weeks in BP
Source: Comparison of State Unemployment Insurance Law (U.S. Department of Labor 2001) and chartbook of UI data on USDOL website http://ows.doleta.gov/unemploy/content/chartbook/home.asp. Note: Rates pertain to 2001. WBA = weekly benefit amount. BP = base period. (a): Based on two highest-quarter wages. (b): Pennsylvania has two flat durations (a 16-week duration and a 26-week duration) based on whether a claimant worked for less than or more than 18 weeks during the base period, counting weeks with earnings of at least $50 per week.

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B. UI and Low-Wage Workers

Some policymakers and researchers have concerns that the UI program’s eligibility rules make the program less accessible to low-wage, entry-level workers, especially to former welfare recipients who may move in and out of the labor force. The UI system was created in 1935 in response to the Great Depression, when millions of workers had lost their jobs. At that time, most of the labor force consisted of males who were employed full-time in the manufacturing or trade sectors, and who had stable labor force attachment.

The labor force has changed substantially since then. During the past several decades, many women have joined the labor force. Women are more likely than men to work part time and to move in and out of the labor force, as they try to balance work and family life. Nontraditional work arrangements, such as work through temporary agencies and part-time work, also have increased. The proportion of jobs in the service sector has grown. These jobs usually have lower wages and higher turnover than do jobs in the manufacturing and trade sectors.

The UI program has the potential to place low-wage workers, and particularly recipients of Temporary Assistance for Needy Families (TANF), at a disadvantage in three ways. First, earnings requirements mean that, to qualify, low-wage workers must work more than higher-wage workers. For example, if a state requires a person to have earned $3,000 over the base year, someone earning $6 per hour and working 40 hours per week would have to work 12.5 weeks (a total of 500 hours) to qualify. In contrast, someone earning $10 per hour working the same 40 hours per week may be able to qualify over 7.5 weeks by working 300 hours. As a result, a higher fraction of low-wage workers than higher-wage workers who have worked in the base period are unlikely to qualify because they fail to meet the earnings requirements. Second, former welfare recipients may be more inclined to leave jobs in a way that make them ineligible for UI. They tend to be single parents who take care of young children, often with no other supportive adult in the household. These women may have child care or other family needs that lead them to quit their jobs, making them ineligible for UI in many states. Finally, for the same reasons, these individuals may be more likely to want to work part-time, which also would make them ineligible for UI in many states.

Because many former welfare recipients typically find low-paying, entry-level jobs and move in and out of the labor force, many may not be eligible for UI. Research conducted with pre-TANF data has shown that UI eligibility restrictions are more likely to disqualify former welfare recipients, as these individuals tend to work in low-wage jobs. For example, Vroman (1998) suggests that only about 20 percent of former welfare recipients are likely to be eligible for UI; Kaye (1997) estimates an upper bound of one-third who are likely to have monetary eligibility, and only 13 percent who are likely to receive UI.

These studies are based on data applying to the period preceding passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), rather than on an examination of the employment experiences of more-recent recipients. Recent studies indicate that welfare recipients who have worked during the last several years under the new welfare rules and in a period of strong economic conditions may be more likely than those working during the pre-PRWORA period to be eligible for UI (Rangarajan et al. 2002; and Kaye 2002). However, the study by Rangarajan et al. focused only on one state and covered a period of relatively strong economic conditions, and the study by Kaye was based on data from the Survey of Income and Program Participation, rather than on administrative data used by state UI programs to calculate eligibility; the Kaye study also focused on a low-income population defined more broadly than the TANF population. By contrast, this study uses very recent data from a number of states with different TANF programs and UI rules to examine potential UI eligibility among former TANF recipients, and to inform the debate about the role of the UI program as a safety net for former welfare recipients.

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C. Study Questions and Key Findings

In this study, we examine the following key questions:

• To what extent can former recipients who leave welfare for work rely on UI as a temporary safety net in case of job loss? How do their potential monetary eligibility rates change over time? What is the overall eligibility rate among all those who exited TANF—including those who exited for work and those who exited without work but may have obtained work in future quarters?
• What are the UI benefit amounts for former welfare recipients who are potentially eligible for UI? How many former recipients would be eligible to receive benefits that exceed the maximum weekly benefit amount according to the benefit calculation formula? In other words, how many are “capped” at the maximum weekly benefit levels set by the state? What is the potential duration of benefits?
• How might changes in UI program rules affect eligibility? How sensitive are UI eligibility rules and benefit levels to alternative definitions of key program parameters currently used in various states, such as qualifying earnings requirements, the weekly benefit amount formula, the maximum weekly benefit amount, and the definition of the base period?

To study these issues, we examine a sample of recipients living in urban counties in five states who left TANF for work; the data are from the Welfare-to-Work (WtW) evaluation. In addition, where appropriate, we compare these findings with findings obtained from the analysis using data from New Jersey collected as part of the Work First New Jersey Evaluation.⁽³⁾ To summarize our main findings:

• TANF recipients who find jobs are more likely than welfare recipients from earlier periods to potentially have monetary UI eligibility. Eligibility rates varied considerably across states, but between 50 percent and 80 percent of those who had exited TANF for work potentially would have monetary eligibility for UI during any given quarter over the two-year period after TANF exit. These numbers are higher than the estimates of 30 to 40 percent based on data from the mid- and late-1980s on clients of the Aid to Families with Dependent Children program. However, between 20 and 50 percent still would not attain monetary eligibility. Furthermore, people who lost their jobs and people who left TANF for reasons other than work were less likely to potentially have monetary eligibility for UI.
• Although most former TANF recipients who find jobs are likely to potentially ever attain UI monetary eligibility, many also are likely to move in and out of having UI monetary eligibility in any given period. Across the sites, among TANF recipients who exited for work and who would have potentially become eligible for UI during the first year after TANF exit, between 30 and 50 percent would have lost their eligibility sometime between the time they became eligible and the end of the eight-quarter period. Across the sites, only half of the sample members who would obtain monetary eligibility within the first year after TANF exit would have retained it throughout the eight-quarter period.
• Potential UI benefit amounts for former TANF recipients are higher than what these individuals would receive as TANF payments. In general, UI benefit amounts were typically more than twice the amount of the TANF benefits. Former recipients are most likely to reach the weekly benefit amount’s cap in states that set maximum weekly benefit amounts at low levels. For instance, in Arizona, the state with the lowest maximum benefit amount level, roughly one-third of all former TANF recipients would potentially be capped at the maximum level of the weekly benefit amounts.
• UI monetary eligibility is not strongly sensitive to changes in UI program rules using parameters currently being used in states across the nation; other changes, such as eliminating the two quarters of work requirement rule will likely have a larger effect in increasing potential UI monetary eligibility rates for this population. UI monetary eligibility is only somewhat sensitive to changes in the minimum qualifying earnings and alternate base period rules. If a state at the top decile of minimum qualifying earnings changes its rule to that of a state at the lowest decile, the new rule would increase monetary eligibility by only about four or five percentage points. This result is driven partly by the fact that, even in the high-requirement states, the minimum qualifying earnings are relatively low; consequently, an individual working at minimum wages for a third of the year would likely qualify for UI benefits. Similarly, alternate base period rules that include more-recent periods would enable people to attain monetary eligibility more quickly, but they do not much affect the fraction likely to be eligible in any given quarter. In comparison, a programmatic change, such as eliminating the requirement of two quarters of work in the base period would likely lead to a 9 to 14 percentage point increase in UI potential monetary eligibility across the sites.

In the next chapter, we discuss in greater detail the sample, data, and analysis methods used in this study. We follow with examinations of the patterns of monetary UI eligibility, patterns of UI benefit amounts, and sensitivity of key outcomes to changes in UI program parameters.

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Endnotes

(1) Baltimore County largely surrounds but does not include the city of Baltimore. Cook County includes Chicago, and Tarrant County includes the city of Fort Worth. Furthermore, where appropriate, we compare these findings with the findings from a recent study that uses 1997 data from the state of New Jersey to study similar issues (Rangarajan et al. 2002).

(2) Gross misconduct refers to a particularly severe offense, such as stealing or other criminal act in connection with work.

(3) Brief descriptions of the Welfare-to-Work evaluation and the Work First New Jersey evaluation are provided in Chapter II.

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