Section 7. Unemployment Compensation OVERVIEW The Social Security Act of 1935 (Public Law 74-271) created the Federal-State unemployment compensation (UC) system. It has two main objectives: (1) to provide temporary and partial wage replacement to involuntarily unemployed workers who were recently employed; and (2) to help stabilize the economy during recessions. The U.S. Department of Labor oversees the system, but each State administers its own program. Because Federal law defines the District of Columbia, Puerto Rico, and the Virgin Islands as ``States'' for the purposes of unemployment compensation, there are 53 State programs. The Federal Unemployment Tax Act of 1939 (Public Law 76- 379) and titles III, IX, and XII of the Social Security Act form the framework of the system. The Federal Unemployment Tax Act (FUTA) imposes a 6.2 percent gross tax rate on the first $7,000 paid annually by covered employers to each employee. Employers in States with programs approved by the Federal Government and with no delinquent Federal loans may credit 5.4 percentage points against the 6.2 percent tax rate, making the minimum, net Federal unemployment tax rate 0.8 percent. Since all States have approved programs, 0.8 percent is the Federal tax rate that generally applies. This Federal revenue finances administration of the system, half of the Federal-State extended benefits program, and a Federal account for State loans. The States are supposed to use the revenue turned back to them by the 5.4 percent credit to finance their regular State programs and half of the Federal-State extended benefits program. In 1976, Congress passed a temporary surtax of 0.2 percent of taxable wages to be added to the permanent FUTA tax rate (Public Law 94-566). Thus, the current 0.8 percent FUTA tax rate has two components: a permanent tax rate of 0.6 percent, and a temporary surtax rate of 0.2 percent. Under the Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203), the 0.2 percent surtax was extended for 3 years through 1990. The Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508) extended it again through 1995. The Emergency Unemployment Compensation Act of 1991 (Public Law 102-164) extended the temporary surtax through 1996. Most recently, the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-66) extended the surtax through 1998. TABLE 7-1.--UNEMPLOYMENT COMPENSATION PROGRAM STATISTICS ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Fiscal years ---------------------------------------------------------------------------------------------------------------------------------------------- 1994 1995 1983 1984 1985 1987 1988 1989 1990 1991 1992 1993 (estimated) (projected)\1\ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Total civilian unemployment rate (percent)....... 10.1 7.8 7.2 6.4 5.6 5.3 5.4 6.5 7.3 7.0 7.0 6.7 Insured unemployment rate (percent)\2\........... 4.3 2.9 2.9 2.5 2.2 2.1 2.3 3.1 3.1 2.7 2.7 2.5 Coverage (millions of individuals)............... 86.3 89.9 93.5 98.0 101.2 104.3 106.1 105.1 104.9 106.3 108.1 110.0 Average weekly benefit amount (current dollars).. 120 119 123 134 140 145 154 163 167 172 177 182 In 1994 dollars\3\........................... 179 171 170 176 176 174 176 178 177 177 177 177 State unemployment compensation: Beneficiaries (millions of individuals)........ 9.9 7.6 8.4 7.5 6.8 7.0 8.1 10.2 9.6 7.8 8.5 8.5 Regular benefit exhaustions (millions of individuals).................................. 4.6 2.8 2.5 2.5 1.9 1.9 2.2 3.2 3.9 3.3 2.7 2.5 Regular benefits paid (billions of dollars).... 20.8 13.3 14.3 15.0 13.2 13.5 16.8 24.4 25.6 22.1 22.7 22.6 Extended benefits (State share: billions of dollars)...................................... 1.21 .03 .03 .04 .04 (\6\) .03 .01 .02 .00 .05 .07 State tax collections (billions of dollars).... 14.4 19.0 20.0 19.1 18.3 17.3 16.0 15.3 17.6 21.0 21.6 22.0 State trust fund impact (income-outlays: billions of dollars)\4\....................... -7.62 +5.70 +5.65 +4.11 +5.12 +3.80 -.88 -9.13 -8.03 -1.11 -1.22 -.61 Federal unemployment compensation accounts: Federal tax collections (billions of dollars)\5\................................... 3.58 5.02 4.44 5.08 5.50 4.45 5.36 5.33 5.41 \7\4.23 5.44 5.54 Outlays: Federal extended benefits share plus Federal supplemental benefits (billions of dollars)...................................... 6.80 3.01 1.27 .04 .04 (\6\) .03 .01 11.15 13.17 3.73 .74 ============================================================================================================================================== State administrative costs (billions of dollars): Unemployment Insurance Service................. 1.70 1.58 1.58 1.56 1.61 1.71 1.74 1.95 2.49 2.54 2.47 2.40 Employment Service............................. .72 .76 .92 .90 .95 1.00 1.01 1.05 1.02 1.08 1.09 1.10 ---------------------------------------------------------------------------------------------------------------------------------------------- Total administrative costs................... 2.42 2.31 2.50 2.46 2.56 2.71 2.75 3.00 3.51 3.62 3.56 3.50 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\Based on President Clinton's 1995 budget. \2\The average number of workers claiming State unemployment compensation benefits as a percent of all workers covered. \3\Adjusted using CPI-U. \4\Excludes interest earned. \5\Net of reduced credits. \6\Less than $5 million. \7\Reflects a book adjustment of minus $967 million. Source: Office of Research, Legislation and Program Policies/ETA/UIS/DOL, Division of Actuarial Services. The Federal Unemployment Tax Act (FUTA) generally determines covered employment. FUTA also imposes certain requirements on the State programs, but the States generally determine individual qualification requirements, disqualification provisions, eligibility, weekly benefit amounts, potential weeks of benefits, and the State tax structure used to finance all of the regular State benefits and half of the extended benefits. The Social Security Act provides for the administrative framework. Title III authorizes Federal grants to the States for administration of the State UC laws. Title IX authorizes the various components of the Federal Unemployment Trust Fund. Title XII authorizes advances or loans to insolvent State UC programs. BENEFITS Coverage In order to qualify for benefits, an unemployed person usually must have worked recently for a covered employer for a specified period of time and for a certain amount of wages. About 109 million individuals are covered by UC. This is 98 percent of all wage and salary workers or 90 percent of all employed persons. The Federal Unemployment Tax Act (FUTA) covers certain employers that State laws also must cover for employers in the States to qualify for the 5.4 percent Federal credit. Since employers in the States would lose this credit and their employees would not be covered if the States did not have this coverage, all States cover the following groups: (1) Except for nonprofit organizations, State-local governments, certain agricultural labor, and certain domestic service, FUTA covers employers who paid wages of at least $1,500 during any calendar quarter or who employed at least one worker in at least 1 day of each of 20 weeks in the current or prior year; (2) FUTA covers agricultural labor for employers who paid cash wages of at least $20,000 for agricultural labor in any calendar quarter or who employed 10 or more workers in at least 1 day in each of 20 different weeks in the current or prior year. In addition, section 3306(c)(1) of FUTA exempts certain alien farmworkers until January 1995; and (3) FUTA covers domestic service employers who paid cash wages of $1,000 or more for domestic service during any calendar quarter in the current or prior year. FUTA requires coverage of nonprofit organization employers of at least four workers for 1 day in each of 20 different weeks in the current or prior year and State-local governments without regard to the number of employees. Nonprofit and State- local government organizations are not required to pay Federal unemployment taxes; they may choose instead to reimburse the system for benefits paid to their laid-off employees. TABLE 7-2.--INSURED UNEMPLOYMENT AS A PERCENT OF TOTAL UNEMPLOYMENT ---------------------------------------------------------------------------------------------------------------- Year Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Avg. ---------------------------------------------------------------------------------------------------------------- 1967................. 52 52 54 54 50 30 39 41 33 33 35 47 43 1968................. 57 50 52 50 45 26 34 38 33 34 38 48 42 1969................. 54 54 52 48 43 27 35 36 31 33 40 51 41 1970................. 57 54 52 53 53 36 42 45 42 44 48 53 48 1971................. 58 58 61 59 56 42 45 48 44 46 47 55 52 1972................. 56 58 56 52 49 36 41 38 33 34 38 47 45 1973................. 51 46 46 44 43 31 36 37 34 38 38 48 41 1974................. 53 54 57 60 55 40 43 44 40 42 48 60 50 1975................. 66 73 77 81 79 72 77 79 73 74 76 80 76 1976................. 78 75 76 73 72 58 66 66 60 59 60 63 67 1977................. 67 66 66 66 59 46 52 49 47 48 49 57 56 1978................. 54 54 50 47 44 36 39 42 35 37 34 43 43 1979................. 48 48 47 47 42 33 39 38 37 38 40 49 42 1980................. 52 51 53 52 49 45 49 49 55 49 50 54 50 1981................. 54 50 48 46 40 35 37 37 36 34 38 41 41 1982................. 47 44 48 49 45 40 42 42 43 48 49 47 45 1983................. 50 53 51 53 53 40 39 36 34 33 39 41 44 1984................. 40 38 38 36 34 30 31 31 30 31 31 38 34 1985................. 40 41 41 39 32 28 30 30 28 27 32 37 34 1986................. 38 36 37 35 32 29 32 32 29 30 32 37 33 1987................. 37 37 38 35 31 28 30 29 28 26 29 34 32 1988................. 37 37 37 35 31 28 30 29 27 27 30 34 32 1989................. 35 35 40 37 30 29 33 33 29 31 29 38 33 1990................. 40 42 44 41 37 33 36 34 32 34 34 40 37 1991................. 47 46 48 49 41 37 39 37 35 34 38 51 42 1992................. 56 54 59 59 54 46 48 48 49 50 50 51 52 1993................. 50 48 51 52 48 43 47 48 47 44 46 49 48 ---------------------------------------------------------------------------------------------------------------- Source: USDOL/ETA/UIS, Division of Actuarial Services. States may cover certain employment not covered by FUTA, but most States have not expanded FUTA coverage significantly. The excluded coverage involves: (1) self-employment; (2) certain agricultural labor and domestic service; (3) service for relatives; (4) service of patients in hospitals; (5) certain student interns; (6) certain alien farmworkers; (7) certain seasonal camp workers; and (8) railroad workers. The number of covered workers receiving unemployment compensation Although the UC system covers 90 percent of all employed persons, table 7-2 shows that on average only 48 percent of unemployed persons were receiving UC benefits in 1993. This compares with a peak of 81 percent of the unemployed receiving UC benefits in April 1975 and a low point of 26 percent in October 1987. Despite high unemployment during the early 1980's, there was a downward trend in the proportion of unemployed persons receiving regular State benefits until the mid-1980's. The proportion receiving UC rose sharply in December 1991 due to the temporary EUC program. The yearly average exceeded 50 percent in 1992 for the first time since 1980. In May 1988, Mathematica Policy Research (MPR), under contract to the U.S. Department of Labor, released a study on the decline in the proportion of unemployed receiving benefits during the 1980's. This analysis did not find a single cause for the decline but instead found statistical evidence that the following factors contributed to the decline in UC claims (the figures in parentheses show the share of the decline attributed to each factor): --the decline in the proportion of unemployed from manufacturing industries (4-18 percent); --geographic shifts in composition of the unemployed among regions of the country (16 percent); --changes in State program characteristics (22-39 percent): --increase in the base period earnings requirements (8-15 percent); --increase in income denials for UC receipt (10 percent); and --tightening up other nonmonetary eligibility requirements (3-11 percent); --changes in Federal policy such as partial taxation of UC benefits (11-16 percent); --changes in unemployment as measured by the CPS (1-12 percent). The group of unemployed most likely to be insured are job losers. Chart 7-1 shows the number of unemployment compensation claimants measured as a percentage of the number of job losers. This coverage ratio remained fairly stable from 1968 through 1979. Over that 12-year span, there were from 90 to 110 recipients of regular State UC for every 100 job losers. This ratio fluctuated somewhat over the business cycle, but it was otherwise quite stable. Beginning in 1980, the ratio of UC recipients to job losers fell sharply, reaching an all-time low in 1983 when there were fewer than 60 regular UC recipients for every 100 job losers. After 1983, the coverage ratio has increased somewhat, so that there were about 75 regular UC claimants for every 100 job losers in 1990. However, the ratio declined again with the 1990-91 recession. CHART 7-1. RATIO OF INSURED UNEMPLOYMENT TO JOB LOSERS (YEARLY AVERAGES), 1968-93 Note.-Insured unemployment data includes the Virgin Islands and Puerto Rico, but the data for job losers do not include these territories. Source: Chart prepared by CRS based on data from the Economic Report of the President, 1994, and U.S. Department of Labor. Eligibility States have developed diverse and complex methods for determining UC eligibility. In general there are three major factors: (1) the amount of recent employment and earnings; (2) demonstrated ability and willingness to seek and accept suitable employment; and (3) certain disqualifications related to a claimant's most recent job separation or job offer refusal. Monetary qualifications Table 7-3 shows the State monetary qualification requirements in the base year for the minimum and maximum weekly benefit amounts, and for the maximum total potential benefits. The base year is a recent 1-year period that most States (48) define as the first 4 of the last 5 completed calendar quarters before the unemployed person claims benefits. Most States require employment in at least 2 calendar quarters of the base year. Qualifying wages for the minimum weekly benefit amount vary from $130 in Hawaii to $5,400 in Montana. For the maximum weekly benefit amount, the range is $4,650 in Nebraska to $27,144 in Colorado. The range of qualifying wages for the maximum total potential benefit, which is the product of the maximum weekly benefit amount and the maximum potential weeks of benefits, is from $5,320 in Puerto Rico to $30,600 in Washington. TABLE 7-3.--MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM WEEKLY BENEFIT AMOUNTS AND MAXIMUM TOTAL POTENTIAL BENEFITS IN 1994\1\ ---------------------------------------------------------------------------------------------------------------- Required total earnings in base year ---------------------------------------- For maximum Minimum work State For minimum For maximum potential in base year weekly weekly benefits\2\ (quarters)\3\ benefit benefit ---------------------------------------------------------------------------------------------------------------- Alabama................................................. $1,032 $7,896 $12,869 2Q Alaska.................................................. 1,000 22,250 22,250 2Q Arizona................................................. 1,500 6,919 14,429 2Q Arkansas................................................ 1,215 13,462 19,812 2Q California.............................................. 1,125 9,542 11,958 .............. Colorado................................................ 1,000 27,144 27,144 .............. Connecticut............................................. 600 12,680 12,680 2Q Delaware................................................ 966 12,190 12,190 .............. District of Columbia.................................... 1,950 13,065 17,420 2Q Florida................................................. 400 10,000 26,000 2Q Georgia................................................. 1,350 9,250 19,238 2Q Hawaii.................................................. 130 8,762 8,762 2Q Idaho................................................... 1,430 7,638 19,858 2Q Illinois................................................ 1,600 12,285 12,285 2Q Indiana................................................. 2,500 5,000 15,786 2Q Iowa.................................................... 1,090 6,066 16,458 2Q Kansas.................................................. 1,860 7,500 19,500 2Q Kentucky................................................ 1,500 19,283 19,283 2Q Louisiana............................................... 1,200 6,788 17,428 2Q Maine................................................... 2,287 6,643 15,444 2Q Maryland................................................ 900 8,028 8,028 2Q Massachusetts........................................... 2,400 9,750 27,083 .............. Michigan................................................ 1,340 11,320 19,810 2Q Minnesota............................................... 1,250 9,912 23,790 2Q Mississippi............................................. 1,200 6,600 12,870 2Q Missouri................................................ 1,500 5,833 13,650 2Q Montana................................................. 5,400 21,700 21,700 2Q Nebraska................................................ 1,200 4,650 12,009 2Q Nevada.................................................. 600 8,625 17,940 2Q New Hampshire........................................... 2,800 24,500 24,500 2Q New Jersey.............................................. 2,460 11,567 20,242 2Q New Mexico.............................................. 1,285 6,402 8,537 2Q New York................................................ 1,600 11,980 11,980 2Q North Carolina.......................................... 2,324 14,664 21,996 2Q North Dakota............................................ 2,795 15,080 19,302 2Q Ohio.................................................... 1,702 9,520 12,376 2Q Oklahoma................................................ 4,160 8,888 15,405 2Q Oregon.................................................. 1,000 22,720 22,720 2Q Pennsylvania............................................ 1,320 13,080 13,080 2Q Puerto Rico............................................. 280 5,320 5,320 2Q Rhode Island............................................ 1,780 10,065 22,389 2Q South Carolina.......................................... 900 7,917 15,834 2Q South Dakota............................................ 1,288 7,728 13,104 2Q Tennessee............................................... 1,560 9,620 19,240 2Q Texas................................................... 1,480 9,065 23,589 2Q Utah.................................................... 1,900 9,672 23,881 2Q Vermont................................................. 1,628 9,405 9,405 .............. Virginia................................................ 3,250 10,400 20,800 2Q Virgin Islands.......................................... 1,287 8,229 16,458 2Q Washington.............................................. 1,825 8,500 30,600 .............. West Virginia........................................... 2,200 26,500 26,500 2Q Wisconsin............................................... 1,380 7,290 15,795 2Q Wyoming................................................. 1,650 8,700 18,333 2Q ---------------------------------------------------------------------------------------------------------------- \1\Based on benefits for total unemployment. Amounts payable can be stretched out over a longer period in the case of partial unemployment. \2\Based on maximum weekly benefit amount paid for maximum number of weeks. Total potential benefits equal a worker's weekly benefit amount times this potential duration. \3\Number of quarters of work in base year required to qualify for minimum benefits. ``2Q'' denotes that State directly or indirectly requires work in at least 2 quarters of the base year. States without an entry have the minimum work requirement specified as a wage amount. Source: U.S. Department of Labor. Since the beginning of 1993, 12 States increased the required earnings in the base year to qualify for the minimum weekly benefit amount. Thirty-four States increased and one decreased the qualification requirement for the maximum weekly benefit amount. Thirty-six States increased their qualification requirements for maximum potential benefits. Ability to work and availability for work All State laws provide that a claimant must be: (1) able to work; and (2) available for work. A claimant must meet these conditions continually to receive benefits. Only minor variations exist in State laws setting forth the requirements concerning ``ability to work.'' A few States specify that a claimant must be mentally and physically able to work. ``Available for work'' is often translated to mean being ready, willing, and able to work. In addition to registration for work at a local employment office, most State laws require that a claimant seek work actively or make a reasonable effort to obtain work. Generally, a person may not refuse an offer of, or referral to, ``suitable work'' without good cause. ``Suitable work'' is generally work in a claimant's customary occupation which meets certain health, safety, moral, and labor standards. Most State laws list certain criteria by which the ``suitability'' of a work offer is to be tested. The usual criteria include the degree of risk to a claimant's health, safety, and morals; the physical fitness and prior training, experience, and earnings of the person; the length of unemployment and prospects for securing local work in a customary occupation; and the distance of the available work from the claimant's residence. Generally, as the length of unemployment increases, the claimant is required to accept a wider range of jobs. In addition, Federal law requires States to deny benefits provided under the extended benefit program to any individual who fails to accept any work that is offered in writing or is listed with the State employment service, or who fails to apply for any work to which he or she is referred by the State agency, if the work is within the person's capabilities, pays wages equal to the highest of the Federal or any State or local minimum wage, pays a gross weekly wage that exceeds the person's average weekly unemployment compensation benefits plus any supplemental unemployment compensation (usually private) payable to the individual, and is consistent with the State definition of ``suitable'' work in other respects. Public Law 102-318 suspended these provisions, however, from March 7, 1993, until January 1, 1995. In addition, the Advisory Council on Unemployment Compensation recommended the repeal of these provisions in its interim report of February 1994. States must refer extended benefits claimants to any job meeting these requirements. If the State, based on information provided by the individual, determines that the individual's prospects for obtaining work in his or her customary occupation within a reasonably short period are good, the determination of whether any work is ``suitable work'' is made in accordance with State law rather than the above. There are certain circumstances under which Federal law provides that State and extended benefits may not be denied. A State may not deny benefits to an otherwise eligible individual for refusing to accept new work under any of the following conditions: (1) if the position offered is vacant directly due to a strike, lockout, or other labor dispute; (2) if the wages, hours, or other conditions of the work offered are substantially less favorable to the individual than those prevailing for similar work in the locality; (3) if, as a condition of being employed, the individual would be required to join a company union or to resign from or refrain from joining any bona fide labor organization. Further, benefits may not be denied solely on the grounds of pregnancy. The State is prohibited from canceling wage credits or totally denying benefits except in cases of misconduct, fraud, or receipt of disqualifying income. There are also certain conditions under which Federal law requires that benefits be denied. For example, benefits must be denied to professional and administrative employees of educational institutions during summer (and other vacation periods) if they have a reasonable assurance of reemployment; to professional athletes between sport seasons; and to aliens not legally admitted to work in the United States. Disqualifications The major causes for disqualification from benefits are not being able to work or available for work, voluntary separation from work without good cause, discharge for misconduct connected with the work, refusal of suitable work without good cause, and unemployment resulting from a labor dispute. Disqualification for one of these reasons may result in a postponement of benefits for some prescribed period, a cancellation of benefit rights, or a reduction of benefits otherwise payable. Of the 16.1 million ``monetarily eligible'' initial UC claims in 1993, 23.7 percent were disqualified. This figure subdivides into 4.7 percent not being able to work or available for work, 6.5 percent voluntarily leaving a job without good cause, 4.2 percent being fired for misconduct on the job, 0.2 percent refusing suitable work, and 8.0 percent committing other disqualifying acts. The total disqualification rate ranged from a low of 8.8 percent in Tennessee to a high of 117.9 percent in Nebraska, with Colorado the next highest at 68.9 percent. (Note that a claimant can be disqualified for any week claimed, so it is possible for a claimant to be disqualified more times than the total number of that claimant's initial claims in the benefit year.) Federal law requires that benefits provided under the extended benefits program will be denied to an individual for the entire spell of his or her unemployment if he or she was disqualified from receiving State benefits because of voluntarily leaving employment, discharge for misconduct, or refusal of suitable work. These benefits will be denied even if the disqualification were subsequently lifted with respect to the State benefits prior to reemployment. The person could receive these benefits, however, if the disqualification were lifted because he or she became reemployed and met the work or wage requirement of State law. Public Law 102-318 suspended these provisions, however, from March 7, 1993, until January 1, 1995. The Advisory Council on Unemployment Compensation is required to study these provisions and make recommendations by February 1, 1995. Ex-service members The Emergency Unemployment Compensation Act of 1991 (Public Law 102-164) provided that ex-members of the military are treated the same as other unemployed workers with respect to the waiting period for benefits and benefit duration. Before this 1991 action, Congress had placed restrictions on benefits for ex-service members. The Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) limited unemployment benefits to individuals who: (1) had 365 or more days of military service; (2) were discharged or released under honorable conditions; (3) did not resign or voluntarily leave the service (i.e., they were not eligible for reenlistment); and (4) were not released or discharged ``for cause'' as defined by the Department of Defense. The requirements applied to individuals who left Federal military service on or after July 1, 1981, but only for weeks of unemployment that began on or after August 13, 1981, the date of enactment of Public Law 97-35. The Miscellaneous Revenue Act of 1982 (Public Law 97-362) modified the above eligibility requirements for ex-service members. Federal unemployment benefits became payable to unemployed ex-service members who: (1) were separated under honorable conditions (and, in the case of officers, did not resign for the good of the service); and (2) had completed the first full term of active service they agreed to serve. Ex- service members who were separated prior to completing their first full term of active service could qualify for unemployment compensation benefits if they separated under honorable conditions: (1) for the convenience of the Government under an early release program; (2) because of medical disqualification, pregnancy, parenthood, or any service- incurred injury or disability; (3) because of hardship; or (4) if they had served for 365 continuous days, because of personality disorder or inaptitude. In addition to these eligibility requirements, ex-service members had to wait 4 weeks from the date of their separation from the service before they could receive benefits. The maximum number of weeks of benefits an ex-service member could receive based on employment in the military was 13. Pension offset The Unemployment Compensation Amendments of 1976 (Public Law 94-566) required all States to reduce an individual's unemployment compensation benefits by the amount of any governmental or private pension or retirement pay received by the individual. Public Law 96-364 modified this offset requirement. Under current law, States are required to make the offset only in those cases in which the work-related pension was maintained or contributed to by a ``base period'' or ``chargeable'' employer. Entitlement to, and the amount and duration of, unemployment benefits are based on work performed during this State-specified base period. A ``chargeable'' employer is one whose account will be charged for unemployment compensation received by the individual. However, the offset must be applied to Social Security benefits without regard to whether base period employment contributed to that entitlement. States are allowed to reduce the amount of the offset by an amount consistent with any contribution the employee made toward the pension. For example, this allows States to limit the offset to one-half of the amount of a social security pension received by an individual who qualifies for unemployment benefits. Taxation of unemployment insurance benefits The Tax Reform Act of 1986 (Public Law 99-514) made all unemployment compensation taxable after December 31, 1986. The Revenue Act of 1978 first made a portion of unemployment compensation benefits taxable beginning January 1, 1979. Generally, the unemployment insurance benefits subject to Federal tax under the 1978 law were equal to the lower of: (1) the amount of unemployment compensation, or (2) one-half the excess of adjusted gross income, unemployment insurance payments, and excludable disability income over $20,000 for single taxpayers and over $25,000 for married taxpayers filing jointly. Beginning January 1, 1983, these amounts were changed to $12,000 for single taxpayers and $18,000 for married taxpayers filing jointly. Table 7-4 illustrates the effect of taxing all unemployment compensation benefits for calendar year 1995. This table understates the impact of taxation because total unemployment compensation benefits reported on the current population survey (CPS) are equal to only about two-thirds of benefits actually paid out. Because of underreporting of unemployment compensation benefits in the CPS and underestimates of benefits paid in 1995, taxes collected on benefits probably will be about twice as high as the $3.1 billion in table 7-4. TABLE 7-4.--ESTIMATED EFFECT OF TAXING UNEMPLOYMENT COMPENSATION BENEFITS, BY INCOME CLASS, 1995 ---------------------------------------------------------------------------------------------------------------- Total Number of Number Total amount amount recipients affected of of taxes Taxes as of by Percentage unemployment on a Level of individual or couple income\1\ unemployment taxation affected compensation benefits percent compensation of by benefits (in (in of total (in benefits taxation millions of millions benefits thousands) (in dollars) of thousands) dollars) ---------------------------------------------------------------------------------------------------------------- Less than $10,000....................... 1,335 667 50.0 2,056 142 6.9 $10,000 to $15,000...................... 978 809 82.7 1,761 211 12.0 $15,000 to $20,000...................... 1,182 1,122 94.9 2,075 347 16.7 $20,000 to $25,000...................... 948 925 97.6 1,939 374 19.3 $25,000 to $30,000...................... 863 848 98.3 1,804 344 19.1 $30,000 to $40,000...................... 1,324 1,307 98.7 2,654 456 17.2 $40,000 to $50,000...................... 1,041 1,041 100.0 1,919 329 17.1 $50,000 to $100,000..................... 1,559 1,559 100.0 3,344 760 22.7 At least $100,000....................... 168 163 97.1 546 159 29.1 ----------------------------------------------------------------------- All............................... 9,399 8,438 89.8 18,052 3,122 17.3 ---------------------------------------------------------------------------------------------------------------- \1\Cash income (based on income of tax filing unit) plus capital gains realizations. Note.--Aggregate unemployment compensation benefits on the CPS are equal to only about two-thirds of total benefits paid out. The number of recipients is also understated on the CPS. Source: Congressional Budget Office, based on data from the Current Population Survey (CPS). Amount and duration of weekly benefits In general, the States set weekly benefit amounts as a fraction of the individual's average weekly wage up to some State-determined maximum. The total maximum duration available under permanent law is 39 weeks. The regular State programs usually provide up to 26 weeks. The permanent Federal-State extended benefits program provides up to 13 additional weeks in States where unemployment rates are relatively high. An additional 7 weeks is available under a new optional trigger enacted in 1992, but only 8 States have adopted this trigger as of June 30, 1994. The temporary emergency unemployment compensation program, which operated through April 30, 1994, provided either 7 or 13 additional weeks of benefits. A State offering this program could not have offered the permanent extended benefit program simultaneously, however. The State-determined weekly benefit amounts generally replace between 50 and 70 percent of the individual's average weekly pretax wage up to some State-determined maximum. The average weekly wage is often calculated only from the calendar quarter in the base year in which the claimant's wages were highest. The State-determined maximum weekly benefit amounts generally vary between 50 and 70 percent of the average weekly covered wage in each State. Individual wage replacement rates tend to vary inversely with the claimant's average weekly pretax wage, with high wage earners receiving lower wage replacement rates. Thus, the national average weekly benefit amount as a percent of the average weekly covered wage was only 37 percent in the quarter ending September 30, 1993. Table 7-5 shows the minimum and maximum weekly benefit amounts and potential duration for each State program. In fiscal year 1993, the national average weekly benefit amount was $173 and the average duration was 15.6 weeks, making the average total benefits $2,699. The minimum weekly benefit amounts for 1994 vary from $5 in Hawaii to $73 in Washington. The maximum weekly benefit amounts range from $133 in Puerto Rico to $487 in Massachusetts. TABLE 7-5.--AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS ---------------------------------------------------------------------------------------------------------------- 1994 weekly benefit 1993 1994 potential amount\1\ average duration (weeks) 1993 State ---------------------- weekly ------------------- average benefit Maximum duration Minimum Maximum Minimum (weeks) ---------------------------------------------------------------------------------------------------------------- Alabama............................................. $22 $165 $126 15 26 9 Alaska.............................................. 44-68 212-284 161 16 26 17 Arizona............................................. 40 185 147 12 26 16 Arkansas............................................ 45 254 148 9 26 13 California.......................................... 40 230 152 14 26 18 Colorado............................................ 25 261 183 13 26 13 Connecticut......................................... 15-22 317-367 210 26 26 16 Delaware............................................ 20 265 173 24 26 14 District of Columbia................................ 50 335 215 20 26 22 Florida............................................. 10 250 165 10 26 15 Georgia............................................. 37 185 144 9 26 10 Hawaii.............................................. 5 337 247 26 26 18 Idaho............................................... 44 235 151 10 26 12 Illinois............................................ 51 235-311 194 26 26 18 Indiana............................................. 50 170-192 138 14 26 13 Iowa................................................ 31-38 211-259 168 11 26 12 Kansas.............................................. 62 250 184 10 26 16 Kentucky............................................ 22 229 147 15 26 12 Louisiana........................................... 10 181 118 8 26 17 Maine............................................... 35-52 198-297 153 21 26 14 Maryland............................................ 25-33 223 181 26 26 16 Massachusetts....................................... 14-21 325-487 229 10 30 16 Michigan............................................ 42 293 210 15 26 12 Minnesota........................................... 38 305 203 10 26 15 Mississippi......................................... 30 165 123 13 26 14 Missouri............................................ 45 175 142 11 26 14 Montana............................................. 54 217 135 8 26 13 Nebraska............................................ 20 154 131 20 26 12 Nevada.............................................. 16 230 172 12 26 15 New Hampshire....................................... 32 196 137 26 26 11 New Jersey.......................................... 69 347 228 15 26 18 New Mexico.......................................... 39 197 143 19 26 18 New York............................................ 40 300 188 26 26 20 North Carolina...................................... 22 282 158 13 26 11 North Dakota........................................ 43 232 148 12 26 13 Ohio................................................ 42 238-319 180 20 26 15 Oklahoma............................................ 16 237 161 20 26 14 Oregon.............................................. 66 285 169 5 26 16 Pennsylvania........................................ 35-40 329-337 197 16 26 17 Puerto Rico......................................... 7 133 88 26 26 17 Rhode Island........................................ 41-51 310-387 204 15 26 16 South Carolina...................................... 20 203 141 15 26 11 South Dakota........................................ 28 168 128 18 26 11 Tennessee........................................... 30 185 129 12 26 12 Texas............................................... 41 245 177 9 26 16 Utah................................................ 17 248 175 10 26 13 Vermont............................................. 36 209 156 26 26 16 Virginia............................................ 65 208 162 12 26 14 Virgin Islands...................................... 32 211 162 13 26 18 Washington.......................................... 73 340 180 16 30 17 West Virginia....................................... 24 280 161 26 26 14 Wisconsin........................................... 46 243 161 12 26 12 Wyoming............................................. 40 220 159 12 26 15 ---------------------------------------------------------------------------------------------------------------- \1\A range of amounts is shown for those States that provide dependents' allowances. Source: U.S. Department of Labor. Most States vary the duration of benefits with the amount of earnings the claimant has in the base year. Nine States provide the same duration for all claimants. The minimum durations range from 5 weeks in Oregon to 26 weeks in 9 States. The maximum duration is 26 weeks in 51 States. Two States have maximum durations longer than 26 weeks, up to 30 weeks in Massachusetts and Washington. Since the beginning of 1993, nine States increased their minimum weekly benefit amounts. Thirty-three States raised their maximum weekly benefit amounts. One State lowered its minimum potential duration. EXTENDED BENEFITS The Federal-State extended benefits program provides one- half of a claimant's total State benefits up to 13 weeks in States with an activated program, for a combined maximum of 39 weeks of regular and extended benefits. Weekly benefit amounts are identical to the regular State UC benefits for each claimant, and Federal funds pay half the cost. The program activates in a State under two conditions: (1) if the State's 13-week average insured unemployment rate (IUR) in the most recent 13 weeks is at least 120 percent of the average of its 13-week IUR's in the last 2 years for the same 13-week calendar period and its current 13-week average IUR is at least 5.0 percent; or (2) at State option, if its current 13-week average IUR is at least 6.0 percent. All but 12 State programs have adopted the second, optional condition. The 13-week average IUR is calculated from the ratio of the average number of insured unemployed persons under the regular State programs in the last 13 weeks to the average covered employment in the first 4 of the last 6 completed calendar quarters. States have the option of electing an alternative trigger authorized by the Unemployment Compensation Amendments of 1992 (P.L. 102-318). This new trigger is based on a 3-month average total unemployment rate (TUR) using seasonally adjusted data. If this TUR average exceeds 6.5 percent and is at least 110 percent of the same measure in either of the prior 2 years, a State can offer 13 weeks of EB. If the average TUR exceeds 8 percent and meets the same 110-percent test, 20 weeks of EB can be offered. Analysis of historical data shows that this TUR trigger would have made EB more widely available than did the IUR trigger. As of June 30, 1994, the TUR trigger has been authorized by 8 States (Alaska, Connecticut, Kansas, Maine, Oregon, Rhode Island, Vermont, and Washington). Extended benefits were activated using the TUR trigger in October 1993 in Oregon (for 13 weeks) and Washington (for 20 weeks), and in March 1994 in Maine (20 weeks). BENEFIT EXHAUSTION Due to the limited duration of UC benefits, some individuals exhaust their benefits. For the regular State programs, 3.3 million individuals exhausted their benefits in fiscal year 1993, or 39 percent of claimants who began receiving UC during the 12 months ending March 31, 1993. These exhaustions raise the question of whether new policies are needed to reduce the exhaustion rate or ameliorate financial hardships caused by the cessation of benefits. A study of exhaustees was completed in September 1990 by Mathematica Policy Research, Inc., under contract to the U.S. Department of Labor.\1\ The purpose of this study was to examine the characteristics and behavior of exhaustees and nonexhaustees and to explore the implications of this information. The UC exhaustees study was designed to provide nationally representative estimates of the characteristics of exhaustees and nonexhaustees. The samples were chosen from individuals who began collecting benefits during the period October 1987 through September 1988. Overall, 1,920 exhaustees and 1,009 nonexhaustees were interviewed. --------------------------------------------------------------------------- \1\Corson, Walter and Dynarski, Mark. A Study of Unemployment Insurance Recipients and Exhaustees: Findings from a National Survey. U.S. Department of Labor, Unemployment Insurance Service. Occasional Paper 90-3. September 1990. --------------------------------------------------------------------------- The study's authors reached three general conclusions: --A large proportion of UI recipients expected to be recalled to their previous jobs. The unemployment spells of these job-attached workers were considerably shorter than those of workers who suffered permanent job losses, and few job-attached workers exhausted their UI benefits. The practice of exempting job-attached workers from administrative work-search requirements is sensible under these circumstances. Workers who were not job-attached--in particular, workers who were dislocated from their previous jobs or who had low skill levels--were likely to experience long unemployment spells, and a significant proportion of these workers exhausted their UI benefits. For this group, administrative work-search requirements are sensible. Targeting reemployment services to this group may also be a reasonable strategy for reducing periods of joblessness. --The work disincentive effect was not a dominant factor in explaining the exhaustion of UI benefits. Most workers who exhausted their benefits were still unemployed more than a month after receiving their final payment, and a majority were still unemployed two months after receiving their final payment. Moreover, workers who found jobs after exhausting their UI benefits were generally receiving lower wages than on their prior jobs. Under these circumstances, extending the potential duration of UI benefits may reduce the financial hardships of exhaustion considerably, while creating only mild disincentive effects for some workers. --State exhaustion rate trigger mechanisms would not be clearly superior to the State Insured Unemployed Rate (IUR) triggers in targeting extended benefits to areas with high cyclical unemployment. Substate trigger mechanisms for extended benefits would do a poor job of targeting extended benefits to local areas with high structural unemployment. SUPPLEMENTAL BENEFITS The extended benefits (EB) program was enacted to provide unemployment benefits to workers who had exhausted their regular benefits during periods of high unemployment. Before enactment of a permanent EB program, Congress authorized two temporary programs. First, a voluntary program was authorized by the Temporary Unemployment Compensation (TUC) Act of 1958 (P.L. 85-441). TUC was signed into law on June 4, 1958; it expired on April 10, 1959 (June 30, 1959, for Federal employees and veterans). TUC was established in response to the 1957-58 recession. It offered States interest-free loans if they increased the duration of benefits to UI recipients by 50 percent (up to a maximum of 13 weeks) after they had exhausted their regular benefits. A total of 17 States participated, while 5 other States enacted their own EB programs. Between June 1958 and July 1959 slightly over 2 million claimants received benefits totalling $600 million under TUC. The second temporary EB program was authorized by the Temporary Extended Unemployment Compensation (TEUC) Act of 1961 (P.L. 87-6). TEUC was enacted on March 24, 1961; it expired on June 30, 1962. The program was financed through the Unemployment Trust Fund by a temporary increase in the net Federal unemployment tax. All States were required to participate. UI recipients who had exhausted their regular benefits could receive up to 50 percent of their regular benefits for up to 13 weeks, provided that the combined total duration of regular and extended benefits did not exceed 39 weeks. A total of 2.8 million claimants received benefits totaling $817 million during the 15 months of this program. The Federal-State Extended Unemployment Compensation Act of 1970 (P.L. 91-373) authorized a permanent mechanism for providing extended benefits. Under the original program, UI recipients who had exhausted their regular benefits could receive EB if: (1) the national seasonally adjusted insured unemployment rate reached at least 4.5 percent for 3 consecutive months; or (2) their State's insured unemployment averaged at least 4 percent for 13 consecutive weeks and was at least 120 percent higher than the average insured unemployment rate for the corresponding 13 weeks during the preceding 2 years. As with TEUC, UI recipients who exhausted their regular benefits receive 50 percent of their regular benefits for up to 13 weeks of EB, provided that the total duration did not exceed 39 weeks. EB rules were amended by the Omnibus Budget Reconciliation Act (OBRA) of 1981 (P.L. 97-35) and the Unemployment Compensation Amendments of 1992 (P.L. 102-318). On three occasions temporary programs have provided supplemental benefits to UI recipients who had exhausted both their regular and extended benefits during periods of severe unemployment. The Emergency Unemployment Compensation Act of 1971 (P.L. 92-224) was enacted on December 29, 1971, and was originally scheduled to expire on September 30, 1972. This program was financed by the Federal Government through the Extended Unemployment Compensation Account (EUCA), from which non- interest-bearing repayable advances were made available to the States. A State became eligible when its insured unemployment rate was at least 6.5 percent, unless it failed to meet a requirement that the average of the current 13-week insured unemployment rate be at least 120 percent of the average of the rates for the same 13-week periods for the last 2 years. UI recipients who exhausted their regular and extended benefits were eligible to receive benefits for up to half of the duration of their regular benefits or 13 weeks, whichever was less. P.L. 92-329 extended this act for 6 months, until it expired on March 31, 1973. The Emergency Unemployment Compensation Act of 1974 (P.L. 93-572) was enacted on December 31, 1974, and created the Federal Supplemental Benefits (FSB) program. FSB was authorized in response to the 1974-75 recession. Initially, funds for the program came from non-interest-bearing repayable advances from the general fund, which Congress expected the Unemployment Trust Fund to repay from EUCA after the recession. UI recipients who exhausted their regular and extended benefits could receive up to 13 weeks of FSB. States became eligible if they met either the national or State insured unemployment rates specified in the Federal-State Unemployment Compensation Act of 1970 for EB eligibility. FSB was extended 3 times. The Tax Reduction Act of 1975 (P.L. 94-12) doubled the potential duration of FSB to 26 weeks, allowing a UI recipient to receive benefits under the regular, extended, and FSB programs for up to 65 weeks. These additional benefits were financed by the Federal Government and were to expire on January 1, 1976. The Emergency Compensation and Special Unemployment Assistance Extension Act of 1975 (P.L. 94-45) extended FSB to March 31, 1977. Among other provisions, this law abolished the national trigger for State FSB eligibility. The Emergency Unemployment Compensation Extension Act of 1977 (P.L. 95-19) reduced FSB to a potential duration of 13 weeks. The Act provided that, after April 1, 1977, FSB would be financed through non-repayable advances from Federal general revenue. It also extended FSB to October 31, 1977, when the program finally expired. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (P.L. 97-248) established the Federal Supplemental Compensation (FSC) program in response to the 1982 recession. TEFRA was enacted on September 3, 1982, and FSC was scheduled to expire on March 31, 1983. The program provided benefits to UI recipients who had exhausted their regular and extended benefits on or after June 1, 1982, for up to 6, 8, or 10 weeks of benefits. FSC claimants received the same weekly sums as under the regular Federal-State UI program. The FSC program was extended and modified six times. The Surface Transportation Assistance Act of 1982 (P.L. 97- 424) was enacted on January 6, 1983. The act provided that the duration of FSC benefits would be 16, 14, 12, 10, or 8 weeks, depending on conditions within a State. The expiration date of March 31, 1983, was left unchanged. P.L. 98-13, which was enacted on March 29, 1983, continued the program past the expiration date pending completion of the Social Security Amendments of 1983, which contained a 6-month extension. That measure (P.L. 98-21), enacted on April 20, 1983, extended FSC retroactively from April 1, 1983, to September 30, 1983. This act provided for basic FSC benefits for 14, 12, 10, or 8 weeks, depending on the unemployment conditions within a State. It also provided additional FSC benefits of 10, 8, or 6 weeks to individuals who exhausted their basic FSC benefits on or before April 1, 1983. Additional FSC benefits were equal to three- fourths of the basic FSC benefits payable in a State. FSC was extended three more times. P.L. 98-118, enacted on October 11, 1983, extended FSC to October 18, 1983. The Federal Supplemental Compensation Amendments of 1983 (P.L. 98-135), enacted on October 24, 1983, extended FSC until March 31, 1985. This legislation provided basic FSC benefits for up to 14, 12, 10, or 8 weeks and provided additional FSC benefits for up to 5, 4, or 2 weeks, depending on the unemployment conditions within a State. P.L. 99-15, enacted on April 4, 1985, extended the FSC program until June 30, 1985, when it finally expired. The Emergency Unemployment Compensation Act of 1991 (P.L. 102-164) enacted on November 15, 1991, and amended by P.L. 102- 182 on December 4, 1991, authorized a temporary emergency unemployment compensation (EUC) program to provide additional weeks of assistance through June 13, 1992. The EUC program effectively superseded EB. The EUC program entitled people whose regular UC benefit years expired on or after March 1, 1991, to extra weeks of assistance. The program as amended provided 20 weeks of benefits in States with an adjusted insured unemployment rate (AIUR) of at least 5 percent or a 6-month average total unemployment rate (TUR) of at least 9 percent. Beneficiaries in other States received 13 weeks of benefits. (The AIUR is the IUR used to trigger EB, adjusted to include regular benefit exhaustees in a State for the most recent 3 months for which data are available.) Congress authorized EUC with an additional 13 weeks of benefits for eligibles in all States by enacting Public Law 102-244 on February 7, 1992. Thus, EUC could pay benefits for up to 26 or 33 weeks, depending on the State. The program was set to expire on July 4, 1992. Benefit durations were to return to the original 13 or 20 weeks after June 13, 1992. Another extension of EUC was enacted on July 3, 1992 (P.L. 102-318). It reduced the available benefits to 20 or 26 weeks and extended the program through March 6, 1993. A third extension, enacted on March 4, 1993 (P.L. 103-6), extended EUC for new claims filed through October 2, 1993. Finally, EUC was extended by P.L. 103-152 on November 25, 1993, retroactive to October 3, 1993, for new claims filed on or before February 5, 1994. Benefit payments to claimants were made through April 30, 1994. Benefits were reduced to 7 or 13 weeks, depending on a State's unemployment rate. Benefits under EUC were originally financed from spending authority in the Extended Unemployment Compensation Account (EUCA) of the Unemployment Trust Fund. However, depletion of EUCA led Congress to fund EUC from Federal general revenue from July 1992 until October 1993. States that qualified for EB while EUC was in effect could elect to trigger off EB. This reduced the State funding burden, since 50 percent of EB costs are financed from State UC accounts while EUC was entirely federally funded. As of the week beginning January 9, 1994, 13 weeks of benefits were available from EUC in 4 States (Alaska, California, Puerto Rico, and West Virginia). (Washington and Oregon were offering EB based on the optional TUR trigger.) All other States had 7 weeks available from EUC. Table 7-6 shows for each State the number of EUC claims during the week ending December 18, 1993, and average weekly benefits during December 1993. Nationally, claims totaled 1.0 million, with three States (California, New York and Pennsylvania) accounting for more than one-third of them. The average weekly EUC benefit nationwide was $173, the same as the U.S. average for the regular UC program. TABLE 7-6.--NUMBER OF CLAIMS, AVERAGE WEEKLY BENEFITS AND BENEFITS PAID IN THE EUC PROGRAM BY STATE ------------------------------------------------------------------------ No. of continued Average Total benefits claims, weekly paid Nov. 15, State week ending benefit, 1991 through Dec. 18, December Feb. 5, 1994 1993 1993 (millions)\1\ ------------------------------------------------------------------------ U.S. total.............. 971,639 173 $26,210 ----------------------------------------- Alabama....................... 8,821 120 158 Alaska........................ 5,452 166 110 Arizona....................... 7,031 141 168 Arkansas...................... 7,992 \2\153 145 California.................... 241,394 158 4,127 Colorado...................... 6,781 \3\182 159 Connecticut................... 17,745 204 752 Delaware...................... 1,649 173 41 District of Columbia.......... 5,105 212 127 Florida....................... 53,991 161 1,038 Georgia....................... 11,919 146 330 Hawaii........................ 3,046 259 97 Idaho......................... 3,455 151 68 Illinois...................... 42,627 188 1,134 Indiana....................... 5,763 129 164 Iowa.......................... 6,974 161 130 Kansas........................ 5,363 181 146 Kentucky...................... 10,900 147 188 Louisiana..................... 9,787 123 160 Maine......................... 6,518 155 184 Maryland...................... 18,361 173 444 Massachuesetts................ 25,055 234 1,200 Michigan...................... 29,775 201 1,303 Minnesota..................... 10,044 196 278 Mississippi................... 5,952 120 124 Missouri...................... 17,063 142 361 Montana....................... 2,456 138 36 Nebraska...................... 1,843 127 25 Nevada........................ 2,807 167 126 New Hampshire................. 1,594 138 70 New Jersey.................... 42,866 220 2,036 New Mexico.................... 2,257 142 55 New York...................... 92,292 192 3,543 North Carolina................ 14,408 146 368 North Dakota.................. 1,496 148 23 Ohio.......................... 29,599 179 867 Oklahoma...................... 4,666 169 133 Oregon........................ 6,482 165 350 Pennsylvania.................. 64,550 193 2,009 Puerto Rico................... 18,250 89 188 Rhode Island.................. 10,037 200 264 South Carolina................ 8,503 138 185 South Dakota.................. 289 122 4 Tennessee..................... 11,443 125 273 Texas......................... 42,978 170 1,209 Utah.......................... 2,392 172 56 Vermont....................... 2,103 154 50 Virginia...................... 10,761 156 278 Virgin Islands................ \4\112 NA (\5\) Washington.................... 10,753 166 490 West Virginia................. 7,450 167 158 Wisconsin..................... 9,920 166 260 Wyoming....................... 769 161 19 ------------------------------------------------------------------------ \1\Data are incomplete for some States. \2\Data for October 1993. \3\Data for November 1993. \4\Data for week ending Nov. 27, 1993. \5\Less than $500,000. NA--Not available. Source: U.S. Dept of Labor. Table 7-7 shows the monthly trend in EUC continuing claims and first payments. The number entering the program remained fairly steady from February 1992 through November 1992 at about 300,000 a month, but entrants exceeded that total for all but one of the next 9 months. The total number of active claims varied between 1.4 and 1.7 million from January 1992 through April 1993 but fell below 1.0 million in December 1993. TABLE 7-7.--EMERGENCY UNEMPLOYMENT COMPENSATION CLAIMS [In thousands] ------------------------------------------------------------------------ Continuing First claims (end Month payments\1\ of month)\1\ ------------------------------------------------------------------------ 1991: November.................................. 114 635 December.................................. 1,051 1,196 1992: January................................... 447 1,505 February.................................. 320 1,651 March..................................... 310 1,655 April..................................... 308 1,675 May....................................... 264 1,683 June...................................... 271 1,483 July...................................... 282 1,411 August.................................... 302 1,416 September................................. 309 1,467 October................................... 321 1,501 November.................................. 294 1,660 December.................................. 386 1,466 1993: January................................... 471 1,486 February.................................. 321 1,479 March..................................... 378 1,374 April..................................... 347 1,437 May....................................... 297 1,286 June...................................... 328 1,329 July...................................... 389 1,447 August.................................... 388 1,353 September................................. 293 1,300 October................................... 137 1,032 November.................................. 65 1,283 December.................................. 383 922 ------------------------------------------------------------------------ \1\Reports were not received from all States for every month. Nonreporting was highest in November 1991. Source: U.S. Department of Labor. Table 7-8 shows outlay estimates for EUC at different points in time. The January 1993 budget baseline estimate of $18.2 billion for fiscal years 1992 and 1993, prepared before the March 1993 extension of EUC, greatly exceeded the earlier estimates: $12.8 billion in OMB's July 1992 Midsession Review; $8.3 billion by OMB when the laws were enacted; $12.0 billion by CBO when the laws were enacted. The growth in the estimate of $5.4 billion from July 1992 to January 1993 was attributed by the Department of Labor to three factors: exhaustions from the regular State program were unexpectedly near record levels; claimants were staying on EUC longer than expected; and large numbers of claimants eligible for both regular benefits and EUC were choosing EUC. After the issuance of the January 1993 baseline estimate, the further extension of EUC into fiscal year 1994 occurred. The estimated cost raised the total estimated cost at time of enactment to $18.6 billion (CBO) and $14.8 billion (OMB). The Clinton administration's budget released in February 1994 estimated the total cost of EUC benefits to be $28.0 billion for the 3 years. TABLE 7-8.--EUC OUTLAYS FOR FISCAL YEARS 1992-94 [In billions of dollars] ------------------------------------------------------------------------ Fiscal years ---------------------------- Total 1992 1993 1994 ------------------------------------------------------------------------ Estimates at time of enactment By OMB: Public Law 102-164, Public Law 102-182........................ 3.0 (0.1) 0 2.9 Public Law 102-244.............. 2.5 .3 0 2.8 Public Law 102-318.............. .6 2.0 0 2.6 Public Law 103-6................ 0 3.1 2.3 5.4 Public Law 103-152.............. 0 0 1.1 1.1 ----------------------------------- Total......................... 6.1 5.3 3.4 14.8 =================================== By CBO: Public Law 102-164, Public Law 102-182........................ 4.3 (\1\) 0 4.3 Public Law 102-244.............. 2.7 .6 0 3.3 Public Law 102-318.............. 1.0 3.4 0 4.4 Public Law 103-6................ 0 3.2 2.3 5.5 Public Law 103-152.............. 0 0 1.1 1.1 ----------------------------------- Total......................... 8.0 7.2 3.4 18.6 OMB fiscal year 1993 Midsession review, July 1992.................. 9.7 3.1 0 12.8 OMB fiscal year 1994 baseline, January 1993....................... 11.1 7.1 0 18.2 OMB fiscal year 1994 Clinton budget, April 1993......................... 11.1 12.3 2.1 25.5 OMB fiscal year 1994 Midsession review, July 1993.................. 11.1 12.7 1.8 25.6 OMB fiscal year 1995 baseline, January 1994....................... 11.1 13.2 3.7 28.0 ------------------------------------------------------------------------ \1\Less than $50,000,000. Source: Office of Management and Budget, Congressional Budget Office. HYPOTHETICAL WEEKLY BENEFIT AMOUNTS FOR VARIOUS WORKERS IN THE REGULAR STATE PROGRAMS Table 7-9 illustrates benefit amounts for various full-year workers in regular State programs for January 1994. Column A of the table is for a full-time worker earning the minimum wage; column B is for a worker earning $6 per hour, while column C shows benefit amounts for a worker earning $9 per hour. Column D is for a part-time worker earning the minimum wage and working 20 hours per week. The weekly benefit amount for the full-time minimum wage worker varies from $77 to $176. The maximum amount a worker can receive in these examples (column C) in each State varies considerably, from $120 to $340 per week. TABLE 7-9.--WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS IN JANUARY 1994 ---------------------------------------------------------------------------------------------------------------- Hypothetical worker\1\ ------------------------------------------------------- A B C D ---------------------------------------------------------------------------------------------------------------- Alabama................................................. 165 165 165 92 Alaska.................................................. 106 134 232 70 Arizona................................................. 88 125 185 44 Arkansas................................................ 85 120 180 45 California.............................................. 82 105 142 46 Colorado................................................ 101 144 216 50 Connecticut............................................. 95 130 210 52 Delaware................................................ 96 135 203 48 District of Columbia.................................... 90 125 195 0 Florida................................................. 85 120 180 42 Georgia................................................. 88 124 185 44 Hawaii.................................................. 106 149 223 53 Idaho................................................... 85 120 180 0 Illinois................................................ 101 141 237 59 Indiana................................................. 98 134 192 54 Iowa.................................................... 100 141 234 50 Kansas.................................................. 93 132 198 59 Kentucky................................................ 105 148 222 52 Louisiana............................................... 77 109 164 38 Maine................................................... 110 151 228 60 Maryland................................................ 93 130 211 47 Massachusetts........................................... 85 120 230 43 Michigan................................................ NA NA NA NA Minnesota............................................... 85 120 180 42 Mississippi............................................. 85 120 165 42 Missouri................................................ 99 140 175 49 Montana................................................. 88 124 187 44 Nebraska................................................ 92 128 154 48 Nevada.................................................. 88 124 187 44 New Hampshire........................................... 98 123 164 0 New Jersey.............................................. 109 154 248 0 New Mexico.............................................. 85 120 180 42 New York................................................ 85 120 180 43 North Carolina.......................................... 85 120 180 42 North Dakota............................................ 85 120 180 0 Ohio.................................................... 85 120 180 0 Oklahoma................................................ 88 124 187 44 Oregon.................................................. 110 156 234 60 Pennsylvania............................................ 95 132 197 52 Puerto Rico............................................. 85 120 133 43 Rhode Island............................................ 102 144 236 51 South Carolina.......................................... 85 120 180 42 South Dakota............................................ 85 120 168 42 Tennessee............................................... 169 185 185 84 Texas................................................... 89 125 188 45 Utah.................................................... 86 120 180 43 Vermont................................................. 98 138 208 0 Virginia................................................ 88 124 187 0 Virgin Islands.......................................... 85 120 180 42 Washington.............................................. 176 249 340 88 West Virginia........................................... 93 131 198 46 Wisconsin............................................... 88 124 187 0 Wyoming................................................. 88 124 187 44 ---------------------------------------------------------------------------------------------------------------- \1\Hypothetical workers: A. $4.25/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children. B. $6.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children. C. $9.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; 2 children. D. $4.25/hr. wage; 20 hrs./wk.; 52 wks./yr.; nonworking spouse; no children. NA--Not available. Michigan computes benefits based on after-tax wages. Source: U.S. Department of Labor. THE UNEMPLOYMENT TRUST FUND The Federal unified budget accounts for all Federal-State UC outlays and taxes in the Federal Unemployment Trust Fund. The Unemployment Trust Fund has 59 accounts. The accounts consist of 53 State UC benefit accounts, the Railroad Unemployment Insurance Account, the Railroad Administration Account, and four Federal accounts. (The railroad accounts are discussed in section 8 of this document.) The four Federal accounts in the trust fund are: (1) the Employment Security Administration Account (ESAA), which funds administration; (2) the Extended Unemployment Compensation Account (EUCA), which funds the Federal half of the Federal- State extended benefits program; (3) the Federal Unemployment Account (FUA), which funds loans to insolvent State UC programs; and (4) the Federal Employee Compensation Account (FECA), which funds benefits for Federal civilian and military personnel authorized under 5 U.S.C. 85. Federal unemployment taxes finance the ESAA, EUCA, and FUA, but general revenues finance the FECA. Present law authorizes interest-bearing loans to ESAA, EUCA, and FUA from the general fund. The three accounts may receive noninterest-bearing advances from one another to avoid insufficiencies. Financial Condition of the Unemployment Trust Fund Federal Accounts.--At the end of fiscal year 1993, the Employment Security Administration Account (ESAA) had reached its fiscal year 1993 ceiling of $1.4 billion; the Extended Unemployment Compensation Account (EUCA) balance was below its ceiling of $8.4 billion by $7.5 billion; the Federal Unemployment Account (FUA) fell short of its $13.9 billion ceiling by $9.0 billion. Under the administration's fiscal year 1995 budget assumptions, the EUCA balance will continue to fall well short of its ceiling throughout the 5-year projection period. By the end of fiscal year 1999, FUA would be short by only $0.6 billion, however. State Accounts.--The State accounts had recovered substantially from the financial problems that began in the 1970's and continued through the early 1980's, but the 1990-91 recession reversed that trend. Table 7-10 shows that the State accounts at the beginning of 1994 held $28.8 billion, which still represents a marked improvement over the negative balance of nearly $3 billion in 1982. The balances in the State accounts are about the same as the balances in the early 1970's after adjusting for inflation, before serious financial problems began for most States. However, State reserve ratios (trust fund balances divided by total wages paid in the respective States during the year) show that a number of State accounts are at risk of financial problems in major recessions. The third column from the right margin of table 7-10 shows that these State ratios are only 43 percent of their levels in 1970. Two States (Massachusetts and Missouri) presently have outstanding Federal loans to their accounts. For the third quarter of calendar year 1993, the second-to- last column of table 7-10 shows for each State the ``High-Cost Multiple,'' the ratio of the State's reserve ratio to its highest cost rate. The highest cost rate is determined by choosing the highest ratio of costs to total covered wages paid in a prior year. States with high-cost multiples of at least 1.0 have reserves that could withstand a recession as bad as the worst one they have experienced previously. States with high-cost multiples below 1.0 have been at significant risk of insolvency during recessions. Thirty-two States had high-cost multiples below 1.0. Twenty-six States had high-cost multiples below 0.8, and 17 States had high-cost multiples below 0.5. Based on this measure, those States in the worst financial shape were Arkansas, California, Connecticut, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New York, Ohio, Pennsylvania, Rhode Island, Texas, and West Virginia. TABLE 7-10.--FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Net reserves (end of calendar year) Reserve ratios ----------------------------------------------------------------------------------------------------------- States [In millions of dollars] [Percent] 1993/ High-cost Rank ----------------------------------------------------------------------------------------------------------- 1970 multiple\1\ 1970 1975 1979 1982 1993\1\ 1970 1975 1979 1982 1993\1\ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Total.................................................... 11,903 3,070 8,583 (2,645) 28,821 3.11 0.53 0.91 -0.24 1.33 43 0.57 ..... -------------------------------------------------------------------------------------------------------------------------------------- Alabama.................................................. 130 (2) 118 9 577 2.96 0 .98 .06 2.04 69 .94 23 Alaska................................................... 35 75 65 134 227 5.51 3.07 2.78 2.94 4.47 81 1.03 19 Arizona.................................................. 119 67 226 215 376 4.25 1.35 2.36 1.66 1.36 32 .55 36 Arkansas................................................. 49 2 24 (77) 133 2.26 .04 .37 0 .89 39 .33 41 California............................................... 1,219 546 2,738 2,708 2,700 2.91 .88 2.51 1.83 .96 33 .41 37 Colorado................................................. 91 47 137 (4) 387 2.54 .70 1.11 0 1.24 49 .98 22 Connecticut.............................................. 252 (232) (267) (252) 1 0.08 0 0 0 0 0 0 52 Delaware................................................. 22 0 (30) (35) 228 1.72 0 0 0 3.18 185 1.18 15 District of Columbia..................................... 74 (3) (44) (57) 8 3.22 0 0 0 .08 2 .04 51 Florida.................................................. 268 80 665 865 1,562 2.60 .42 2.13 1.89 1.58 61 .86 25 Georgia.................................................. 340 268 447 397 1,087 4.74 2.28 2.28 1.49 1.88 40 .88 24 Hawaii................................................... 44 5 79 108 323 2.90 .23 2.24 2.43 3.18 110 1.20 13 Idaho.................................................... 46 54 93 29 241 5.16 3.21 3.20 .85 3.64 71 1.15 17 Illinois................................................. 401 (31) (460) (2,069) 936 1.55 0 0 0 .81 52 .30 43 Indiana.................................................. 326 198 418 63 1,020 3.13 1.31 1.69 .23 2.12 68 1.19 14 Iowa..................................................... 125 63 155 (63) 641 3.19 .96 1.45 0 3.29 103 1.25 11 Kansas................................................... 84 135 238 142 659 3.00 2.65 2.75 1.29 3.13 104 1.59 5 Kentucky................................................. 175 137 159 (121) 404 4.21 1.95 1.36 0 1.65 39 .59 35 Louisiana................................................ 146 141 238 (102) 681 2.91 1.58 1.51 0 2.51 86 .81 26 Maine.................................................... 39 2 0 (4) 50 2.86 0 0 0 .63 22 .22 47 Maryland................................................. 213 29 273 220 235 3.26 .29 1.83 1.11 .60 18 .27 46 Massachusetts............................................ 378 (99) 132 436 (154) 3.04 0 0 1.23 0 0 0 52 Michigan................................................. 491 (286) 112 (2,186) 421 2.49 0 .25 0 .50 20 .14 49 Minnesota................................................ 119 (35) 70 (288) 241 1.76 0 .41 0 .57 32 .29 45 Mississippi.............................................. 85 90 231 257 402 3.87 2.25 3.47 3.12 2.86 74 1.45 7 Missouri................................................. 264 95 296 (64) 7 3.03 .75 1.47 0 .02 1 .09 50 Montana.................................................. 26 8 16 9 101 3.33 .57 0 .27 1.94 58 .64 34 Nebraska................................................. 55 29 81 72 170 2.87 .84 1.58 1.14 1.53 53 1.02 20 Nevada................................................... 39 5 95 122 237 3.20 .22 2.31 2.02 1.79 56 .65 32 New Hampshire............................................ 55 29 82 75 166 4.62 1.56 2.42 1.60 1.79 39 .71 29 New Jersey............................................... 448 (348) (507) (423) 2,049 2.76 0 0 0 2.38 86 .71 29 New Mexico............................................... 40 33 80 101 263 3.45 1.61 2.14 1.98 3.02 88 1.84 3 New York................................................. 1,693 574 403 819 327 3.76 1.02 .51 .78 .18 5 .18 48 North Carolina........................................... 414 342 564 400 1,490 5.22 2.71 2.71 1.52 2.69 52 1.04 18 North Dakota............................................. 13 22 21 11 53 2.53 1.94 1.13 .46 1.58 62 .67 31 Ohio..................................................... 693 294 513 (1,658) 852 3.01 .91 1.02 0 .92 31 .30 43 Oklahoma................................................. 55 27 177 108 438 1.69 .46 1.56 .62 2.19 130 1.60 4 Oregon................................................... 122 24 320 161 1,068 3.39 .40 3.00 1.37 4.73 140 1.47 6 Pennsylvania............................................. 852 (86) (1,091) (2,145) 1,153 3.53 0 0 0 1.20 34 .36 38 Puerto Rico.............................................. 85 (26) (33) (47) 747 4.90 0 0 0 8.91 182 2.12 2 Rhode Island............................................. 75 (41) (96) (76) 115 4.34 0 0 0 1.54 35 .35 40 South Carolina........................................... 166 95 195 50 476 4.61 1.61 1.96 .40 1.89 41 .65 32 South Dakota............................................. 8 20 16 9 49 3.81 1.96 .95 .43 1.29 34 1.24 12 Tennessee................................................ 212 200 264 15 676 3.57 1.95 1.63 .08 1.67 47 .77 28 Texas.................................................... 337 231 396 142 543 1.90 .71 .65 0 .37 19 .33 41 Utah..................................................... 51 32 67 10 356 3.55 1.22 1.43 .16 2.92 82 1.44 8 Vermont.................................................. 26 (25) (21) (27) 181 3.72 0 0 0 4.43 119 1.36 9 Virginia................................................. 218 122 103 14 555 3.41 1.08 .56 .06 1.05 31 .80 27 Virgin Islands........................................... NA NA (7) 46 52 NA NA 0 0 7.60 NA 3.33 1 Washington............................................... 226 (67) 297 (3) 1,782 3.73 0 1.66 .70 4.23 113 1.00 21 West Virginia............................................ 108 78 39 150 156 4.07 1.70 .56 0 1.53 38 .38 39 Wisconsin................................................ 322 121 465 (144) 1,251 4.29 .99 2.37 0 3.02 70 1.17 16 Wyoming.................................................. 19 31 69 (413) 122 4.29 3.02 3.15 1.44 4.11 96 1.36 9 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ \1\Data are for the third quarter of calendar year 1993. Source: U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Service, Division of Actuarial Services, UI Data Summary, 3d quarter, calendar year 1993, Dec. 1993. U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Financial Handbook Data. Table 7-11 summarizes the beginning balances in the unemployment trust fund accounts for selected fiscal years. At the start of fiscal year 1994, the four Federal accounts and the 53 State benefit accounts had a total balance of $37.0 billion. In real terms this represents a decline of 25 percent compared to 1971. This decline in real dollars in the State accounts from 1971 does not allow for the further erosion implied by the 53-percent increase in the labor force over this time period. A better measure is the ratio of the 1993 to 1970 reserve ratios in table 7-10, which shows that aggregate reserves in 1993 were only a little more than two-fifths of their level in 1970. TABLE 7-11.--BEGINNING-OF-YEAR BALANCES IN UNEMPLOYMENT TRUST FUND ACCOUNTS FOR SELECTED FISCAL YEARS [In millions of dollars] ------------------------------------------------------------------------ Account 1971 1976 1980 1983 1994 ------------------------------------------------------------------------ Employment security administration............ 65 365 572 545 2,123 Extended unemployment compensation.............. 0 116 764 483 877 Federal unemployment (reserve for State loans). 575 9 567 599 4,948 Federal employee compensation.............. (\1\) (\1\) (\1\) 24 206 State unemployment compensation\2\........... 12,409 6,145 8,272 720 28,821 -------------------------------------------- Total: Nominal dollars..... 13,049 6,635 10,175 2,371 36,975 Total: Real dollars\3\..... 49,572 18,394 20,755 3,569 36,975 ------------------------------------------------------------------------ \1\There was no separate account for Federal employee compensation for this year. \2\Figures are net of loans from Federal funds. \3\Real dollars are obtained using CPI-U for the preceding fiscal years. Source: U.S. Department of Labor, Unemployment Insurance Service, Division of Actuarial Services. The Federal unemployment tax Total unemployment taxes on employers for a full-time, full-year worker earning the average wage in covered employment in 1992 is estimated to have averaged $260, or 13 cents per hour. The Federal portion is $56, or 3 cents per hour, and the average State portion is $204, or 10 cents per hour. Employer taxes vary substantially, however, depending on the State taxable wage base, State tax schedules, and Federal credits. The Federal Unemployment Tax Act (FUTA) currently imposes a minimum, net Federal payroll tax on employers of 0.8 percent on the first $7,000 paid annually to each employee. The gross FUTA tax rate is 6.2 percent, but employers in States meeting certain Federal requirements and having no delinquent Federal loans are eligible for a 5.4 percent credit, making the minimum, net Federal tax rate 0.8 percent. Chart 7-2 shows the historical trend in the Federal taxable wage base from 1940 to 1992. The wage base was held constant at $3,000 until 1971, but has been increased three times since then. The chart also shows the erosion of the taxable wage base during the 1950's and 1960's relative to wage growth. If the taxable wage base had been indexed for wage growth since 1940, the wage base would have been over $50,000 in 1992 instead of only $7,000. Chart 7-3 depicts the historical trends in the statutory and effective Federal unemployment tax rates. The effective tax rate equals FUTA revenue as a percent of total covered wages. Although the statutory tax rate doubled from 0.4 percent in the late 1960's to 0.8 percent in the late 1980's, the effective tax rate has fluctuated between 0.2 and 0.3 percent in most of those years. CHART 7-2. FEDERAL UC TAXABLE ANNUAL WAGE BASE IN CURRENT AND WAGE- ADJUSTED DOLLARS, 1940-92 Source: Chart prepared by the Congressional Research Service (CRS) based on data from the U.S. Department of Labor (DoL). CHART 7-3. HISTORY OF FEDERAL UNEMPLOYMENT TAX RATE, 1954-93 Source: Chart prepared by the Congressional Research Service (CRS) based on data from the U.S. Department of Labor (DoL). CHART 7-4. FLOW OF FUTA FUNDS UNDER EXISTING FEDERAL STATUTES State unemployment taxes The States finance their programs and half of the permanent extended benefits program with employer payroll taxes imposed on at least the first $7,000 paid annually to each employee.\2\ States have adopted taxable wage bases at least as high as the Federal level because they otherwise would lose the 5.4 percent credit to employers on the difference between the Federal and State taxable wage bases. Table 7-12 shows that, as of January 1994, 41 States had taxable wage bases higher than the Federal taxable wage base, ranging up to $25,000 in Hawaii. --------------------------------------------------------------------------- \2\Alaska, New Jersey, and Pennsylvania also tax employees directly. --------------------------------------------------------------------------- Although the standard State tax rate is 5.4 percent, State tax rates based on unemployment experience can range from zero on some employers in 15 States up to a maximum as high as 10 percent in 3 States. Estimated national average State tax rates on taxable wages and total wages for 1993 were 2.3 and 0.9 percent, respectively. Estimated average State tax rates on taxable wages ranged from 0.5 percent in South Dakota to 4.8 percent in New York and Pennsylvania. Estimated average State tax rates on total wages varied from 0.2 percent in South Dakota to 2.1 percent in Rhode Island. TABLE 7-12.--STATE UNEMPLOYMENT TAX BASES AND RATES ---------------------------------------------------------------------------------------------------------------- 1994 experience Estimated 1993 rates\1\ average tax rates 1994 tax ---------------------- as a percent of-- State base -------------------- Minimum Maximum Taxable All wages wages ---------------------------------------------------------------------------------------------------------------- U.S. average............................................ NA NA NA 2.3 0.9 ----------------------------------------------------- Alabama................................................... $8,000 0.14 6.74 1.6 .6 Alaska.................................................... 23,800 1.0 6.5 2.0 1.3 Arizona................................................... (\2\) .1 5.4 1.5 .4 Arkansas.................................................. 9,000 0 6.0 3.0 1.3 California................................................ (\2\) .1 5.4 3.6 .9 Colorado.................................................. 10,000 0 5.4 1.3 .5 Connecticut............................................... 9,000 .5 6.4 3.4 .9 Delaware.................................................. 8,500 .1 8.0 2.6 .8 District of Columbia...................................... 9,500 .1 7.4 4.0 1.0 Florida................................................... (\2\) .1 5.4 1.8 .6 Georgia................................................... 8,500 .01 8.64 1.6 .6 Hawaii.................................................... 25,000 0 5.4 1.0 .7 Idaho..................................................... 20,400 .1 6.8 1.8 1.2 Illinois.................................................. 9,000 .2 6.4 2.9 1.0 Indiana................................................... (\2\) .2 5.7 1.2 .4 Iowa...................................................... 13,900 0 9.0 1.6 .8 Kansas.................................................... 8,000 .025 5.4 2.4 .9 Kentucky.................................................. 8,000 .3 10.0 2.1 .8 Louisiana................................................. 8,500 .3 6.0 1.9 .6 Maine..................................................... (\2\) .5 7.5 3.8 1.3 Maryland.................................................. 8,500 .1 8.3 2.9 1.0 Massachusetts............................................. 10,800 .6 9.3 3.9 1.6 Michigan.................................................. 9,500 0 10.0 4.1 1.4 Minnesota................................................. 15,100 .1 9.0 1.8 .9 Mississippi............................................... (\2\) .1 6.4 2.1 1.0 Missouri.................................................. 8,500 0 8.7 2.3 .8 Montana................................................... 15,100 0 6.4 1.4 .9 Nebraska.................................................. (\2\) 0 5.4 1.2 .4 Nevada.................................................... 15,900 .3 5.4 1.5 .8 New Hampshire............................................. 8,000 .01 6.5 2.2 .7 New Jersey................................................ 17,200 .4 6.47 1.2 .5 New Mexico................................................ 13,100 .1 5.4 1.5 .7 New York.................................................. (\2\) 0 6.4 4.8 1.1 North Carolina............................................ 13,200 .01 5.7 1.0 .5 North Dakota.............................................. 13,000 .1 5.4 1.4 .8 Ohio...................................................... 8,750 .1 6.5 2.9 1.0 Oklahoma.................................................. 10,700 .1 6.2 1.2 .4 Oregon.................................................... 19,000 .9 5.4 2.6 1.6 Pennsylvania.............................................. 8,000 .3 9.2 4.8 1.5 Puerto Rico............................................... (\2\) 1.0 5.4 2.9 1.0 Rhode Island.............................................. 16,400 .8 8.4 3.7 2.1 South Carolina............................................ (\2\) .19 5.4 1.8 .6 South Dakota.............................................. (\2\) 0 9.5 .5 .2 Tennessee................................................. (\2\) .1 10.0 2.0 .7 Texas..................................................... 9,000 0 6.0 1.3 .5 Utah...................................................... 16,200 .1 8.0 1.0 .6 Vermont................................................... 8,000 .4 8.4 2.7 1.0 Virginia.................................................. 8,000 0 6.2 1.2 .4 Virgin Islands............................................ 22,000 .1 9.5 1.5 1.2 Washington................................................ 19,900 .36 5.4 2.3 1.4 West Virginia............................................. 8,000 0 7.5 3.0 1.1 Wisconsin................................................. 10,500 0 8.9 2.2 1.0 Wyoming................................................... 11,400 0 8.5 2.1 1.0 ---------------------------------------------------------------------------------------------------------------- \1\Actual rates could be higher if State has an additional tax. \2\The 1994 tax base is $7,000 except as otherwise shown in this column. NA--Not applicable. Note.--This table shows State unemployment tax levels. It does not include the Federal unemployment tax. Source: Department of Labor. Table 7-13 shows recent State data on unemployment compensation covered employment, wages, taxable wages, the ratio of taxable to total wages, and average weekly wages. The ratio of taxable wages to total wages varied from 0.19 in the District of Columbia to 0.64 in Montana. TABLE 7-13.--12-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY UNEMPLOYMENT COMPENSATION (UC) FOR PERIOD ENDING DECEMBER 1992 ---------------------------------------------------------------------------------------------------------------- Ratio of Covered Taxable taxable Average State employment Total wages wages wages to weekly (thousands) (millions) (millions) total total wages wages ---------------------------------------------------------------------------------------------------------------- United States.................................... 105,168 $2,684,987 $776,547 0.29 $491 ---------------------------------------------------------- Alabama.............................................. 1,576 34,368 10,709 .31 419 Alaska............................................... 222 6,983 3,265 .47 605 Arizona.............................................. 1,487 34,003 9,214 .27 440 Arkansas............................................. 915 18,130 6,181 .34 381 California........................................... 12,174 350,578 79,343 .23 554 Colorado............................................. 1,521 37,574 12,601 .34 475 Connecticut.......................................... 1,479 48,207 9,478 .20 627 Delaware............................................. 331 8,762 2,328 .27 509 District of Columbia................................. 426 14,825 2,864 .19 670 Florida.............................................. 5,241 119,920 33,723 .28 440 Georgia.............................................. 2,836 68,335 20,581 .30 463 Hawaii............................................... 511 12,885 7,042 .55 484 Idaho................................................ 404 8,207 4,356 .53 390 Illinois............................................. 5,015 139,200 37,826 .27 534 Indiana.............................................. 2,442 57,369 14,884 .26 452 Iowa................................................. 1,194 24,764 10,236 .41 399 Kansas............................................... 1,060 23,001 9,182 .40 417 Kentucky............................................. 1,403 30,343 9,149 .30 416 Louisiana............................................ 1,546 34,163 10,415 .30 425 Maine................................................ 486 10,396 2,814 .27 411 Maryland............................................. 1,907 50,372 11,533 .23 508 Massachusetts........................................ 2,672 78,990 25,668 .32 568 Michigan............................................. 3,790 103,635 28,254 .27 526 Minnesota............................................ 2,083 52,381 19,808 .38 484 Mississippi.......................................... 909 17,159 5,501 .32 363 Missouri............................................. 2,196 51,140 12,947 .25 448 Montana.............................................. 292 5,496 3,542 .64 362 Nebraska............................................. 712 14,313 3,920 .27 387 Nevada............................................... 624 15,299 7,387 .48 471 New Hampshire........................................ 465 11,406 2,803 .25 471 New Jersey........................................... 3,292 105,631 37,999 .36 617 New Mexico........................................... 551 11,216 4,534 .40 392 New York............................................. 7,465 241,143 42,898 .18 621 North Carolina....................................... 3,047 67,127 27,834 .41 424 North Dakota......................................... 247 4,597 1,777 .39 357 Ohio................................................. 4,613 112,559 31,706 .28 469 Oklahoma............................................. 1,147 24,316 8,883 .37 408 Oregon............................................... 1,224 28,422 13,557 .48 446 Pennsylvania......................................... 4,819 123,170 31,288 .25 492 Puerto Rico.......................................... 858 12,068 4,088 .34 271 Rhode Island......................................... 409 9,833 4,136 .42 462 South Carolina....................................... 1,455 30,738 8,812 .29 406 South Dakota......................................... 281 4,936 1,513 .31 337 Tennessee............................................ 2,131 47,849 13,368 .28 432 Texas................................................ 6,945 172,414 52,620 .31 477 Utah................................................. 701 15,039 6,668 .44 413 Vermont.............................................. 241 5,367 1,518 .28 429 Virginia............................................. 2,609 62,976 17,929 .28 464 Virgin Islands....................................... 44 984 482 .49 428 Washington........................................... 2,127 53,837 24,658 .46 487 West Virginia........................................ 594 12,986 3,789 .29 420 Wisconsin............................................ 2,255 51,607 17,531 .34 440 Wyoming.............................................. 191 3,967 1,403 .35 400 ---------------------------------------------------------------------------------------------------------------- Source: UI data summary, 2d quarter calendar year 1993, Sept. 1993. ADMINISTRATIVE FINANCING AND ALLOCATION State unemployment compensation administrative expenses are Federally financed. A portion of revenue raised by the Federal Unemployment Tax Act (FUTA) is designated for administration and to maintain a system of public employment offices. FUTA revenue flows into three Federal accounts in the Unemployment Trust Fund: (1) the Employment Security Administration Account (ESAA), (2) the Extended Unemployment Compensation Account (EUCA), and (3) the Federal Unemployment Account (FUA). Authorized by title IX of the Social Security Act, ESAA finances administrative costs associated with Federal and State unemployment compensation and employment services. Under current law, 80 percent of FUTA revenue is allocated to ESAA and 20 percent to EUCA. FUA receives funds indirectly if they overflow from ESAA and EUCA. Funds for administration are limited to 95 percent of the estimated annual revenue that is expected to flow to ESAA from the FUTA tax. Funds for administration may be augmented by three-eighths of the amount in ESAA at the beginning of the fiscal year, or $150 million, whichever is less, if the rate of insured unemployment is at least 15 percent higher than it was over the corresponding calendar quarter in the immediately preceding year. Title III of the Social Security Act authorizes payment to each State with an approved unemployment compensation law such amounts as are deemed necessary for the proper and efficient administration of such law during the fiscal year. Allocations are based on: (1) the population of the State; (2) an estimate of the number of persons covered by the State unemployment insurance law; (3) an estimate of the cost of proper and efficient administration of such law; and (4) such other factors as the Secretary of Labor finds relevant. Subject to the limit of available resources, the allocation of State grants for administration is the summation of resources derived in two major areas, the Unemployment Insurance Service (UI) and the Employment Service (ES). Each area has its own allocation methodology subject to general constraints set forth in the Social Security Act and the Wagner-Peyser Act. Each year, as part of the development of the President's Budget, the Department of Labor, in conjunction with the Department of Treasury, estimates revenue expected from FUTA and the appropriate amount to be available for administration (and the Federal share of extended benefits). The estimate of FUTA revenues is based on several factors: (1) a wage base of $7,000 per employee; (2) a tax rate of 0.8 percent (0.64 percentage point for administration and 0.16 percentage point for extended benefits); (3) the administration's projection of the level of unemployment and the growth in wages; and (4) the level of covered employment subject to FUTA. Additionally, a determination is made based on the administration's forecast for unemployment as to whether the rate will increase by at least 15 percent. Each year the President's Budget sets forth an estimate of national unemployment in terms of the volume of unemployment claims per week. This is characterized as average weekly insured unemployment (AWIU). A portion of AWIU is expressed as ``base'' and the remainder as ``contingency.'' At the present time, the base is set at the level of resources required to process an average weekly volume of 2.0 million weeks of unemployment. Resources available to each State to administer its unemployment compensation program (i.e., process claims and pay benefits) are provided from either ``base'' funds or ``contingency'' funds. At the beginning of the fiscal year, only the base funds are allocated, while contingency funds are allocated on a needs basis as workload materializes. Base funds are distributed to the State for use throughout the fiscal year and are available regardless of the level of unemployment (workload) realized. If a State processes workloads in excess of the base level, it receives contingency funds determined by the extent of the resources required to process the additional workload. The allocation of the base UI grant funds to each State is made by: (1) Projecting the workloads that each State is expected to process. These projections are then adjusted so that the sum across States for each workload item is equal to the budgeted base workload. (2) Determining the staff required to process each State's projected workload. The staff requirements are computed by multiplying the projected workloads by minutes per unit (MPU) and dividing the result by the number of work minutes per staff year for each State. The MPUs were derived from work measurement studies conducted in each State that establish the number of minutes required to perform specific tasks. The MPUs developed from the studies are necessarily reduced so that the total of computed staff years for each workload item across States equals the staff years available in the appropriation. The MPUs are reduced according to a complex mathematical formula that takes into account workload volume and the range of MPUs. (3) Multiplying the final staff-year allocations for each State by the cost per staff year (i.e., State salary and benefit level) to determine dollar funding levels. (4) Allocating overhead resources (administrative and management staff and nonpersonal services) using a methodology driven by the program staff years developed in the UI base allocation. Each Department of Labor regional office may redistribute resources among the States in its area with national office approval. In Public Law 102-164, Congress required the Department of Labor to study the allocation process and recommend improvements. Public Law 102-318 extended the time the Department has to complete this study until December 31, 1994. RECENT MAJOR LEGISLATION Major Federal laws passed by Congress since 1981 and their key provisions are as follows: The Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) imposed interest charges up to 10 percent per annum under certain conditions on loans obtained by State UC programs after April 1, 1982. It also reduced the extended benefits program by an estimated $3 to $4 billion in fiscal year 1983. The primary changes that resulted in this reduction were: (A) elimination of the national trigger under the extended benefits program; (B) raising the State trigger to 5 percent, and 120 percent, or 6 percent; and (C) excluding claims for extended benefits from the calculation of the insured unemployment rate used for the extended benefit trigger. The Tax Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248) increased the taxable wage base from $6,000 to $7,000 and raised the minimum, net Federal unemployment tax rate to 0.8 percent in 1983. It also raised the gross tax and credit rates in 1985 to 6.2 and 5.4 percent, respectively. This left the minimum, net Federal rate unaffected but raised the maximum, potential, net tax rate in States with delinquent loans from 3.4 to 6.2 percent. The Act also created the temporary Federal supplemental compensation program, which authorized 6 to 10 additional weeks of benefits through March 31, 1983. This act also rounded UC benefits to the lowest dollar, extended the Reed Act, modified the treatment of school employees, and reduced the thresholds for taxation of unemployment compensation to $12,000 for single filers and $18,000 for married couples filing jointly. The Social Security Amendments of 1983 (Public Law 98-21) extended the Federal supplemental compensation program through September 30, 1983, providing a maximum of 8 to 14 weeks of benefits. It also established conditions under which States could defer the payment of interest on loans from the Federal Unemployment Account and qualify for reduced FUTA credit reductions. The Tax Reform Act of 1986 (Public Law 99-514) made all unemployment compensation subject to taxation under the Federal personal income tax. The Omnibus Budget Reconciliation Act of 1987 (Public Law 100-203) extended the 0.2 percent FUTA surtax for 3 years through 1990. The Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508) extended the 0.2 percent FUTA surtax for 5 years through 1995. The Emergency Unemployment Compensation Act of 1991 (Public Law 102-164) established temporary extended benefits through July 4, 1992. It returned to States the option of covering nonprofessional school employees between school terms and restored benefits for ex-military members to the same duration and waiting period applicable to other unemployed workers. It extended the 0.2 percent FUTA surtax for 1 year through 1996. The Unemployment Compensation Amendments of 1992 (Public Law 102-318) extended EUC for claims filed through March 6, 1993, and reduced the benefit periods to 20 and 26 weeks. The law also gave claimants eligible for both EUC and regular benefits the right to choose the more favorable of the two. States were authorized, effective March 7, 1993, to adopt an alternative trigger for the Federal-State EB program. This trigger is based on a 3-month average total unemployment rate (TUR) and can activate either a 13- or a 20-week benefit period depending on the rate. The Emergency Unemployment Compensation Amendments of 1993 (Public Law 103-6) extended EUC for claims filed through October 2, 1993. The law also authorized funds for automated State systems to identify permanently displaced workers for early intervention with reemployment services. The Unemployment Compensation Amendments of 1993 (Public Law 103-152) extended EUC for claims filed through February 5, 1994, and set the benefit periods at 7 and 13 weeks. It repealed a provision passed in 1992 that allowed claimants to choose between EUC and regular State benefits. It required States to implement a system to identify UI claimants most likely to need job search assistance to avoid long-term unemployment. INTERIM RECOMMENDATIONS OF THE ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION--FEBRUARY 1994 Purpose of the Extended Benefits program The scope of the Extended Benefits program should be expanded to enhance the capacity of the Unemployment Insurance system to provide assistance for long-term unemployed workers as well as short-term unemployed workers. Those individuals who are long-term unemployed should be eligible for extended Unemployment Insurance benefits, provided they are participating in job search activities or in education and training activities, where available and suitable, that enhance their re-employment prospects. To maintain the integrity of the Unemployment Insurance income support system, a separate funding source should be used to finance job search and education and training activities for long-term unemployed workers. The trigger for extended benefits The Council is unanimous in the view that there is a pressing need to reform the Extended Benefits program. The majority of the Council recommends that the Extended Benefits program should trigger on when a state's seasonally adjusted total unemployment rate (STUR) exceeds 6.5 percent as measured before the Current Population Survey redesign. Two members of the Council recommend that each state should have the choice of using either the STUR trigger of 6.5 percent with a threshold requirement of 110 percent above either of the 2 previous years, or an IUR or AIUR trigger set at 4 percent with a threshold requirement of 120 percent over the previous 2 year period. The Council hopes Congress can implement these reforms promptly. Although the Council has reservations about the inefficient targeting of emergency benefits, Congress should extend the existing Emergency Unemployment Compensation for a 6 month period to provide a bridge program until these Extended Benefits reforms can be implemented. Neither substate nor regional data should be used for the purpose of determining whether or not Extended Benefits are available within a given area. Financing extended benefits reform If additional revenue is required to implement the Council's recommendations, such revenue should be generated by a modest increase in the FUTA taxable wage base, to $8,500. Work search test under extended benefits The Federal requirement that individuals who are receiving Extended Benefits must accept a minimum wage job if one is offered, or become ineligible for benefits, should be eliminated. Each State should be allowed to determine an appropriate work search test, based on the conditions of its labor market. FUTA taxation of alien agricultural workers As of January 1, 1995, the wages of alien agricultural workers (h3-A workers) should be subject to FUTA taxes.