Unemployment Insurance as a Potential Safety Net for TANF Leavers: Evidence from Five States. B. UI and Low-Wage Workers

09/01/2004

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

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

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

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

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

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