GAO Report Shows Drastic State Cuts to UI Benefits Harmed Job Seekers & Increased Costs for U.S. Taxpayers
WASHINGTON, DC -- Today, U.S. Senators Jack Reed (D-RI) and Patty Murray (D-WA) released a report prepared at their request by the Government Accountability Office (GAO). The report, titled “UNEMPLOYMENT INSURANCE: States’ Reductions in Maximum Benefit Durations Have Implications for Federal Costs,” reviews the federal-state partnership for the unemployment insurance (UI) system and the broader economic impacts and implications stemming from the reduction of weeks of UI benefits in a number of states.
The unemployment insurance system provides an important safety net to eligible workers who have lost a job through no fault of their own. Since 2011, nine states (Arkansas, Florida, Georgia, Illinois, Kansas, Michigan, Missouri, North Carolina, and South Carolina) reduced the maximum duration individuals could receive state unemployment benefits. These states reduced duration from the 26 weeks norm to as few as 12 weeks, with 20 weeks being the most common new maximum among these states.
GAO found that compared to states that did not reduce duration, the low-benefit states generally had higher unemployment rates, weaker UI trust fund balances, and were more likely to have federal loans as their UI reserves became depleted. Eight of the nine states did not meet the federal solvency standard going into the recession. Five of the nine states had average UI taxes that were below the national average. Seven of the nine states had unemployment rates above 9 percent.
“This report shows that several states that short-changed their UI system slashed benefits over the last few years, hurt millions of families in their time of need, and forced American taxpayers to pick up the slack. Weakening the safety net for job seekers is not a smart or sustainable way to help people find new work and instead leads to even more economic hardship. States should not abandon their basic responsibilities to help their citizens by reducing UI. If they do, it will permanently undermine the effectiveness of the program,” said Senator Reed. “Congress should take steps to strengthen UI standards and provide incentives to ensure all states maintain a 26-week UI durational minimum.”
“Unemployment insurance is a vital lifeline for hard-working families after a job loss,” said Senator Murray. “This report shines a light on the importance of maintaining strong state UI trust funds and offering full basic benefits, so state and local economies stay healthy when workers are searching for employment. Thankfully, we’ve been able to put some policies into place to help our economy recover after the worst economic downturn since the Great Depression, but we should continue to make sure our country works for every family when they need it most.”
GAO concluded that reductions in state benefit durations resulted in some individuals receiving substantially less in total UI benefits. Noting that “in 2013, an individual in a state that had shortened its maximum benefit duration to 20 weeks could have received up to 52.4 additional weeks of federal benefits, for a total of 72.4 weeks. However, had the state maximum duration remained at 26 weeks, that individual could have received up to 67 weeks of federal benefits, for a total of 93 weeks. In contrast, individuals eligible for UI benefits for relatively short periods of time were unaffected by the reduced durations.”
GAO states that because the U.S. Department of Labor has yet to provide a detailed analysis on state data on individuals’ weekly benefits, it is unable to conclusively tabulate all the costs the federal government incurred as a result of the state reductions. However, the report clearly shows federal costs increased for all those claimants exhausting state UI benefits in these nine states, and was only curtailed for those who were unemployed long enough to exhaust Emergency Unemployment Compensation (EUC).
The GAO report also notes that UI is a source of economic stabilization and effective at increasing aggregate demand through a “multiplier effect” during economic downturns. Due to claimants’ tendency to quickly spend a high proportion of their benefits, for every dollar invested in the program, GAO concurs that there is an increase in economic activity, in some economic scenarios of more than $1.50.