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Raising Minimum Wage Would Boost Costs for Majority of Employers

Posted by Christopher Geehern on Jan 3, 2017 7:55:31 AM

Three-quarters of Massachusetts employers would face increases in their compensation costs if state lawmakers pass a $15 per hour minimum wage, according to two recent surveys by Associated Industries of Massachusetts.

TeenJobsCrop.jpgAnd those compensation increases would be enough to force some companies to postpone hiring or consider leaving the commonwealth altogether.

Both the monthly survey question attached to the AIM Business Confidence Index in December and the annual AIM HR Practices Survey, also taken a December, found that 13 percent of companies employed people at the former $10 per hour Massachusetts minimum wage, while another 24 percent employed people at between $10 and $15 per hour and would have to raise those wages if the minimum moved to $15.

Thirty-four percent of companies employed people at slightly more than $15 and would have to increase pay for some of those employees to deal with wage compression. Thirty-seven percent of companies said they pay much more than $15 per hour and will not be affected by a minimum-wage increase.

The Massachusetts minimum wage rose by $1 to $11 per hour on January 1, the final step in a three-year increase.

“While we are empathetic with the challenges facing lower wage staff, it is also the case that we will employ fewer hourly employees at higher minimum wages. Each dollar increase costs our company $1.5 million per year,” wrote one employer on the Business Confidence Survey.

Another commented: “This would be too much for the small business community to absorb. You'll lose many small businesses. The Massachusetts legislature should concentrate on cutting costs and make Massachusetts a more affordable place to live.”

AIM believes that raising the minimum wage to $15 per hour, while emotionally appealing and politically expedient, is an ineffective way to address income inequality.

Raising the minimum wage, in fact, represents a fundamental distraction from addressing the real economic impediments that prevent all Massachusetts citizens from sharing in the state’s prosperity. These are the same impediments, ironically, that contribute to the persistent skills shortage that threatens innovation and economic growth in Massachusetts.

Workers are ultimately compensated according to the skills, education, work ethic and value they bring to the enterprise.

Minimum-wage increases impose an arbitrary standard of value on entry-level jobs, disproportionately burdening small businesses while creating no long-term improvement in living standards for people at the lower end of the wage scale. The issue in an economy with a staggering 3.3 percent unemployment rate is not how to raise the wage but instead how to raise the economic value of each employee.

Consider a sandwich shop in Cambridge serving food to employees of companies such as Google, Biogen, or Novartis that have made Massachusetts a global center for information technology, biosciences, research and development. Many of the engineers, software designers, researchers and professional services workers who come to the restaurant for lunch make six-figure incomes from companies locked in a pitched battle for talent that will determine their success or failure in the global markets.

Given the degree to which those highly compensated employees are bidding up housing and other prices in Massachusetts, increasing the minimum wage for the restaurant workers represents a dead-end and pyrrhic victory that keeps them outside the economic mainstream.

The task instead should be to pave the way for those restaurant employees to cross the street and join the high-value economy, which will once and for all allow them to support their families and achieve financial stability.

How does that happen? Start by improving the ability of our educational system to teach all students; reduce the long waiting lists for vocational schools; make community colleges accountable for graduating students with the skills needed in the marketplace; create more high-tech software coding academies; and promote other efficient structures to provide people with the skills to succeed in the areas of fastest economic growth.

Those tasks are far more complex than raising the minimum wage but ultimately more effective. The alternative is not attractive.

“If we move to minimum wage of $15 per hour in Massachusetts, we would immediately terminate many unskilled positions and use temps.  That would allow us to better eliminate labor in the slower seasons.  Note that our competition is located outside Mass and would end up with a significant competitive advantage,” said one employer in the survey.

 

Topics: Compensation, Minimum Wage, Massachusetts Legislature

Beacon Hill Flurry a Mixed Bag for Employers

Posted by Christopher Geehern on Jun 12, 2014 11:41:00 AM

A flurry of activity on Beacon Hill yesterday produced a decidedly mixed bag of legislation for Massachusetts employers.

Non-compete agreementsOn the positive side, a House-Senate conference committee agreed upon a reform of the Unemployment Insurance system that will stabilize UI tax rates and create relief for companies that seldom lay off workers. The agreement came hours after the House of Representatives approved an economic development bill that preserved the ability of employers to use non-compete agreements to protect intellectual property.

AIM remains disappointed, however, that the same conference committee voted to increase the Massachusetts minimum wage from the current $8 per hour to $11 per hour by 2017. Lawmakers rejected a Senate provision to index the minimum wage to the rate of inflation, but required that the state wage be 50 cents more than the federal minimum.

The Unemployment Insurance reform will:

  • Expand the wage base upon which UI benefits are calculated from $14,000 to $15,000 in 2015.
  • Incorporate an expanded rate table that makes rates more dependent on the hiring and firing record of individual companies.  Rates for 2015, 2016 and 2017 will be frozen at Schedule C on the new table.
  • Expand the current one-year window for determining the experience rating of employers to three years.
  • Prohibit self-employed “persons of influence” from laying themselves off on a seasonal basis and collecting unemployment benefits.
  • Increase the definition of season employee from 16 to 20 weeks.

The measure does not include provisions supported by AIM to reduce the maximum duration of benefit weeks from 30 to 26 or increase the time people must work before collecting benefits.

“The UI reform takes some positive steps toward improving the efficiency of the system used to pay jobless benefits. The most important change is that employers will be rewarded for the stability of their work forces and rates are locked in for the next three years.” said John Regan, Vice President of Government Affairs at AIM.

The bill would boost the minimum wage to $9 per hour on January 1, 2015, $10 per hour on January 1, 2016 and $11 per hour on January 1, 2017. That increase would provide an average pay increase of $2,573 to 491,900 Massachusetts workers who currently earn between $8 and $11 per hour.

It would also indirectly push up wages by an average of $727 for an additional 317,200 workers because of union contracts linked to the minimum wage and general upward pressure on wages. The total tab for Massachusetts employers will come to $1.5 billion.

“AIM has argued that there are sound economic reasons not to increase the minimum wage. Far from helping poor people, moving the minimum wage to $11 an hour will simply ensure that people whose skills do not justify that wage will not find jobs,” Regan said.

The Senate is expected to vote on the unemployment insurance/minimum wage compromise today. State House News Service reports that the House may take up the measure next week.

The economic development bill approved by a vote of 125 to 23 in the House includes a $15 million middle skills jobs training grant fund, $10 million for brownfields redevelopment, efforts to boost jobs in so-called Gateway Cities and a Big Data Innovation and Workforce Fund. House members declined to include the controversial ban on non-competes.

AIM has led the opposition to proposals from Governor Deval Patrick and a group of venture capitalists to ban the enforcement of non-competes in Massachusetts. A recent survey conducted by the association found that every one of the hundreds of employers who answered favors preserving the options of employers and workers to use the agreements.

Topics: Minimum Wage, Unemployment insurance, Non-Compete Agreements

Don't Increase Minimum Wage in Middle of the Year

Posted by Brad MacDougall on May 20, 2014 1:55:00 PM

There are sound economic reasons not to raise the minimum wage in Massachusetts.

Minimum WageThere are even sounder reasons to avoid doing so in the middle of most employers’ fiscal year.

Both chambers of the Massachusetts legislature recently passed bills to boost the commonwealth’s $8 per hour minimum wage – the House to $10.50 over three years and the Senate to $11 over three years and then indexed to inflation. The two proposals agree on one point – the minimum wage would take its first step up from $8 to $9 per hour on July 1, giving employers less than a month to budget for a change that will affect hundreds of thousands of employees.

Tipped employees currently earning $2.63 per hour would see that amount increase to $3.75 per hour over three years under the House bill and $5.50 per hour under the Senate version.

A House/Senate conference committee will hammer out the differences, but few expect a final vote to send the measure to Governor Deval Patrick until close to – or even after – July 1. The proposed $8 to $9 increase would raise the wages of an estimated 284,000 people at a total cost of $201 million.

“The clear solution, should the Legislature decide to increase the minimum wage, is to have the increase take effect on January 1, 2015. It’s patently unfair to ask employers to change their entire compensation budgets midway through the year,” said John Regan, Executive Vice President of Associated Industries of Massachusetts.

The minimum wage would rise to $10 an hour on July 1, 2015, and $11 an hour indexed starting July 1, 2016 under the Senate bill, while the House bill would increase the level to $10 per hour on July 1, 2015 and $10.50 on July 1, 2016. The minimum wage in Massachusetts last increased to $8 an hour in January 2008.

The Economic Policy Institute estimates that an $11 per hour minimum wage would provide an average pay increase of $2,573 to 491,900 Massachusetts workers who currently earn between $8 and $11 per hour. It would indirectly push up wages by an average of $727 for an additional 317,200 workers because of union contracts linked to the minimum wage and general upward pressure on wages.

That comes to a total tab of $1.5 billion for Massachusetts employers. The research raises the specter of massive wage compression in which newer and lesser skilled workers suddenly earn as much as more experienced employees who are providing value to an organization.

Companies will be forced to address the problem by adjusting their entire compensation systems, usually upward and across-the-board.  The adjustments will include salary ranges, which are developed by setting range widths (difference between minimum and maximum) and relationships between range midpoints.

AIM opposes increasing the minimum wage but acknowledges that supporters have the votes to pass such a measure. Employers remain concerned about the action because it misses the real reason that many of our fellow citizens struggle to achieve an adequate standard of living - lack of appropriate training for the high-value jobs driving the state economy.

A market-based economy provides financial compensation to employees according to their ability to contribute to the success and profitability of the organization. That’s why AIM has for decades supported education reform, school-to-work initiatives, increased opportunities for training, community-college-based training initiatives, tax credits for training, and funding for the Massachusetts Workforce Training Fund.

Increasing the minimum wage has the perverse effect of limiting opportunity for young and lower-skilled workers and pushing jobs out of the market. Far from helping poor people, moving the minimum wage to $11 an hour will simply ensure that people whose skills do not justify that wage will not find jobs.

The more targeted approach to assist families is through the Earned Income Tax Credit (EITC), a credit currently set at 15 percent of the amount of the federal credit in Massachusetts.  These sole earners derive greater economic benefit from the combined state and federal EITC.  Because the EITC does not have a correspondingly negative impact on job creation and business costs, AIM has supported this approach rather than simply raising the minimum wage, or here simply indexing the wage to CPI.

Supporters of raising the minimum wage are seeking to place a question on the November statewide ballot the ballot that would bring the wage to $10.50 in January 2016. Tipped wages would climb to 60 percent of the minimum wage.

Topics: Compensation, Minimum Wage, Massachusetts Legislature

House OKs Unemployment Reform; Freeze Remains Priority

Posted by John Regan on Apr 3, 2014 11:14:00 AM

The Massachusetts House of Representatives last night joined the state Senate in passing legislation to freeze Unemployment Insurance rates and avert a $500 million tax increase on employers that took effect on January 1.

Unemployment InsuranceIssue closed right? Well, not so much. The two branches disagree about how to wrap that freeze into a broader set of reforms to the state’s costly UI system, so employers still find themselves staring down the barrel of a 33 percent jump in UI taxes.

Lawmakers will eventually work out their differences in a conference committee, but that process is complicated because House and Senate have passed different bills dealing with UI reform and a minimum-wage increase.

“The priority for the Legislature must be to freeze Unemployment Insurance rates for 2014 before employers pay first-quarter UI taxes. Otherwise, the economy will be saddled with an unnecessary tax increase at a time when the fund used to pay jobless benefits is financially stable,” said Richard C. Lord, President and Chief Executive Officer of Associated Industries of Massachusetts.

The House voted 123-24 last night to pass a bill that would freeze UI rates, introduce modest reforms of the Unemployment Insurance system, and raise the Massachusetts minimum wage from the current $8 per hour to $10.50 per hour over three years. The Senate passed legislation in February to increase the minimum wage to $11 per hour over three years and then link it to the rate of inflation.

The House UI reform package would:

  • Expand the wage base upon which UI benefits are calculated from $14,000 to $15,000 in 2015.
  • Incorporate an expanded rate table previously passed by the Senate that would make rates more dependent on the hiring and firing record of individual companies.  Rates for 2015, 2016 and 2017 would be frozen at Schedule C on the new table.
  • Retain the current one-year window for determining the experience rating of employers.
  • Prohibit self-employed “persons of influence” from laying themselves off on a seasonal basis and collecting unemployment benefits.

Neither the House nor the Senate bills include provisions supported by AIM to reduce the maximum duration of benefit weeks from 30 to 26 or increase the time people must work before collecting benefits. AIM opposes increases to the state minimum wage.

Lord called the House vote a “step in the right direction” toward addressing UI rates that are among the highest in the nation.

“We are gratified that both the House and Senate have passed Unemployment Insurance reform. Employers did not get everything they wanted, but we look forward to continuing the conversation with Beacon Hill lawmakers in the months ahead,” Lord said.

Need more information? Join the AIM Brown Bag issues Webinar on April 9 at Noon.

Topics: Minimum Wage, Unemployment insurance, Massachusetts House of Representatives

House Plans Debate on Unemployment Insurance, Minimum Wage

Posted by Christopher Geehern on Mar 31, 2014 6:46:00 AM

The Massachusetts House of Representatives is scheduled to debate a bill Wednesday that would reform Unemployment Insurance and increase the state minimum wage, but continued wrangling on Beacon Hill makes it uncertain when either of those matters will land on the governor’s desk.

Unemployment InsuranceEmployers, meanwhile, continue to confront an unnecessary $500 million increase in Unemployment Insurance taxes for 2014, even though both the House and Senate have separately approved UI rate freezes. Associated Industries of Massachusetts (AIM) today renewed its call for lawmakers to pass a stand-alone rate freeze that would avert a 33 percent rate increase before employers have to pay it.

“Time is running out to address a catastrophic tax increase that could dampen an already tentative economic recovery. The House and the Senate agree that UI rates should be frozen for 2014 - let’s pass that freeze and then engage in meaningful debate about broader UI reforms and the minimum wage,” said John Regan, Executive Vice President of Government Affairs for AIM.

The House bill to be debated this week will take the form of an amendment to legislation governing domestic workers. The measure would:

  • Freeze Unemployment Insurance rates for 2014.
  • Expand the wage base upon which UI benefits are calculated from $14,000 to $15,000 in 2015.
  • Incorporate an expanded rate table previously passed by the Senate that would make rates more dependent on the hiring and firing record of individual companies.  Rates for 2015, 2016 and 2017 would be frozen at Schedule C on the new table.
  • Retain the current one-year window for determining the experience rating of employers.
  • Prohibit self-employed “persons of influence” from laying themselves off on a seasonal basis and collecting unemployment benefits.
  • Increase the Massachusetts minimum wage over three years, from the current $8 per hour to $9 per hour on July 1, $10 per hour on July 1, 2015, and $10.50 per hour in July 1, 2016. The minimum wage would not be indexed to inflation, but would always be at least 40 cents per hour higher than the federal minimum.
  • Include a provision supported by AIM giving employees the option of being paid semi-monthly rather than weekly or bi-weekly.  Semi-monthly pay results in 24 pay periods per year while bi-weekly has 26 pay periods per year.

Neither the House bill, nor a Senate UI reform passed on February 6, include provisions supported by AIM to reduce the maximum duration of benefit weeks from 30 to 26 or increase the time people must work before collecting benefits.

Senate President Therese Murray warned last week the House decision to develop its own, combined UI/Minimum Wage bill could jeopardize its fate this session.

“That would compromise the timeframe greatly because then we would have to take up a whole new bill here which we’ve already done it twice and that could take as much as eight weeks or more during budget season so that’s why we were trying to prevent that from happening,” Murray told the State House News Service.

Topics: Minimum Wage, Unemployment insurance, Massachusetts House of Representatives

Senate Seeks Rate Stability with Unemployment Insurance Bill

Posted by John Regan on Feb 6, 2014 5:09:00 PM

The Massachusetts Senate passed an Unemployment Insurance reform bill today designed to stabilize UI tax rates for most employers and make those rates more dependent on the hiring and firing record of individual companies. 

The measure includes an immediate freeze of UI rates for 2014, averting an automatic 33 percent, $500 million tax increase that took effect on January 1.

Dan.WolfAssociated Industries of Massachusetts believes the Senate UI bill represents a constructive first step toward reforming the commonwealth’s burdensome system for paying benefits to jobless people. The association had hoped that the Senate would also reduce the maximum duration of benefit weeks from 30 to 26 and increase the time people must work before collecting benefits, but AIM expects to place those issues front and center when the reform moves to the House of Representatives.

“Senate President Therese Murray and Labor and Workforce Development Committee Chair Dan Wolf (right) deserve credit for taking a thoughtful and creative approach to a seemingly intractable problem. We don’t agree with everything in the bill, but it provides a basis for continuing debate,” said Richard C. Lord, President and Chief Executive Officer of AIM.

Under the Senate bill:

  • The wage base upon which UI payments are calculated would rise from the current $14,000 per year to $21,000 per year in 2015, a change that by itself would escalate costs for employers.
  • An expanded rate table would take effect in 2015, and rates would be set at a new Schedule C for 2015, Schedule A for 2016 and back to Schedule C for 2017. The expanded rate table should offset the effects of the increased wage base for companies with stable employment histories while raising rates for some companies that add and terminate workers frequently. Under the new rates, the most stable employers would pay $153 per employee per year, while the worst-rated companies would pay $2,337 per employee annually.
  • Company UI taxes rates will be based upon the average of three years payroll instead of one, minimizing rate shock for expanding companies or those that encounter cyclical economic problems and find themselves having to lay people off.
  • The definition of seasonal employment is expanded to 20 weeks of work, closing a loophole under which lawmakers say some people work seasonally and then collect Massachusetts unemployment benefits while living out of state during the winter.

“In effect, it’s revenue neutral in that we’ll collect the same amount in aggregate,” said Wolf, a Cape Cod Democrat.

Murray said in a statement: “The current system serves as a considerable burden to our businesses and it is time for change. This bill will alleviate costs for employers, provide predictability to their budgets and foster an environment where jobs can grow and be created.”

House Speaker Robert DeLeo has indicated that his chamber will consider Unemployment Insurance reform in tandem with an increase to the $8-per-hour state minimum wage. The Senate has already passed legislation increasing the minimum wage to $11 per hour over three years and indexing it to inflation thereafter.

The Unemployment Insurance Trust Fund used to pay jobless benefits in Massachusetts currently enjoys a healthy balance of approximately $800 million.

Massachusetts UI costs, driven by high wages, lenient qualification requirements and an overly generous benefit structure, are among the highest in the country. AIM has long supported reducing the maximum duration of benefit weeks from 30 to 26 when the state's economy is performing well and increasing the work requirement for eligibility to collect UI benefits from 30 times the weekly benefit amount to 40.

Topics: Minimum Wage, Massachusetts senate, Unemployment insurance

Think the Minimum Wage Increase Doesn't Affect You? Think Again

Posted by John Regan on Jan 6, 2014 8:58:00 AM

Supporters and opponents of increasing the minimum wage in Massachusetts agree on one thing – the ramifications extend well beyond companies that currently pay the $8-per-hour minimum and the workers who earn that amount.

The Senate bill boosting the state minimum wage to $11 per hour over the next three years would provide an average pay increase of $2,573 to 491,900 Massachusetts workers who currently earn between $8 and $11 per hour. It would indirectly push up wages by an average of $727 for an additional 317,200 workers because of union contracts linked to the minimum wage and general upward pressure on wages.

That comes to a total tab of $1.5 billion for Massachusetts employers.

Those aren’t our numbers – they come from a study by the Economic Policy Institute and reported by the Massachusetts Budget and Policy Center, a left-leaning think tank that strongly supports the minimum-wage increase. From the employer point of view, the research raises the specter of massive wage compression in which newer and lesser skilled workers suddenly earn as much as more experienced employees who are providing value to an organization.

The lesson – raising the minimum wage will affect your company and your compensation plan even if you have no workers within sight of $8 per hour.

“Employers who pay more than minimum wage tend to ignore the potential effects of an increase,” said Gary MacDonald, Executive Vice President of the Employers Resource Group at Associated Industries of Massachusetts.

“But the Senate proposal to move to $11 per hour and index it to inflation thereafter will affect more than three quarters of a million employees, most of whom currently earn more than minimum.”

The Senate passed its version of a minimum-wage increase on November 19 in the face of opposition from AIM and other business groups.

Legislative leaders had indicated earlier in the year that they would consider tying the minimum wage increase to substantive reform of the commonwealth’s outdated Unemployment Insurance system. House Speaker Robert DeLeo continues to suggest that he will link the two issues when his chamber debates the minimum wage in the next several weeks.

“In addition to the minimum wage, I think maybe we have to change some of the burdens that businesses presently face in Massachusetts,” House Speaker Robert DeLeo told the State House News Service on October 29.

Advocates are also seeking to place a minimum-wage increase to $10.50 per hour on the 2014 statewide ballot.

The push on minimum wage comes as Massachusetts employers plan to increase overall wages and salaries by an average of 2.96 percent during 2014, a rate that would finally surpass the levels that were in place prior to the Great Recession. The AIM Human Resource Practices Survey, set for release this week, finds that projected raises for next year continue a trend that has seen salary growth climb from a low of 1.7 percent in 2009 to 2.1 percent in 2010, 2.4 percent in 2011, 2.55 percent in 2012 and 2.8 percent this year.

Wage compression from minimum wage increases causes multiple problems for employers. It can erode morale among workers as existing employees become angry that newer or lower-skilled colleagues are making nearly as much or, in some cases, more than they are. That anger can in turn accelerate turnover as the result of employees quitting.

Companies will be forced to address the problem by adjusting their entire compensation systems, usually upward and across-the-board.  The adjustments will include salary ranges, which are developed by setting range widths (difference between minimum and maximum) and relationships between range midpoints.

AIM opposes increasing the minimum wage because the action misses the real reason that many of our fellow citizens struggle to achieve an adequate standard of living - lack of appropriate training for the high-value jobs driving the state economy.

A market-based economy provides financial compensation to employees according to their ability to contribute to the success and profitability of the organization. That’s why AIM has for decades supported education reform, school-to-work initiatives, increased opportunities for training, community-college-based training initiatives, tax credits for training, and funding for the Massachusetts Workforce Training Fund.

Increasing the minimum wage has the perverse effect of limiting opportunity for young and lower-skilled workers and pushing jobs out of the market. Far from helping poor people, moving the minimum wage to $11 an hour will simply ensure that people whose skills do not justify that wage will not find jobs.

The more targeted approach to assist families is through the Earned Income Tax Credit (EITC), a credit currently set at 15 percent of the amount of the federal credit in Massachusetts.  These sole earners derive greater economic benefit from the combined state and federal EITC.  Because the EITC does not have a correspondingly negative impact on job creation and business costs, AIM has supported this approach rather than simply raising the minimum wage, or here simply indexing the wage to CPI.

Topics: Minimum Wage, Massachusetts Legislature, Unemployment insurance

Employers Disappointed with Stand-Alone Minimum Wage Bill

Posted by John Regan on Nov 18, 2013 8:45:00 AM

The minimum-wage increase steaming toward approval in the Massachusetts Senate this week is disappointing for many reasons.

Minimum WageThere is, first of all, the argument on the merits. Increasing the minimum wage misses the real reason that many of our fellow citizens struggle to achieve an adequate standard of living - lack of appropriate training for the high-value jobs driving the state economy.

A market-based economy provides financial compensation to employees according to their ability to contribute to the success and profitability of the organization. That’s why AIM has for decades supported education reform, school-to-work initiatives, increased opportunities for training, community-college-based training initiatives, tax credits for training, and funding for the Massachusetts Workforce Training Fund.

Increasing the minimum wage has the perverse effect of limiting opportunity for young and lower-skilled workers and pushing jobs out of the market. Far from helping poor people, the proposal to increase the minimum wage to $11 an hour by January 2016 and then index it to inflation will simply ensure that people whose skills do not justify that wage will not find jobs.

U.S. Census Bureau data shows that 90 percent of Massachusetts employees earning the minimum wage live with either their parents or another relative, they live alone or have a working spouse.  Just 10 percent are sole wage earners in families with children.  Why pass an across-the-board increase for all minimum-wage earners when our real intent is to help those who have families to support?

The more targeted approach to assist these families is through the Earned Income Tax Credit (EITC), a credit currently set at 15 percent of the amount of the federal credit in Massachusetts.  These sole earners derive greater economic benefit from the combined state and federal EITC.  Because the EITC does not have a correspondingly negative impact on job creation and business costs, AIM has supported this approach rather than simply raising the minimum wage, or here simply indexing the wage to CPI.

But the disappointment of employers with the current minimum wage bill extends beyond the issue itself to the broader question of Beacon Hill’s commitment to balancing the needs of workers with those of small employers struggling in an uncertain economy still afflicted with 7.2 percent unemployment.

AIM and its 5,000 member employers were encouraged in October when Legislative leaders indicated that they might link the minimum wage increase with an attempt to reform the commonwealth’s antiquated and expensive unemployment insurance system.

“In addition to the minimum wage, I think maybe we have to change some of the burdens that businesses presently face in Massachusetts,” House Speaker Robert DeLeo told the State House News Service on October 29.

Massachusetts UI costs, driven by high wages, lenient qualification requirements and an overly generous benefit structure, are the highest in the country. AIM has long supported changes to the system through which benefits are paid to unemployed workers. It is a system that has generated dizzying uncertainty for employers during the last five years as lawmakers have been forced to freeze automatic rate increases that were not needed to maintain the financial stability of the Unemployment Insurance Trust Fund.

The Legislature’s Joint Committee on Labor and Workforce Development has, indeed, been gathering information about a possible Unemployment Insurance/Minimum Wage package. Employers would need to see the final contours of the package before determining whether to support it, but the business community generally believes that such a combined approach holds the most potential for helping the Massachusetts economy.

So employers – even those who have no workers earning the minimum wage – were shocked and disheartened to learn that the Senate will move forward on the wage measure without accompanying structural reforms to the unemployment insurance system. We now hope that the House of Representatives maintains its commitment to a balanced approach that will at long last address one of the most  problematic and unnecessary cost issues facing Massachusetts employers.

AIM has a clear definition of substantive UI reform:

  1. Adjust the UI rate schedule to require negatively rated employers, those who habitually put employees into the UI system, to pay higher rates than more stable employers whose employees rarely use the UI system; and to require that new employers contribution rate be set at the so-called zero positive rate, more accurately reflecting the employers actual trust fund balance and avoiding "sticker shock" when receiving the actual bill after the first year of operation. 
  2. Increase the work requirement for eligibility to collect UI benefits from 30 times the weekly benefit amount to forty and requiring wages to be paid in at least two quarters, bringing Massachusetts into line with the majority of other states; (estimated annual savings:  $30 million.)
  3. Reduce the maximum duration of benefit weeks from 30 to 26 when the state's economy is performing well by adjusting the statutory trigger mechanism from 5.1 percent unemployment in each of the 10 local labor markets in the state to a straight 5.1 percent unemployment rate statewide over the preceding six months - producing savings in the UI Trust Fund of between $50 and $90 million per year. This provision would bring Massachusetts' benefits into line with all other states.

Topics: Minimum Wage, Unemployment insurance, Issues

Speaker Offers Hope for Unemployment Insurance Reform

Posted by John Regan on Oct 29, 2013 4:33:00 PM

Massachusetts House Speaker Robert DeLeo provided a dose of hope to employers today by confirming that lawmakers may attempt to reform the commonwealth’s antiquated and expensive unemployment insurance system.

DeLeoState House News Service reported that DeLeo is looking to link structural changes to the UI system with an anticipated effort to increase the state minimum wage or other issues.

“In addition to the minimum wage, I think maybe we have to change some of the burdens that businesses presently face in Massachusetts,” DeLeo told the News Service.

Associated Industries of Massachusetts has long supported changes to the system through which benefits are paid to unemployed workers. It is a system that has generated dizzying uncertainty for employers during the last five years as lawmakers have been forced to freeze automatic rate increases that were not needed to maintain the financial stability of the Unemployment Insurance Trust Fund.

Massachusetts UI costs, driven by high wages, lenient qualification requirements and an overly generous benefit structure, are the highest in the country. AIM’s Unemployment Insurance reform proposal, contained in House Bill 1732 and reflected in other bills, seeks to introduce more than $100 million in one-time and recurring cost savings into the system by the following reforms:

  1. Adjusting the UI rate schedule to require negatively rated employers, those who habitually put employees into the UI system, to pay higher rates than more stable employers whose employees rarely use the UI system; and to require that new employers contribution rate be set at the so-called zero positive rate, more accurately reflecting the employers actual trust fund balance and avoiding “sticker shock” when receiving the actual bill after the first year of operation.  
  2. Increasing the work requirement for eligibility to collect UI benefits from 30 times the weekly benefit amount to forty and requiring wages to be paid in at least two quarters, bringing Massachusetts into line with the majority of other states; (estimated annual savings:  $30 million.)
  3. Reducing the maximum duration of benefit weeks from 30 to 26 when the state’s economy is performing well by adjusting the statutory trigger mechanism from 5.1 percent unemployment in each of the 10 local labor markets in the state to a straight 5.1 percent unemployment rate statewide over the preceding six months – producing savings in the UI Trust Fund of between $50 and $90 million per year. This provision would bring Massachusetts’ benefits into line with all other states.

AIM is less enthusiastic about linking UI reform to an increase in the $8-per-hour minimum wage or to measures compelling employers to provide paid sick time. Both proposals would dampen the already anemic job growth in the commonwealth and should, in any case, be debated on their own merits as a matter of good government.

The minimum wage increase and paid sick time could both appear on the 2014 state ballot. Activists collecting signatures propose to ask voters to raise the minimum wage to $10.50

“The chair’s been talking to a lot of different parties to come up with a comprehensive package that deals with the minimum wage on one side and the UI on the other so we have an employer-dash-employee piece of legislation that can be beneficial to both. Whether right now we’re going to be there or not, I don’t know,” DeLeo told State House News.

Asked about a perceived lack of appetite among members to take votes on two issues that could be seen as unfriendly to business, DeLeo said, “That could be right, but I wouldn’t want to rule it out just yet.”

Many small business owners cannot afford to pay higher wages and continue to hire new employees. While Massachusetts’ minimum wage remains 75 cents higher than the national $7.25 base rate, other states are moving toward higher wages.

Topics: Minimum Wage, Unemployment insurance, Issues

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