It's Time for Structural Changes to the Unemployment Insurance System

Posted by John Regan on May 28, 2013 12:42:00 PM

Associated Industries of Massachusetts has repeatedly suggested to state lawmakers that any cost of doing business that is higher here than in other states ought to be examined to determine the best way to address our anti-competitiveness.

Unemployment Insurance (UI) is an area that cries out to be addressed.  Massachusetts UI costs, driven by our state’s high wages, relatively lenient qualification requirements and overly generous benefit structure, drive our costs to a level that is the highest in the country.  In a recent white paper entitled, Measuring Up, the Cost of Doing Business in Massachusetts, the Pioneer Institute details the impact of the state’s business costs on job creation in the Commonwealth. One area singled out for particular attention in the report is the UI system.

AIM’s Unemployment Insurance reform proposal, contained in House Bill 1732 and reflected in other bills, seeks to introduce approximately $200 to $260 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.
  4. Eliminating the Medical Security Trust Fund and the accompanying surcharge of $67.20 per employee, created by Chapter 23 of the Acts of 1988, imposed on companies with more than 5 employees; (with the state’s new Health Insurance Law, this program is unnecessary); (estimated annual savings:  $144 million.)

These reforms represent a significant savings for employers and an opportunity to improve the state’s UI system and freeze rates without jeopardizing the long-term solvency of the Trust fund.

Topics: Massachusetts Legislature, Unemployment insurance, Issues

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