States That Tied Unemployment Benefits to Economic Conditions Were Better Prepared for Crisis

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Naples, FL — New research from the Foundation for Government Accountability (FGA) provides more concrete support for a reform that indexes unemployment benefits to a state’s economic conditions.

As the national unemployment rate climbs above 20 percent and nearly 36.5 million have applied for unemployment since mid-March, the coronavirus pandemic and corresponding economic crisis have pushed state budgets to the brink of major budget shortfalls.

Nationwide, state unemployment trust funds have dropped by nearly $12 billion since January. There is a clear divide, however, between the losses suffered by those states who have indexed their UI systems compared to those who have not. In fact, non-indexing states are burning through their trust funds eight times more quicklythan states that index unemployment benefits to economic conditions.

Even before the current crisis set in, the new research shows that states that had not reformed their UI systems were unprepared for even a typical economic downturn. At the beginning of the year, 22 non-indexing states fell well short of the recommended unemployment trust fund solvency levels set by the U.S. Department of Labor. Meanwhile, states like Florida, Georgia, and North Carolina—which had reformed their UI programs—all had solvency levels above 100 percent.

“Indexing will allow max unemployment benefits when necessary, like during a pandemic that forces people out of work, but ensure program solvency long term by getting people back to work more quickly when the economy is strong,” said Josh Waters, senior research fellow at FGA and paper co-author. “We talk all the time about ‘saving for a rainy day,’ but tying unemployment benefits to real-time economic conditions is the literal personification of this old adage.”

Read the full research report here.

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The Foundation for Government Accountability is a non-profit, multi-state think tank that specializes in health care, welfare, and work reform. To learn more, visit TheFGA.org.