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45–995 2009

MODERNIZING UNEMPLOYMENT INSURANCE TO 

REDUCE BARRIERS FOR JOBLESS WORKERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INCOME SECURITY AND FAMILY SUPPORT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 19, 2007 

Serial No. 110–59 

Printed for the use of the Committee on Ways and Means 

( 

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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SANDER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

STEPHANIE TUBBS JONES, Ohio 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel and Staff Director 

BRETT LOPER, Minority Staff Director 

SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT 

JIM MCDERMOTT, Washington, Chairman 

FORTNEY PETE STARK, California 

ARTUR DAVIS, Alabama 

JOHN LEWIS, Georgia 

MICHAEL R. MCNULTY, New York 

SHELLEY BERKLEY, Nevada 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

JERRY WELLER, Illinois 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JON PORTER, Nevada 

PHIL ENGLISH, Pennsylvania 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Electronic submissions are used to prepare 

both printed and electronic versions of the hearing record, the process of converting between 

various electronic formats may introduce unintentional errors or omissions. Such occurrences 

are inherent in the current publication process and should diminish as the process is further 

refined. 

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C O N T E N T S 

Page 

Advisory of September 12, 2007, announcing the hearing ................................... 2 

WITNESSES 

Cynthia Fagnoni, Managing Director, Education, Workforce and Income Security, government Accountability Office ............................................................... 13 

Amy Chasanov, former staff Member, Advisory Council on Unemployment 

Compensation ....................................................................................................... 35 

Lynette Hammond, Deputy Secretary of Commerce and Trade, Commonwealth of Virginia ................................................................................................ 52 

Vicky Lovell, Ph. D., Director of Employment and Work/Life Programs, Institute for Women’s Policy Research ....................................................................... 60 

Jeffrey Kling, Ph. D., Senior Fellow and Deputy Director, Economic Studies, 

The Brookings Institution ................................................................................... 71 

SUBMISSIONS FOR THE RECORD 

Douglas J. Holmes, statement ................................................................................ 85 

Idaho Department of Labor, statement ................................................................. 92 

On Point Tech, statement ....................................................................................... 94 

UWC—Strategic Services on Unemployment ........................................................ 94 

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(1) 

HEARING ON MODERNIZING UNEMPLOYMENT 

INSURANCE TO REDUCE BARRIERS FOR 

JOBLESS WORKERS 

WEDNESDAY, SEPTEMBER 19, 2007 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT, Washington, DC. 

The Subcommittee met, pursuant to call, at 1:00 p.m., in room 

B–318, Rayburn House Office Building, Hon. Jim McDermott 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON 

INCOME SECURITY AND FAMILY SUPPORT 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–1025 

September 12, 2007 

McDermott Announces Hearing on 

Modernizing Unemployment Insurance to Reduce 

Barriers for Jobless Workers 

Congressman Jim McDermott (D–WA), Chairman of the Subcommittee on Income 

Security and Family Support of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on reducing gaps and disparities 

in access to unemployment insurance, especially for low-wage and part-time workers. The hearing will take place on Wednesday, September 19, at 1:00 p.m. 

in room B–318 Rayburn House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. However, any individual or organization 

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

The Unemployment Insurance (UI) system, established in 1935, provides temporary and partial wage replacement for unemployed workers. Since the establishment of the program, there has been a significant rise in the number of women in 

the workforce, an increase in low-wage and part-time employment, and a decline in 

manufacturing employment. 

Past reports from the Advisory Council on Unemployment Compensation and from 

the government Accountability Office (GAO) have highlighted certain features in 

many States’ UI programs that prevent them from more adequately responding to 

these long-term employment trends. For example, an estimated 31 States do not 

consider any wages earned by a dislocated worker from either their last completed 

calendar quarter of employment or from the quarter in which they file for benefits— 

excluding up to 6 months of earnings. Not counting a worker’s most recent earnings 

makes it more difficult for some low-wage workers to achieve minimum earnings 

levels for UI eligibility. Other barriers to coverage include restrictions on UI receipt 

for former part-time workers seeking reemployment in a part-time job and for those 

leaving employment for compelling family reasons. 

Subcommittee Chairman McDermott has introduced legislation, the Unemployment Insurance Modernization Act (H.R. 2233), to provide up to $7 billion from the 

Federal unemployment insurance trust funds to encourage, assist and reward States 

for removing such barriers for jobless workers. 

In announcing the hearing, Chairman McDermott stated, ‘‘Too many workers, 

especially those in low-wage and part-time employment, are excluded from 

the Unemployment Insurance system. Women in particular are hampered 

by policies that were crafted five, six and seven decades ago. We should actively encourage States to make further progress in covering all unemployed workers who have worked hard and who have had taxes paid into 

the system on their behalf.’’ 

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FOCUS OF THE HEARING: 

The hearing will focus on policies designed to modernize the Unemployment Insurance system and reduce barriers to coverage for low-wage and part-time workers. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http//waysandmeans.house.gov., select ‘‘110th Congress’’ from the menu entitled, 

‘‘Hearing Archives’’ http//waysandmeans.house.gov/Hearings.asp?congress=18. Select 

the hearing for which you would like to submit, and click on the link entitled, ‘‘Click 

here to provide a submission for the record.’’ Once you have followed the online instructions, completing all informational forms and clicking ‘‘submit’’ on the final 

page, an email will be sent to the address which you supply confirming your interest 

in providing a submission for the record. You MUST REPLY to the email and ATTACH your submission as a Word or WordPerfect document, in compliance with the 

formatting requirements listed below, by close of business October 3, 2007. Finally, 

please note that due to the change in House mail policy, the U.S. Capitol Police will 

refuse sealed-package deliveries to all House Office Buildings. For questions, or if 

you encounter technical problems, please call (202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing 

record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, 

but we reserve the right to format it according to our guidelines. Any submission 

provided to the Committee by a witness, any supplementary materials submitted for 

the printed record, and any written comments in response to a request for written 

comments must conform to the guidelines listed below. Any submission or supplementary item not in compliance with these guidelines will not be printed, but will 

be maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or 

WordPerfect format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted 

for printing. Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material not meeting these specifications will be maintained in 

the Committee files for review and use by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations 

on whose behalf the witness appears. A supplemental sheet must accompany each 

submission listing the name, company, address, telephone and fax numbers of each 

witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http:waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman MCDERMOTT. The Committee will come to order. 

We are here today to discuss the importance of a strong and equitable insurance system. Now that economists are openly expressing concerns about the impact of the declining housing market on 

employment, this discussion may be sort of relevant. More relwwoods2 on PROD1PC60 with HEARING

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evant, actually, but the truth is that unemployment insurance is 

always important. It prevents temporary periods of joblessness 

from forcing families into poverty. It helps workers stay connected 

to the workforce, and it mitigates the impact that unemployment 

has on the economy, both legally and nationally. 

The UI system was created over 7 years ago after the worst economic crisis in U.S. history. It was established, really, to ensure 

that Americans would have some help in weathering economic setbacks. It was created because great Americans like Franklin Delano Roosevelt vowed Americans would stand together and protect 

one another and live in a nation that really understood the power 

of ‘‘we’’ versus ‘‘me.’’ 

Today as we look at America and how it has changed over the 

years and how we can adjust the UI program to continue its role 

in protecting Americans against economic hardship, as we examine 

the unemployment insurance system, it is disturbing to see a longterm trend of fewer jobless workers receiving UI benefits. Barely 

over one-third of all unemployed workers receive unemployment 

compensation. The rate of receiving that benefit is even lower, 

much lower for low-wage workers. 

I put this chart up there for everyone so you can look at what 

happens to the low-wage workers. They are almost 21⁄2 times more 

likely to be unemployed, and they are about one-third as likely to 

get the unemployment benefits. 

So, we are really talking about what happens to low-wage workers here. The very workers who are least able to cope financially 

with a spell of joblessness are also the least likely to get unemployment benefits. 

As GAO will testify today, and as highlighted by the chart in 

front of you, low-wage workers are almost 21⁄2 times more likely to 

be unemployed, and one-third are likely to receive unemployment 

benefits. 

Now, part-time workers also have greater difficulty in accessing 

UI benefits, as do individuals who leave work for compelling family 

reasons such as avoiding domestic violence, taking care of a sick 

child, or following a spouse to a different part of the country. These 

barriers to unemployment insurance fall particularly hard on 

women who are more likely to work in part-time and/or low-wage 

jobs. 

Now the legislation we have introduced, the Unemployment Insurance Modernization Act, is to encourage and reward States for 

implementing a few basic reforms to help low-wage, part-time and 

other workers gain access to the UI system. 

For example, the bill calls on States to count a worker’s most recent earnings, and to count them when calculating eligibility for 

unemployment benefits by implementing a so-called ‘‘alternative’’ 

base period. Not counting a worker’s most recent wages makes it 

more difficult for some low-wage workers to achieve the minimum 

earning levels for UI eligibility. 

Under this bill, up to $7 billion would be disbursed from the Federal unemployment trusts to the States implementing provisions 

related to the alternative base period as well as to making UI more 

accessible to part-time workers, making the system more family 

friendly and supporting long-term training. 

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Those States that have already put in place an alternative base 

work period would be eligible for an immediate distribution. For 

example, Illinois recently enacted an alternative base period and 

would therefore automatically receive $100 million under this bill. 

The State would potentially receive another $200 million depending 

on the implementation of additional reforms. Now, in addition to the $7 billion conditional transfer to the 

States, the legislation also set out an automatic $500 million to 

help States with the administrative cost of UI, which the Federal 

Government has really failed to adequately address in recent years. 

Admittedly, this legislation will not single-handedly eliminate disparities in UI coverage for low-wage and part-time workers, but it 

will take a meaningful step in the right direction without a single 

Federal mandate and without raising the Federal debt by one 

penny. 

The bill accomplishes this task simply by extending the current 

law unemployment tax that has been on the books for over 30 

years. It costs employers $14 per year, per employee. The FUTA 

tax was last extended by the Republican Congress in 1997, and 

President Bush has proposed that it be extended this year in his 

current budget. 

My bill differs in only one way from the past extension and 

President Bush’s budget proposal. Under my legislation, States 

were eligible to receive every dime of revenue raised from the extension of the FUTA test. 

Well, I have one more page here I would like to tell you about. 

There are certainly some policies that we can examine to help 

dislocated workers, but we really have to start by having a more 

effective unemployment insurance system. We have had this for 

generations and it is time for some very common sense reforms. 

I remember making them when I was in the State legislature 

when we were squeezing down on the system. It used to be you 

could work in the summer, get some unemployment benefits, and 

live all through the college year on your unemployment benefits. 

Those kinds of things are no longer happening, but there are some 

common sense things that ought to happen now. 

Chairman MCDERMOTT. I yield to my Subcommittee Ranking 

Member, Mr. Weller. 

Mr. WELLER. Thank you, Mr. Chairman, and I thank you for 

convening today’s hearing. Before I make my opening statement, I 

want to extend a congratulations to you. You and I have spoken a 

little bit, but this is the first formal meeting of our Subcommittee 

since you were given a great honor in Africa, and I do want to congratulate you on your knighthood granted to you by the King of 

Losoto. As one who has known a long time of your personal interest 

in developing countries, particularly Africa, it is nice to see it recognized. 

You and I may disagree on policy. I enjoy working with you as 

my Chairman and having the opportunity to work together. I know 

your family is very proud of you, as are your friends. 

Today is one area in which we do disagree. 

I noted when the Subcommittee put out a press release announcing this hearing, it suggested that it was about, quote, ‘‘modernizing unemployment benefits,’’ and apparently it appears my Demowwoods2 on PROD1PC60 with HEARING

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cratic colleagues think modernizing means increasing taxes, in this 

case by $7 billion over the next 5 years. 

I would note almost every other major Democratic initiative this 

year, from energy to food to children’s health policy, includes tax 

increases. So, the majority party’s position has been a consistent 

one so far this year. 

Another apparent feature of modernization means more of the 

same of our Washington-knows-best attitude. On the legislation we 

will discuss today, only States that choose to provide benefits to 

certain, quote, ‘‘federally approved categories of unemployed workers’’ would get a share of the $7 billion in tax increases back. That 

is despite the fact that those taxes are collected in each and every 

State and amount to lost wages for American workers. This naturally creates State winners and losers, with the Federal Government deciding who wins and who loses. 

As several of our witnesses today will note, many States have already decided to broaden eligibility for unemployment benefits in 

the ways promoted by the Chairman’s bill. This suggests that as 

the economy has changed, States have adapted. Many, like my 

home State of Illinois, adopted newer technology that allows them 

to count more recent wages in determining worker eligibility for 

benefits. Others provide benefits to part-time workers or certain individuals who have quit their jobs, but when States have done so, 

they knew they needed to increase payroll taxes in the long run to 

cover increased benefits costs. 

The Chairman’s bill masks those true costs behind the shield of 

incentive payments today, quote, ‘‘incentive payments,’’ which is 

really a promise to raise State payroll taxes tomorrow to cover 

higher long-run costs. 

It is not too late for us to take a different and decidedly more 

pro-worker and more pro-work direction. As we will hear today, we 

can and should do a much better job helping laid-off workers get 

back on the job. 

Mr. Chairman, you were on to something when you proposed the 

creation of a new wage insurance program to assist laid-off workers 

who return to work at lower wages. It is my understanding that 

this idea is not unanimously endorsed on your side of the aisle, but 

it seems to me at the very least we should encourage States to test 

whether this enhanced safety net can help workers. 

That is the principal legislation I have introduced in H.R. 1513, 

the Unemployment Compensation Improvement Act. Recent research confirms that, especially for older workers, helping them get 

back to work quickly can be key to recovering their former level of 

earnings. 

In contrast of tax increases that are proposed today, my legislation is cost-neutral and does not raise taxes, and I believe it is 

worth testing out. 

In my view, the real test of a modern unemployment benefit system is not how many people we can sign up for unemployment benefits. Instead, the real test is how many people we help get back 

on the job quickly and at good wages, especially since unemployment benefits average only about half of what workers earn in 

wages. That should leave workers, firms, and the economy all far 

better off by getting them back to work at good wages. 

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I look forward to the hearing today, and I look forward to hearing the witnesses’ testimony. 

Chairman MCDERMOTT. Thank you. 

[The information follows:] 

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Chairman MCDERMOTT. I want the other Members to know if 

they have statements they want introduced in the record, they simply need to submit them. 

We are going to have votes in about, we think, 35 or 40 minutes. 

I am going to stay pretty tight to the 5-minute rule here. In the 

past, I had been somewhat loose and let people go on at some 

length, but we are not going to do that today. It is because we want 

to get you all in before the time runs out, and then we can maybe 

expand on what you have to say. 

Your full testimony will be put into the record. Ms. Fagnoni. 

STATEMENT OF CYNTHIA FAGNONI, MANAGING DIRECTOR, 

EDUCATION, WORKFORCE AND INCOME SECURITY, GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. FAGNONI. Thank you, Mr. Chairman. I am happy to be 

here this afternoon, Mr. Chairman and Members of the Subcommittee, to talk about the extent to which low-wage and parttime workers receive unemployment insurance benefits. 

The UI program is a Federal-State partnership designed to partially replace lost earnings of individuals who become unemployed 

through no fault of their own and to stabilize the economy during 

economic downturns. Unemployment insurance has been a key 

component in ensuring the financial security of America’s workforce for over 70 years. 

Since the UI program was established in 1935, the nature of both 

work and unemployment has changed in fundamental ways. There 

have been increases in the share of low-wage jobs, the incidents of 

temporary and contingent work, the number of women in the workforce and two-earner families and the average duration of unemployment. 

Given these changes, questions arise about the types of workers 

who are most likely to receive benefits. My remarks today will 

focus on, first, the overall trend in UI receipt; second, the likelihood 

that low-wage workers will be unemployed and receive UI benefits, 

especially when compared to higher wage workers; and third, the 

likelihood that unemployed part-time workers will receive UI benefits. My testimony today is based primarily on our September 2007 

report as well as work we did in 2000. 

Regarding the first issue, the UI recipiency rate declined gradually from 1950 through the mid-1980s. While about 50 percent of 

the unemployed filed for UI in the fifties, about 29 percent did so 

in 1984. Since the mid-1980s, the UI recipiency rate has shown a 

modest increase and was about 35 percent in about 2005. 

Several factors are considered significant in the decline of UI receipt, including the decrease in the number of workers employed in 

manufacturing jobs, the decline of union membership in the workforce, and population shifts of workers from northeastern to southern States where unemployed workers are less likely to apply for 

UI benefits. 

Turning now to our second area, low-wage workers, we found 

that they were less likely to receive UI benefits than higher wage 

workers. Between 1992 and 1995, low-wage workers were about 

half as likely to receive UI benefits than higher wage workers. For 

the years 1998 to 2003, they were about one-third more likely. 

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Moreover, the gap between the two groups has not narrowed over 

time. That is, UI receipt has gone down by about the same for both 

groups of workers over the years. 

Low levels of UI receipt among low-wage workers can be explained by a variety of factors, including States’ eligibility criteria 

and how they vary. In determining eligibility, many States only 

consider wages earned in four of the last five completed quarters. 

As a result, the worker’s most recent work history is not used in 

making eligibility determinations. For low-wage workers with sporadic work histories, excluding recent earnings may make it more 

difficult for them to reach the minimum earning level necessary for 

eligibility. Also, to be eligible for UI, workers must have had good 

cause for leaving work. Certain temporary family crises, such as 

having a sick child, may cost some low-wage workers to quit their 

jobs. However, many States do not recognize serious illness or disability of a family member as a good cause for leaving employment. 

In those cases where low-wage workers do have an earnings history that allows them to qualify for UI benefits, other factors could 

still result in a lower likelihood of their receiving UI benefits. 

In general, UI receipt is associated with higher earnings before 

unemployment, longer job tenure and more education. Earnings 

and job tenure are associated with longer job searches and possibly 

the decision to rely on UI benefits during that search. 

Greater levels of education may be associated with greater 

awareness of the UI program and success in navigating the system. 

Prior UI receipt also may play a role. Receiving UI benefits in 

one period of unemployment increases the likelihood of using UI 

again, we found in prior studies. 

With respect to the third issue, part-time workers, we found they 

were significantly less likely to collect UI than those who were fulltime regardless of whether they were low-wage or higher-wage. 

State eligibility criteria are a factor here as well. About twothirds of States do not consider workers to be eligible for UI if they 

are only available for part-time work and, like low-wage workers, 

some part-time workers may have difficulty meeting the requirement that they have a certain level of earnings within a given time 

period in order to be eligible. 

Mr. Chairman, this concludes my remarks, looks like right on 

time. I would be happy to answer any questions you or Members 

of the Subcommittee may have. 

Thank you. 

[The prepared statement of Ms. Fagnoni follows:] 

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Chairman MCDERMOTT. Ms. Chasanov. 

STATEMENT OF AMY CHASANOV, FORMER STAFF MEMBER, 

ADVISORY COUNCIL ON UNEMPLOYMENT COMPENSATION 

Ms. CHASANOV. Chairman McDermott and distinguished members of the Subcommittee, I appreciate being invited here today, 

and I welcome the chance to testify about this bill. It is a legislative proposal that encourages States to strengthen their unemployment insurance programs and rewards those States that have already chosen to do so. 

My name is Amy Chasanov, and from 1993 to 1995 I served as 

a staff member to the Advisory Council on Unemployment Compensation. I want to emphasize at the start that the Council was 

bipartisan, with members appointed by the President, the House, 

and the Senate. The Council’s 11 members represented various 

groups of stakeholders that included business, labor, State government, and the public. 

The Council had a broad mandate, looking at all aspects of the 

unemployment insurance system. During its relatively short lifespan, it held nine nationwide public hearings, visited numerous 

State offices and also sponsored significant legal and economic research in the area. 

The Council met on 13 separate occasions, held intense deliberations, and published three annual reports which discussed its findings, and presented 50 recommendations to improve the UI program. 

My testimony today focuses on the Council’s findings and recommendations that relate to the proposed legislation. 

At the outset, I should highlight that the Council either directly 

or indirectly endorsed all of the features of the House’s UI Modernization Act that is being discussed today. 

Before getting to those recommendations, let me mention two 

overarching issues, one of which Chairman McDermott already 

raised. 

The first is that there have been dramatic changes in the workforce since 1935. We have moved from a workforce that was made 

up primarily of married, full-time male workers to one where parttime and contingent and women workers now make up the majority. The Council noted repeatedly that the States’ UI programs 

have not always kept up with these important changes in the workforce. 

I would also like to mention that the Council focused much of its 

time on the Federal-State relationship in the UI program, which is 

unique, and about the appropriate division of responsibility between the States and the Federal Government. 

The Council believed that some national interests transcended 

State interests, and in those cases it was appropriate to establish 

Federal minimum standards. In particular, two of those national 

standards were minimum eligibility and benefit levels and also ensuring macro-economic stabilization. 

The bill today represents a carrot and, honestly, the Council had 

more of a stick approach mandating Federal minimum standards. 

Whatever approach is considered, however, the outcome is undoubtedly similar. 

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Let me now turn to the Council’s specific recommendations. 

First, the Council was deeply disturbed that 3 to 6 months of a 

worker’s most recent earnings were disregarded when determining 

monetary eligibility in most States, and that low-wage, part-time 

and temporary workers were particularly harmed. The Council recommended that all States adopt an alternative base period that 

considers the four most recently completed calendar quarters of 

work. 

Second, the Council believed that workers who met States’ monetary eligibility requirements should not be disqualified simply because they were looking for part-time as opposed to full-time work. 

Third, the Council recommended that the FUTA tax revenues per 

worker increase, not decrease, over time. They proposed a revenueneutral adjustment that will increase the Federal taxable wage 

base from $7,000 to $9,000 and eliminate the 0.2 percent surtax at 

that time. They also recommended annual increases in the Federal 

wage base. I do not believe based on the Council’s discussions that 

they would ever allow the FUTA surtax to expire without a simultaneous increase in the Federal taxable wage base. 

Fourth, the Council recommended extending UI benefits for individuals who are long-term unemployed when they are participating 

in education and training services and activities that enhance their 

reemployment prospects. 

Finally, although it was not a formal recommendation, the Council expressed concern over many States disqualifying workers from 

benefits if they quit their jobs due to domestic violence or to personal or compelling family reasons. 

I encourage you to look at my written testimony which discusses 

the Council’s reports in much more detail and also discusses two 

additional recommendations which are not part of the bill but 

should be considered. 

It was a pleasure to talk to you today about the Council’s work. 

[The prepared statement of Ms. Chasanov follows:] 

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Chairman MCDERMOTT. Ms. Hammond, who is the deputy secretary of commerce and trade in the Commonwealth of Virginia. 

STATEMENT OF LYNETTE HAMMOND, DEPUTY SECRETARY OF 

COMMERCE AND TRADE, COMMONWEALTH OF VIRGINIA 

Ms. HAMMOND. Mr. Chairman, Ranking Member, and Members of the Ways and Means Subcommittee on Income Security and 

Family Support. 

I am pleased to be here today to testify in support of H.R. 2233, 

the Unemployment Insurance Modernization Act. Governor Kaine 

supports this measure and the incentives it provides for States to 

address the compelling needs of our citizens who become unemployed through no fault of their own. 

The Governor also requests that the Subcommittee consider restoring adequate funding to administer the unemployment compensation and job services program. 

Much has changed since 1935 when the unemployment insurance 

safety net was first established. Information technology means that 

States no longer have to wait months to make sure they have an 

employee’s wage records. Families are more likely to depend on the 

wages of more than one worker. Workers are more likely to not 

only change jobs but change locations during their careers. 

In Virginia we have seen that changes in the global economy 

have eliminated whole classes of jobs, leaving workers stranded 

with outdated skills and crippled one-industry towns. 

Virginia has been comparatively fortunate in recent years. Our 

economy is robust, our unemployment rate is one of the lowest in 

the Nation, and our State has been recognized for 2 years in a row 

as the most business-friendly in the Nation by Forbes.com. 

Still, our statewide statistics mask large pockets of high unemployment. Local unemployment rates in Virginia range from 1.8 

percent in Arlington to 8.7 percent in Martinsville. Southside and 

southwest Virginia are still reeling from the loss of furniture and 

textile industry jobs that were the mainstays of their economy. 

In other areas of the State, growth and change present their own 

challenges. In Northern Virginia, for example, a tight labor market 

makes it more difficult for employers to find workers. In these 

areas, as demand on the unemployment insurance system decreases, the demands on the job service system increase to help 

place workers in jobs. 

Also in Virginia, at Fort Belvoir and Fort Lee, we are preparing 

for a large influx of military personnel, including military spouses 

who need jobs, have increased family responsibilities, and who 

must move frequently as their spouse is assigned to different duty 

stations. 

Despite these challenges, during this decade we have seen the 

Federal commitment to the Federal-State partnership erode between the year 2000 when the unemployment was 2.3 percent in 

Virginia, and 2006 with 3 percent unemployment. Federal funding 

for Virginia’s unemployment insurance system fell from 35.5 million to 34.4 million in unadjusted dollars. 

Congressman McDermott’s bill would temporarily help to remedy 

Virginia’s difficult financial situation caused by persistent Federal 

underfunding of the State system. Moreover, the legislation would 

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provide significant incentives for States to change their benefit eligibility requirement to recognize the changes in our economy. 

example, Virginia has implemented the alternative base period, 

and did so in 2003, recognizing that information technology allows 

claimants to use their most recent wages when determining eligibility. Since the enactment of the alternative base period, Virginia 

has paid $13.3 million in unemployment benefits to low-wage 

claimants who would not have qualified otherwise. This $3.3 million average yearly cost also undergirds what the State’s basic 

principle is, that unemployment compensation should strengthen 

attachment to the workforce. 

In order for claimants to qualify, they have to already demonstrate attachment to the workforce. For weekly benefits, they 

have to show they have been searching for work and are following 

through on any job leads provided by the job service. We feel these 

requirements help services and services help claimants find new 

jobs sooner and help keep them in the workforce. This is especially 

important for new entrants and lower-wage workers, and those are 

the ones that are most likely to be disqualified by the standard 

base period. 

We found during consideration of the Virginia legislation that 

those disqualified by the standard base period also tend to be 

young, low-income females with dependents, and these are the very 

people the State is working to help move toward independence in 

our TANF and food stamp programs. 

In conclusion, Governor Kaine supports H.R. 2233 to encourage 

States to modernize their UI programs. While it is premature to 

speculate what the general assembly might do, we have found that 

(or projected that) providing unemployment compensation to all 

trailing spouses, for example, would cost about $3 million per year 

and providing benefits to part-time workers seeking part-time jobs 

would cost about $8.1 million a year. This totals $11.1 million a 

year, and with those changes, Virginia would qualify for $128.2 

million Reed Act distribution and $64.1 million that the State 

would qualify for having enacted the base period. 

However, we also recognize the State is in the process now, because of persistent underfunding, of contracting the services that 

we can provide to the unemployed, not expanding them. So, providing adequate administrative funding would also be an incentive 

to States to upgrade the systems. 

Thank you. 

[The prepared statement of Ms. Hammond follows:] 

Statement of Lynette Hammond, Deputy Secretary of Commerce and Trade, 

Commonwealth of Virginia 

Mr. Chairman, Ranking Member, Members of the Ways and Means Subcommittee 

on Income Security and Family Support: 

My name is Lynette Hammond and I am Deputy Secretary of Commerce and 

Trade for the Commonwealth of Virginia. I am pleased to be here today to testify 

in support of HR 2233, the Unemployment Insurance Modernization Act. Governor 

Kaine supports this measure and the incentives it provides for states to address the 

compelling needs of our citizens who become unemployed through no fault of their 

own. The Governor also requests that the Subcommittee consider restoring adequate 

funding to administer the unemployment compensation and job services programs. 

As you know, the unemployment insurance program was created as part of the 

Social Security Act of 1935. At that time, Congress had the foresight to fashion a 

unique federal-state partnership that has been a major strength of the program for 

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more than 70 years. The unemployment compensation system has also endured because the Congress established the program as a social insurance program rather 

than a means-tested program, recognizing that everyone who is attached to the 

workforce may need a safety net should they find themselves unemployed through 

no fault of their own. 

Under this federal-state partnership, the federal government establishes broad 

standards that all states must meet, provides program oversight, collects an excise 

tax from employers to fund state program administration and various U.S. Department of Labor activities, and provides grants to the states to administer the program. States establish their own eligibility and qualification requirements in conformity with applicable federal standards, assess a payroll tax on employers to fund 

benefits to workers who become unemployed through no fault of their own. 

The unemployment insurance program has served our country well for more than 

seven decades. Its success is due in no small measure to the federal-state partnership that was established by the Social Security Act—a partnership that avoided 

both the inflexibility of a ‘‘one size fits all’’ national federal program and the economic chaos that could have ensued if the states had enacted a multitude of laws 

without any common policy underpinnings or legislative framework. 

However, as the years have gone by our economy and workforce have changed significantly. While these changes do not warrant discarding a program that has 

worked so well for many years, they do necessitate a re-examination of the goals, 

objectives, and program funding to ensure that the evolving needs of our dynamic 

economy and workforce will be met in the 21st century. 

Much has changed since 1935 when the Unemployment Insurance safety net was 

first established. The vast capabilities of information technology mean that states 

no longer have to wait months to be sure they have an employee’s wage records. 

Families are more likely to depend on the wages of more than one worker, placing 

more stress on workers as they try to balance work and family needs. Workers are 

more likely not only to change jobs, but to change locations during their careers. 

Changes in the global economy have eliminated whole classes of jobs, leaving workers stranded with outdated skills in crippled one-industry towns. 

But the basic principles underlying the unemployment insurance safety net 

haven’t changed—that workers deserve a buffer against economic dislocation. The 

need for a counter-cyclical stimulus when a community loses a major employer is 

still valid, and Virginia continues to see that need in rural areas as manufacturing 

jobs leave the country. I sincerely hope the notion is not outdated that if you work 

hard, pay taxes, and support your family, you won’t be cast adrift if you lose your 

job through no fault of your own. 

Virginia has been comparatively fortunate in recent years. Our economy is robust, 

our unemployment rate is one of the nation’s lowest, and our state has been recognized for two years in a row as the most business friendly in the nation by 

Forbes.com. Still, the statewide statistics mask large pockets of high unemployment. 

Local unemployment rates in Virginia ranged from 1.8 percent in Arlington to 8.7 

percent Martinsville. In Southwest and Southside Virginia, the unemployment rate 

is often double the statewide rate. These regions are still reeling from the loss of 

furniture and textile industry jobs that were mainstays of the economy. 

In other areas of the state, growth and change present their own challenges. In 

Northern Virginia, the tight labor market makes it difficult for employers to find 

workers. In these areas, as the demand on the unemployment insurance system decreases, the demand for job matching and employer assistance increases. At Fort 

Belvoir and Fort Lee, we are preparing for a large influx of military personnel, including military spouses who need jobs, have increased family responsibilities, and 

who also must move frequently as their spouse is assigned to different duty stations. 

As service members muster out of the military at Virginia bases, we must provide 

services and benefits to help them transition back to civilian life. 

Despite these challenges, during this decade we’ve seen the federal commitment 

to its federal-state partnership continuously erode. Between 2000, when the unemployment rate was 2.3 percent and 2006 with 3 percent unemployment, federal 

funding for Virginia’s unemployment insurance system fell from $35.5 million to 

$34.4 million in unadjusted dollars. 

Congressman McDermott’s bill would temporarily help to remedy Virginia’s difficult financial situation caused by persistent federal under-funding of state unemployment compensation administration. Moreover, the legislation would provide significant incentives for states to change their benefit eligibility requirements to recognize the changes in our economy that have occurred over the past seven decades. 

For example, Virginia implemented the alternative base period in 2003, recognizing that information technology allows the agency to use a claimant’s most recent 

wages when determining eligibility. In 1935, wage reporting involved manual 

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record-keeping and mailing time. At that time, it was practical to use the first four 

of the last five completed calendar quarters because more recent wage data was not 

available. Now with automated systems, using the most recent wages is not difficult. 

Nearly all employers report wages electronically and they are entered onto the 

state’s wage records electronically. Since the enactment of the alternative base period, Virginia has paid $13.3 million in unemployment insurance benefits to low-wage claimants who would not have 

qualified otherwise. The $3.3 million, or 45 cents per employee average yearly cost 

of the alternative base period also under girds the state’s basic principle that unemployment compensation should strengthen attachment to the workforce. 

In order to qualify for compensation, claimants must demonstrate sufficient wages 

to show attachment to the workforce. To be eligible for weekly benefits in Virginia, 

a claimant must show that they have been searching for work. They must also register with the Job Service and follow up on any job leads. These requirements and 

services help claimants find new jobs sooner and keep them in the workforce. It 

sends the message that their work matters. 

This is especially important for new entrants in the workforce and lower wage 

workers—those most likely to be disqualified by the standard base period. We found 

during consideration of the bill, that those disqualified by the standard base period 

also tended to be young females with dependents. These were the very people that 

the state was working to help move towards independence in our TANF and food 

stamp programs. Clearly, we did not want to send the message to these claimants 

that low pay means their work doesn’t count. 

The measure passed 35 to 5 in the Senate and unanimously in the House. The 

average annual cost has been slightly less than projected. Based on our experience, 

if Congressman McDermott’s bill gives incentives to other states to adopt the alternative base period, they are likely to find the money well spent. 

HR 2233 will also provide incentives to states to allow unemployment compensation for good cause shown. Virginia already provides eligibility for many of these 

cases through its administrative adjudication process. Examples of ‘‘good cause 

shown’’ in case decisions include leaving a job to escape family violence, and leaving 

a job to care for dependents. However, Virginia’s statute specifically excludes from 

good cause leaving a job to accompany a spouse who finds work in a new location— 

trailing spouses. 

In 2004, the Virginia General Assembly considered legislation to allow benefits for 

military spouses in cases where the service man or woman is transferred to a new 

duty station. Arguments against the bill at the time were that unemployment compensation eligibility would be a disincentive to hiring military spouses, and that it 

would subject employers to separations that are beyond their control. In response, 

the bill was amended to provide that benefit costs be assigned to the state’s pool 

instead of the most recent employer. Members also expressed concern that Virginia 

would be paying benefits to military spouses from states that did not similarly treat 

their own military spouses moving to new duty stations. In response, the authorizing committee amended to bill to provide benefits only when the spouse moved to 

a state that provided similar benefits. 

The Warner administration recognized that Virginia’s military spouses have been 

making tremendous sacrifices. Their wages are essential to keeping the family 

afloat, especially when the servicemember is assigned to duty overseas. Moreover, 

members of the military have the only job in the state where a worker can be prosecuted if he or she refuses to transfer. Clearly, the spouses of Virginia’s military 

men and women do not consider it optional to move to a new duty station when 

the orders come. 

The legislation to provide benefits to military trailing spouses did not pass the 

General Assembly. After a hard-fought and narrow approval by the House of Delegates, the sponsor pulled the bill in response to questions about the cost projections. 

Had the McDermott bills incentives been available, the outcome might well have 

been different. As it is, we risk telling military spouses—mostly low-income 

women—that accompanying your spouse to a new duty station is not good cause for 

leaving a job. 

In conclusion, Governor Kaine supports HR 2233 to encourage states to modernize 

their Unemployment Insurance programs. While it is premature to speculate what 

the Virginia General Assembly might enact if the bill were to become law, preliminary projections indicate the following: 

Extending unemployment compensation to all trailing spouses is projected to cost 

approximately $3 million per year. The National Employment Law Project estimates 

that paying benefits to separated part-time workers seeking part time employment 

would cost $8.1 million per year. By making these changes, totaling $11.1 million, 

Virginia would qualify for a $128.2 million Reed Act distribution in addition to the 

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$64.1 million the Commonwealth would receive for having enacted the alternative 

base period. These enhanced benefits would go primarily to low income workers— 

workers who’ve lost their job through no fault of their own. 

However, the General Assembly also knows that under the current federal funding, the unemployment compensation and job service systems are being forced to 

contract, not expand the assistance we can provide to the unemployed. Remedying 

the persistent under funding of the state’s Unemployment Insurance and Job Services program will also go far as incentives for states to modernize their systems and 

benefits. 

Thank you for your time. 

f 

Chairman MCDERMOTT. We will now turn to Vickie Lovell, 

who is the director of employment and Work/Life programs, Institute for Women’s Policy Research. I want to enter into the record 

a letter from 60 organizations that—organizations that are in support of this piece of legislation because of what it does for women. 

[The information follows:] 

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STATEMENT OF VICKY LOVELL, Ph.D., DIRECTOR OF EMPLOYMENT AND WORK/LIFE PROGRAMS, INSTITUTE FOR WOMEN’S POLICY RESEARCH 

Dr. LOVELL. Thank you, Chairman McDermott, Ranking Member Weller, and Members of the Subcommittee. Thank you for providing me with the opportunity to present research from IWPR and 

others on the need to modernize the UI system to better meet its 

original objective for working women. 

H.R. 2233 addresses two key facts about women. First, women 

are disproportionately represented in our low-wage workforce; and 

second, women continue to be our primary family care givers. 

These two facts put women in a different position than men on average in terms of both employment and unemployment. 

Most of our low-wage workers are women, and nearly one-third 

of working women earn a poverty-level wage or less. Women are 

more likely than men to be low earners because pay in some jobs 

that are considered to be women’s work is depressed by the fact 

that women are doing the work. Take child care, for instance. 

In other instances where men and women do the same job, 

women continue to be paid less than men. For example, in dishwashing, women receive 87 cents for every dollar earned by men. 

We have just heard that although low-wage workers are more 

likely than higher wage workers to suffer unemployment, they are 

significantly less likely to receive unemployment insurance benefits. Thus, unemployed women are at greater risk of not receiving 

support from UI when they are unemployed than is the case for 

men. Women’s UI recipiency rate is more than 10 percent lower 

than men’s, and in some States, the gender gap in UI recipiency 

rates is much higher, up to 44 percent. 

Adoption of an alternative base period would help address this, 

because ABP helps low-wage workers qualify for benefits in a timely fashion. We have heard about adoption of the ABP in Virginia, 

and my written testimony discusses this issue in some detail so I 

would like to make one point about the ABP now. 

Arguments against the alternative base rate often assume that 

workers are in complete control of their job tenure. That is, that 

the worker who meets an employer’s job performance expectations 

can hold a job indefinitely. From this perspective, workers with relatively short job tenure are seen as having weak job attachment. 

The realities of today’s labor market, however, include higher job 

instability even when the economy is strong. In some industries, 

high turnover is a fairly commonplace occurrence, in part because 

of the way jobs are structured and scheduled. 

In this context, frequent movement into and out of jobs does not 

necessarily reflect workers’ desires but may instead be an artifact 

of the types of jobs made available by employers. With fewer opportunities for long-term employment, a gap in a worker’s earnings 

record should not be interpreted as a lack of labor force attachment, and UI benefits should not be denied or postponed on that 

account. 

Two other reforms address women’s work caring for families. 

The first is coverage of part-time workers. In many States UI 

claimants looking for part-time work are not eligible for UI even 

if they have historically worked part-time and would qualify for UI 

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based on that work history, or if they have family obligations that 

preclude full-time work. 

Here again, our 21st century economy is creating jobs that are 

often excluded from UI coverage regardless of workers’ intent. More 

than one in every six workers is on a part-time schedule, and contrary to common misperception, these are not only young workers 

who are still in school; 12 percent of part-time workers are on parttime schedules involuntarily. They would rather work full-time but 

can’t find a full-time job. 

Thirty-five percent of part-time workers are women in their 

prime working ages of 25 to 54 years, and a quarter of them cite 

child care problems and other family or other personal responsibilities as the reason for working a reduced schedule. 

When workers looking for a part-time job are denied UI benefits, 

women are the primary losers because 67 percent, or two-thirds, of 

all part-timers are women. 

H.R. 2233 would also encourage States to provide UI benefits to 

workers whose jobs end because of compelling family situations or 

domestic violence. 

These changes would provide benefits to workers caring for a seriously ill or disabled family member or moving with a relocating 

spouse. Again, these are modest UI reforms that would disproportionately benefit women, and this is why the Committee has received a letter of support from women’s organizations for this bill. 

While job loss in these situations is described as a voluntary 

quit, in a very real sense it is not voluntary. It is a worker’s only 

option, given the obligations at home or in the face of sexual violence. I encourage the Subcommittee to incorporate sexual assaults 

and stalking into this language to ensure that all victims of domestic violence, as defined by the Violence Against Women Act, are 

supported by UI. 

In addition, the requirement for reasonable and confidential documentation of domestic violence should be carefully defined to 

avoid imposing onerous burdens on women whose safety is in jeopardy due to domestic violence. 

I would also like to see job termination that is caused by a lack 

of child care included in the list of compelling family reasons. This 

would address situations in which child care arrangements suddenly fall apart or workers cannot accept a shift change because 

child care is not available. 

Our UI system has been amended many times at both the Federal and State levels in order to expand coverage, reflect changing 

norms, respond to fiscal realities and stay aligned with the changing economy. 

One of my favorite examples of this was in the forties when 

many States made women ineligible for unemployment insurance 

if they were fired from their jobs because they became pregnant or 

got married. 

The UI system is one that should be updated periodically to continue to be effective as the workforce and economy evolve. H.R. 

2233 will help return the UI system to its former coverage levels, 

improve income stability for many families, and move this important program in the direction of greater equity and improved adequacy. 

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Even if the Subcommittee chooses to explore wage insurance policies, there will continue to be a role for our existing UI approach 

to provide a known, effective safety net for all workers. 

Chairman MCDERMOTT. Thank you very much for your testimony. 

[The prepared statement of Dr.Lovell follows:] 

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Chairman MCDERMOTT. We will now go to Jeffrey Kling who 

is a senior fellow and deputy director of economic studies at the 

Brookings Institution. Dr. Kling. 

STATEMENT OF JEFFREY KLING, Ph.D., SENIOR FELLOW AND 

DEPUTY DIRECTOR, ECONOMIC STUDIES, THE BROOKINGS 

INSTITUTION 

Dr. KLING. Chairman McDermott, Representative Weller, Members of the Subcommittee, thank you for the opportunity to testify. 

I fully support the efforts of this Committee to modernize UI. Improving coverage for low-wage and part-time workers, making UI 

more family friendly and improving skills are all worthwhile, but 

I also believe that there are higher priorities for modernization 

than those addressed in the Unemployment Insurance Modernization Act. So, the main themes of my remarks are these: 

The modern UI system should focus more on the larger longer 

term consequences of job loss. This reorientation will ultimately require a much more ambitious set of UI reforms. The current agenda should include measures that lay the ground work for these fundamental reforms. 

In looking toward the future of a modern system, we have to 

have clear goals, and in 1936 the Federal Government powerfully 

articulated what I believe to be the key goal of unemployment insurance. That is, ‘‘to lighten the burden which now so often falls 

with crushing force upon the unemployed worker and his family.’’ 

Seventy years later the nature of this crushing force has 

changed. Maintaining living standards immediately after job loss, 

the original focus of UI, is no longer the major difficulty associated 

with unemployment. In the 21st century economy, the situation 

has changed in at least three key ways. 

First, job loss is now more likely to be permanent and associated 

with large drops of wages for the long term and not just short-term 

income loss. Second, the unemployment duration has increased. 

Third, people have greater ability to borrow to tide over periods of 

short unemployment. 

These three facts, more permanent job loss with large wage 

losses, longer unemployment durations, and greater ability to borrow, suggest a shift in resources toward larger, longer-term consequences of unemployment should be the priority of efforts to 

modernize the UI system. 

The most effective way to target long-term loss is to implement 

a wage loss insurance system similar to that recently proposed in 

the Worker Empowerment Act introduced by Chairman 

McDermott, where a fraction of the difference in wages between an 

old and new job is paid for a period of years. 

A wage loss insurance system can better target the largest losses 

while simultaneously providing more benefits to workers in the 

lower half of the income distribution. 

It would also be valuable to improve the mechanisms that trigger 

extended benefits for those with longer unemployment spells. These 

benefits could be triggered more frequently and the durations could 

be modulated to last for shorter and longer amounts of time. 

Smaller, shorter term consequences of unemployment can be 

managed in ways other than through UI benefits. Increasing the 

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number of waiting weeks before UI benefits begin or establishing 

personal accounts from which one could borrow and repay from future earnings are two possible mechanisms for redirecting UI resources toward larger, longer term losses. These approaches would 

also promote reemployment by removing the incentive to stay unemployed that is created by UI benefit receipt. 

My analysis of studies of the responsiveness of unemployment 

spells to UI benefits suggests that unemployment durations would 

decline by 10 to 15 percent if UI benefits were fully replaced at 

some point by personal accounts. These accounts, if implemented 

along with loans, could ensure the maintenance of living standards 

during the first 6 months after a job loss that would be at a level 

equal to that under the current UI system. 

Once mechanisms for supporting living standards are in place, 

the key issue is then how to target assistance to those with the 

largest long-term losses. 

I have found that only one-third of unemployment insurance benefit payments currently go to those who have lower wages over the 

10 years after job loss, and I think we can do better than that. 

I have submitted written testimony which makes three additional points about modernizing UI. The payroll tax base for UI 

should be broader, with lower tax rates. Compensation insured by 

UI should include the value of major employer benefits. A system 

of temporary earnings replacement accounts and wage loss insurance is feasible for the future, and its components merit demonstration and evaluation. 

Even if the focus of the UI Modernization Act remains on broadening eligibility and other issues currently envisioned, additional 

provisions could be added to begin to explore the fundamental modernization I have described today. 

It would be extremely beneficial to facilitate experimentation by 

States interested in focusing on larger longer term losses, payroll 

tax-base broadening, incorporation of employer-provided benefits, 

or other priority areas for modernization. 

Just 2 percent of funds in the UI Modernization Act would pro- vide $140 million of investment in testing new ideas that could provide valuable guidance for the major decisions that we will encounter when thinking about fundamental modernization in the future. 

I would be happy to talk more about any of these issues. 

Thank you. 

Chairman MCDERMOTT. Almost perfect. 

[The statement of Dr. Kling follows:] 

Statement of Jeffrey Kling, Ph. D., Senior Fellow and Deputy Director, 

Economic Studies, The Brookings Institution 

Chairman McDermott, Representative Weller, and Members of the Subcommittee, 

thank you for the opportunity to testify at this hearing on Unemployment Insurance 

(UI) modernization. I fully support the efforts of this committee to modernize UI. 

Improving coverage for low-wage and part-time workers, making UI more family 

friendly, and improving skills are all worthy endeavors. But I also believe that there 

are higher priorities for modernization than those addressed in the Unemployment 

Insurance Modernization Act. The main themes of my remarks are these: 

• The modern UI system should focus more on the larger, longer-term consequences of job loss. 

• This reorientation will ultimately require a much more ambitious set of UI reforms. 

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[1] Advisory Commission on Unemployment Compensation. Unemployment Insurance in the 

United States: Benefits, Financing, Coverage. Washington, DC, 1995. (Quoting a statement by 

the U.S. Social Security Board in 1936.) [2]Kling, Jeffrey R. ‘‘Fundamentally Restructuring Unemployment Insurance: Wage-loss Insurance and Temporary Earnings Replacement Accounts.’’ Hamilton Project Discussion Paper 

2006–05, September 2006. 

• The current agenda should include measures that lay the groundwork for these 

more fundamental reforms. 

Focusing on larger, longer-term consequences of unemployment 

In looking toward the future of a modern system, we must have clear goals. In 

1936, the federal government powerfully articulated what I believe to be the key 

goal of unemployment insurance: ‘‘to lighten the burden which now so often falls 

with crushing force upon the unemployed worker and his family.’’ [1]

Seventy years later, the nature of this crushing force has changed. Maintaining 

living standards immediately after job loss, the original focus of UI, is no longer the 

major difficulty associated with unemployment. In the twenty-first century economy, 

the situation has changed in at least three key ways. First, job loss is now more 

likely to be permanent, and associated with drops in long-term wages, not just 

short-term income loss. Second, unemployment duration has increased. Third, people have greater ability to borrow to tide over short periods of unemployment. These 

three facts—more permanent job loss with large wage losses, longer unemployment 

durations, and greater ability to borrow—suggest a shift in resources toward larger, 

longer term consequences of unemployment should be the top priority of efforts to 

modernize the UI system. 

The most effective way to target long-term losses is to implement a wage-loss insurance system similar to that recently proposed by H.R. 2202, the Worker Empowerment Act, introduced by Chairman McDermott, where a fraction of the difference in wages between an old and new job is paid for a period of years. A wageloss insurance system can better target the largest losses while simultaneously providing more benefits to the lower half of the income distribution. It would also be 

valuable to improve the mechanisms that trigger extended benefit payments for 

those with longer term unemployment spells. These benefits could be triggered more 

frequently, and the durations could be modulated to last for shorter or longer 

amounts of time. 

Smaller, shorter term consequences of unemployment could be managed in ways 

other than with UI benefits. Increasing the number of waiting weeks before UI benefits begin or establishing personal accounts from which one could borrow and repay 

from future earnings are two possible mechanisms for directing UI resources toward 

larger, longer term losses. These approaches would also promote re-employment by 

removing the incentive to stay unemployed that is created by UI benefit receipt. My 

analysis of studies of the responsiveness of unemployment spells to UI benefits suggest that unemployment durations would decline by 10 to 15 percent if UI benefits 

were fully replaced at some point by personal accounts. These accounts, along with 

forgivable loans, could ensure the maintenance of living standards during the first 

6 months after job loss at a level equal to that under the current UI system. [2] Once 

mechanisms for supporting living standards are in place, the key issue is how to 

target insurance to those with the largest long-term losses. I have found that only 

one-third of unemployment insurance benefit payments currently go to those who 

subsequently have lower wages over the 10 years after job loss. We can do better 

than that. 

I have submitted written testimony which makes three additional points about 

modernizing UI: 

• The payroll tax base for UI should be broader. 

• Compensation insured by UI should include the value of major employer benefits. 

• A system of temporary earnings replacement accounts and wage-loss insurance 

is feasible for the future, and its components merit demonstration and evaluation. 

Even if the focus of the UI Modernization Act remains on broadening eligibility 

and other issues currently envisioned, additional provisions could be added to begin 

to explore the fundamental modernization I have described today. It would be extremely beneficial to facilitate experimentation by states interested in focusing on 

larger, longer term losses, payroll tax base broadening, incorporation of employerprovided benefits, or other priority areas for modernization. Just 2 percent of funds 

in the UI Modernization Act would provide $140 million of investment in testing 

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[3]For an overview, see Stone, Chad, Robert Greenstein, and Martha Coven, ‘‘Addressing 

Longstanding Gaps in Unemployment Insurance Coverage.’’ Center on Budget and Policy Priorities (August 7, 2007). http//www.cbpp.org/7-20-07ui.pdf [4]http:workforcesecurity.doleta.gov/unemploy/hb394.as (accessed September 17, 2007) [5]Kling (2006). [6]The percentage of households in the lowest third of the income distribution with a head 

younger than 60 where someone in the household has a credit card was 34 percent in 1983 and 

54 percent in 2001. The percentage of households receiving unemployment insurance or worker’s 

compensation with a head younger than 60 where someone in the household has a credit card 

was 65 percent in 1983 and 76 percent in 2001. (Karen Dynan, personal communication, Sepnew ideas now that could provide valuable guidance for major decisions about fundamental modernization in the future. 

I would welcome further discussion on any of these issues. Thank you. 

Additional testimony submitted for the record 

UI is the primary form of insurance for job lossin our country. The basic structure 

of our UI system has remained essentially the same since it was established 70 

years ago. Our economy, however, has changed a great deal over this time, creating 

a need for modernization. [3]

Today more job losses are permanent and more unemployment spells are long 

ones. For instance, looking at similar points in the business cycle 1961 and 2002, 

the percentage of UI recipients exhausting their benefits (often after 26 weeks of 

unemployment) increased from 30 percent to 43 percent. [4] Perhaps most importantly, many workers can find new jobs only at reduced wages. In 2002 over onefourth of job losers had earnings losses of 25 percent or more eighteen months after 

the job loss. [5] It is the devastation of permanent income declines after job loss is 

that is the crushing force of unemployment in today’s economy. 

Meanwhile, financial innovations ranging from credit cards to home equity loans 

have made it possible for many individuals to borrow funds to maintain living 

standards in the weeks immediately after job loss. For example, the first credit 

cards were issued in 1951. By 1983, over one-third of lower-income households (and 

about two-thirds of UI recipients) had at least one credit card; by 2001, over onehalf of lower income households (and about three-quarters of UI recipients) had a 

credit card.[6] Since it is increasingly feasible to borrow during unemployment, larger UI payments could be targeted to those who will have difficulty in repaying, rather than spending UI resources on those who have an unemployment spell and go 

on to have higher income than prior to job loss. 

Broadening the payroll tax base for UI 

In 1937, the maximum amount of taxable earnings for Social Security and for UI 

both was $3000. Today the taxable earnings base for Social Security is $97,500, 

while the taxable base for UI is $7000. The narrow earnings base for UI translates 

into high tax rates for low earners. [7] The UI tax rate is over 2.5 percent for the 

bottom quarter of the wage distribution and less than 1 percent for the top quarter 

of the wage distribution. Shifting from the current earnings base to the Social Security earnings base could collect the same amount of revenue while allowing tax rates 

to fall. The tax rate on the bottom quarter of the wage distribution could be cut approximately in half, making the tax much less regressive. The UI taxable wage base 

has not increased since 1983; it is one of the features most in need of modernization 

and would be relatively simple to address. Leadership by the federal government 

would likely motivate states to make adjustments as well. 

Regarding UI taxes, note that my recommendations for modernizing the UI system are not at all contingent upon whether the temporary FUTA surtax is extended. 

In past hearings before this Committee I have observed the testimony from witnesses degenerate into discussion of a change in tax revenue. However, an order of 

magnitude more is being spent on the underlying program itself, and opportunities 

to engage in public discourse about the fundamental structure of the unemployment 

insurance system have been missed. Even if large-scale changes are not feasible at 

this moment in time, there are things we can and should do now to set the stage 

for making informed choices about fundamental modernization in the future. 

Compensation insured by UI should include the value of major employer 

benefits 

In 1950, pension and health plans were about 3 percent of total compensation; in 

2006, employer contributions to pension and health plans had increased to 15 percent of total compensation. [8] When an individual loses a job however, these contributions are lost. Moreover, UI benefits are based on earnings, and do not incorwwoods2 on PROD1PC60 with HEARING

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[9]This section draws upon Kling (2006). 

porate the value of these employer contributions. Partly as a result, the loss of 

health insurance can be a particularly difficult aspect of unemployment. 

The rising importance of fringe benefits over time has not been incorporated into 

the UI system, and their incorporation would be a valuable addition to a modernized 

system. Employers could include pension contributions and the per-employee costs 

of employer provided health benefits in quarterly reports of compensation. States 

could then either collect more revenue and increase outlays based on the total compensation (which would be higher than earnings alone) or adjust their tax rates and 

outlays to reach desired targets. 

Temporary earnings replacement accounts and wage-loss insurance 

In recent work I have discussed issues involved with a fundamental shift toward 

insurance for persistent, long-term effects of job loss, based on the core principle 

that smaller, short-term needs can be met through savings, borrowing, and repayment, so that the funds for insurance can be targeted to assist those facing larger, 

longer term losses. [9] This is not a change that I recommend making immediately, 

but it outlines a direction for modernization that suggests key issues that merit exploration, experimentation, and demonstration. 

In the remainder of this section, I outline what would be involved in creating a 

future system where two-thirds of the financial resources currently used for UI 

would be shifted to wage-loss insurance to augment the hourly wages of individuals 

who find new jobs at wages lower than their previous jobs. Temporary Earnings Replacement Accounts (TERAs) would provide the same amount of cash as under UI 

to be withdrawn during unemployment. Unemployment would be reduced by removing subsidies for temporary layoffs and by creating stronger incentives to return to 

work. The proposed system would provide a significantly greater share of net program benefits to workers in the lower half of the income distribution when compared to the current system of UI benefits alone. By targeting system resources to 

those whose hourly wages are lower on their new jobs after an involuntary job loss, 

significant hardship would be reduced. 

To compare current UI with this proposed modernization in the context of a concrete example, consider an aircraft assembly employee in California who was making $14 per hour and working 40 hours per week before her plant closed and she 

was laid off. If she were to apply for UI under the existing system, the state would 

check to see that she worked for an employer covered by UI, that her earnings in 

the past year were above a threshold, that her employment was terminated involuntarily, and that she is available now to work. When verified as eligible, she would 

receive benefits replacing half of her income—in this case, $280 per week. Benefits 

are financed by a payroll tax on the wages paid to employees at all covered firms, 

with the firm’s tax rate depending in part on the amount of UI benefits paid to 

former employees of the firm. Payroll taxes from firms are paid to the government, 

and the government pays UI benefits to eligible individuals. The workings of the 

proposal are illustrated by continuing with this example, first taking the viewpoint 

of the individual, then the firm, and then the government. 

From the individual’s viewpoint, during the course of her 10 years of employment at the firm, the worker voluntarily contributed $2,000 to her TERA. (The default 

on initial employment was a payroll deduction of 1 percent of pretax earnings contributed to her TERA, and she did not opt out of this contribution schedule.) The 

account was maintained by the government, and her investments were in government bonds. Funds in the account were excluded from asset tests for food stamps, 

Medicaid, and other government programs, so they did not reduce any potential eligibility for assistance from these programs. 

After being laid off from her aircraft assembly job, she could apply to receive the same amount of income as under UI—$280 per week, replacing half of her previous 

earnings. This amount is treated as taxable income as it would have been under 

current UI. The eligibility criteria would also be the same as under UI. The difference is that the funds would come from a combination of previously accumulated 

savings in the TERA and borrowing against future employment income. Say that 

she remains unemployed for 10 weeks, receiving $2,800. She thus draws down the 

$2,000 in her TERA and borrows an additional $800, leaving her TERA balance at 

negative $800. She then takes a new job that pays $10 per hour. Her new firm deducts 5 percent of her earnings from her paycheck until she has repaid the $800 

(plus interest). 

The proposal’s other main component involves wage-loss insurance. To be eligible 

for wage-loss insurance payments, a period of unemployment between the involuntary job loss and the next job would not be required, but all other requirements for 

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initial UI eligibility, such as requirements regarding earnings history and nature of 

the job loss, would still need to be met. In addition, wage-loss insurance would be 

available only to those with at least 1 year of tenure with their previous employer; 

obviously, individuals would need to have taken a new job with a different employer. The amount of the wage-loss insurance per hour worked on the new job 

would be based on an insured wage rate—either the wage on the previous job or 

the fixed amount of $15 per hour, whichever is lower—and calculated as 25 percent 

of the difference between the insured wage rate and the hourly rate on the new job. 

The insured wage for each individual would be adjusted each quarter for price inflation, as would the level (initially at $15) of the fixed maximum potential insured 

wage for future claimants and other parameters of the system based on dollar values. In this example, the aircraft assembly worker experiences a $4 per hour reduction in wages ($14 per hour at the previous job, $10 per hour at the new one). Assuming 

no inflation, her wage-loss insurance payments are 25 percent of this $4 reduction— 

in other words, the wage-loss insurance payment amounts to $1 per hour. These 

payments are initially deposited directly in her TERA. They would be used first to 

repay her incurred $800 loan, which would take about 14 weeks of work at the new 

job. She would then receive the wage-loss insurance payments for 6 years, which 

is a period based on total hours of work in her 2 years prior to job loss (3 hours 

of insurance coverage for each hour worked, excluding hours worked in the first 

year on the job). After her TERA balance reached a maximum threshold ($5,000), 

additional payments from wage-loss insurance would be sent to her by check. Assuming her wage rate did not change, her income drop would be reduced from 28 

percent (based on labor earnings falling from $14 to $10 per hour) to 21 percent (including the $1 per hour insurance payment) over the 6 years she receives payments. 

If her wage in the new job did rise or fall, the wage-loss insurance payments would 

be adjusted as well, so that the wage-loss insurance payments in each calendar 

quarter would be based on the average hourly wage since job loss through that 

quarter. 

The amounts of transfer payments would vary with individual circumstances. 

Generally speaking, transfer payments to individuals would be smaller under this 

proposal than they would be under traditional UI for those experiencing unemployment spells followed by employment at wages the same or higher than at the time 

of layoff. Transfer payments would be the same to minimum wage workers and 

those who never return to work following a period of unemployment, and transfer 

payments would be larger after permanent job loss for those working at a new job 

with a lower hourly wage. 

Four special conditions that don’t apply to our hypothetical aircraft assembly 

worker are worth noting here. First, those with very low wages on their previous 

job would receive supplemental assistance if they needed to borrow funds from their 

TERA. The members of this group are unlikely to benefit much from wage-loss insurance because the wages of their previous jobs were already so low, limiting their 

potential wage losses at new jobs, given minimum wage laws. The coinsurance rate 

for this supplemental assistance would run on a sliding scale, such that someone 

earning $5.15 per hour would not have to repay any borrowing from the TERA— 

but also would not receive any wage-loss insurance payments. Such a worker would 

be in exactly the same position under current UI and under the proposed system. 

Second, if our hypothetical worker reached retirement age and filed for Social Security benefits, any positive balance remaining in her TERA would be transferred 

to an Individual Retirement Account (IRA) for her. If her earnings had been too low 

to repay any loans from her TERA at the point she would begin collecting Social 

Security, then TERA repayment insurance would pay off the remaining balance. 

Third, if she had opted out of making payroll contributions to her TERA, instead 

of accepting the default option of making such contributions, her withdrawals during unemployment would have been entirely a loan from her TERA, which she 

would repay with interest through deductions from paychecks at her new job. 

Fourth, if she held two or more jobs with separate employers, each job would be 

separately insured. Withdrawal amounts would be based on earnings at the specific 

job that was lost, and the insured wage for wage-loss insurance would be set based 

on earnings and hours on the lost job. A new job started a week before being laid 

off from one’s main job and a job started a week after a layoff would be treated the 

same way for the purposes of wage-loss insurance eligibility and payments, with calculation of the post—job loss hourly wage beginning in the calendar quarter after 

job loss. 

From the firm’s viewpoint, the aircraft-manufacturing firm laying off the individual in the example would submit three types of payments to the government over 

time. Initially, the firm would send payroll deductions for voluntary saving to the 

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TERA; these deductions reflect contributions made by workers who do not opt out 

of the default saving mechanism for the TERAs. Taxes based on the firm’s payroll, 

as under the current UI, would support the administration of the system and finance two types of payments: repayment insurance to pay off loans for individuals 

who retire but who had earnings too low to fully repay their TERA withdrawals, 

and low-wage coinsurance to reduce potential TERA repayments for those with low 

hourly wages. 

Regarding the flow of funds for wage-loss insurance, firms would reimburse the 

government for wage-loss insurance claims of former employees, and the government would pay the employees. Firms would also be required to purchase insurance 

on the private market to cover wage-loss insurance claims in the event that the firm 

became insolvent, and the insurer would then make payments to the government 

in the event of firm insolvency. 

In total, firms would make payments to the government for wage-loss insurance, 

repayment insurance, assistance on TERA repayments for those with low wages, 

and other costs of the proposed system that would be approximately the same as 

the current UI system. In terms of funds currently paid in UI benefits, nearly twothirds of the money would be reallocated to wage-loss insurance, about 30 percent 

would go to repayment insurance, and 6 percent would be used for supplemental 

assistance for TERA withdrawals by those with wages near the minimum wage. 

Thus, revenue from new payments for wage-loss insurance reimbursement would 

combine with reduced revenue from the payroll tax so that a change to the proposed 

system would be revenue neutral. 

The UI taxable earnings base would be increased from the current caps (e.g., 27 states had caps on taxable earnings of $10,000 or less in 2005) to the Social Security 

earnings base (which was $90,000 for 2005, and which increases annually with the 

national wage index). The reduced revenue needs from the UI payroll tax combined 

with the broader tax base would allow average payroll tax rates to be substantially 

reduced. UI tax rates would continue to vary by firm as under traditional UI (according to previous use of TERAs by former employees, as opposed to previous payments of UI benefits to former employees). These rates would be more tightly linked 

to firm layoff histories through the combination of lower average tax rates and a 

lowering of the minimum rates that states require firms to pay. Since firm-varying 

rates would be less constrained by the floors and ceilings that characterize the current system, firms that lay off workers would see higher UI payroll taxes in the future. 

A firm that hired a previously unemployed worker would carry out mandatory 

payroll deductions for repayment of loans when that employee’s TERA withdrawals 

had resulted in negative TERA balances. Such deductions would appear on pay 

stubs as pretax deductions, similar to health insurance, retirement plans, and dependent care expense accounts. 

From the government’s viewpoint, UI is run under current law by the states 

under the oversight of the federal government, and this pattern would remain in 

place under this proposal. States would continue to be responsible for verifying a 

person’s eligibility for unemployment benefits. States would also determine how 

much each unemployed person could withdraw from his or her TERA per week. 

States would continue to collect payroll taxes, which would be used for TERA repayment insurance and low-wage coinsurance. 

The flows of funds to the government from firms and insurers and from the government to individuals would involve individuals making TERA withdrawals and receive wage-loss insurance payments. It is sometimes proposed that a minimum size 

should be set for the level of payments because, for example, very small wage losses 

could lead to very small payments. However, once an employee has borrowed from 

a TERA and the wage-loss insurance program has been established, the administrative cost of making these payments would be very low. Once a claim has been approved, benefit amount determination and deposits can essentially be automatic, 

based on employer reports of earnings and hours for each quarter. 

The federal government would manage the TERAs in this system. The government can take advantage of economies of scale to keep costs low, and it can avoid 

TERA transfers when individuals change employers or move across state lines. The 

interest rate on government bonds would be the rate of interest required for repayment of borrowed funds. 

Funds in the TERAs would be invested and earn a rate of return on positive balances. The automatic default investment would be in government bonds. Such a safe 

default investment seems appropriate given that job loss is an unpredictable event 

and the savings may be needed at any time. For positive TERA balances, workers 

could opt into a portfolio with a mixture of stocks and bonds, where the portfolio 

composition varied depending on the retirement age of individual, modeled on the 

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federal Thrift Savings Plan’s life-cycle funds. Changes from bonds to life-cycle funds 

would be allowed once per calendar quarter. 

The federal government would also have the power to authorize extending the 

standard 26-week period in which the unemployed person can make withdrawals 

from a TERA, just as the federal government now can extend eligibility for unemployment benefits when the economy is in or near a recession. During the extended 

period, individuals could continue to make withdrawals and borrow from their 

TERAs. Firms would not have their future payroll tax rates increased because of 

withdrawals during the extended period. federal unemployment taxes would contribute to the repayment insurance that would cover borrowed funds that were not 

repaid. 

The transition to a system of TERAs and wage-loss insurance would phase in naturally. In the first year of the program, firms would be charged the full amount of 

withdrawals by their former employees from TERAs because the former employees 

would initially have no savings and the system would need funds to loan out from 

TERAs. Wage-loss insurance payments would not be paid in the first year, however, 

so total outlays by firms would not increase. 

In the second year of the program, some workers would begin to qualify for wageloss insurance and firms would begin to make wage-loss insurance reimbursement 

payments to the government. The parameters of the system could be set so that the 

combined cost to firms for TERA withdrawals and wage-loss insurance payments 

would be no larger than the firms’ costs under the current UI system. 

The proposal could be adopted by one or more states, while other states could opt 

to remain with the existing system. Coverage for compensation after involuntary job 

loss would be determined by the location of the employing establishment at the time 

of job loss, just as under the traditional UI system. Individuals who worked in a 

state adopting this proposal would be covered under it even if they relocated to a 

state that had not adopted this proposal. 

f 

Chairman MCDERMOTT. Since I don’t know when this thing is 

going to be going off, and we are going to have to go over and vote, 

I am going to give the first chance to ask questions to Mr. Weller. 

Mr. WELLER. Thank you, Mr. Chairman, and recognizing we 

may be under time constraints for all of the members to have an 

opportunity to ask questions, I will try and wrap this up before the 

vote break and direct my questions to Dr. Kling. 

Dr. Kling, essentially your message in your testimony was it is 

important to promote workers in getting back to work quickly as 

opposed to collecting more unemployment benefits. 

Can you go more into greater detail on why you feel that is the 

approach we should be looking at as we work to do a better job at 

unemployment benefits? 

Dr. KLING. Sure. Unemployment insurance is an insurance system. So, fundamentally what we want to do is have a way of providing insurance when there is a loss. The best way to prevent 

there being a loss is to have people who are going back to work 

quickly, in a good job, and if they are doing that, then there is no 

loss. So, that is the number one priority. 

Then when that doesn’t work out, either because the labor market isn’t rewarding the skills that somebody has at the level that 

it used to, or if it is taking a long time in order to find a new job, 

then providing some benefits in that case is sort of what the insurance part is for. The primary way of avoiding the need to do that 

in the first place is really to get people back to work. 

Mr. WELLER. What does the worker benefit? What is his benefit 

if he is in a program designed to give him the opportunity to go 

back into the workplace? 

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Dr. KLING. Are you asking about how can the system provide 

additional assistance to workers in terms of, say, providing more 

job search assistance? 

Mr. WELLER. I also know you have several initiatives that you 

drew attention to in your testimony. If you would like to discuss 

those, because those are new ideas. 

Dr. KLING. Sure. 

Mr. WELLER. Perhaps your wage insurance proposal, your accounts proposal. 

Dr. KLING. Right. 

The way to shift assistance toward the larger, longer term losses 

really has two components in what I outlined. One is to make sure 

that there is enough cash availability at the time when there is job 

loss. So, you can do that through accounts that have the savings 

element or an ability to borrow. That is a way of making sure that 

people are able to make their mortgage payments and buy their 

groceries and do things that they need to do. 

So, once those needs are being taken care of, then the real challenge is how to target assistance toward people who have the largest losses. In order to do that, wage insurance is a very nice targeting mechanism because it really does give assistance to people 

who have demonstrated they have had a large loss and have had 

it for a long time. 

In order to make this work, another thing that is helpful is really 

to think about what are the incentives that people have when they 

are looking for a job. Right now, there is an incentive that is built 

into the UI system that if you stay unemployed longer, then you 

are receiving more benefits. 

Shifting more toward an account system changes those incentives. So, when you are unemployed, then you are either drawing 

on your own savings or you are doing some borrowing, and that 

gets people to think about a way of engaging in job searches that 

are probably getting people toward the choices that will lead to 

both having a good job and getting there quickly. 

So, I think that one of the key things is really to figure out how 

to structure a wage loss insurance system that is viable in the long 

run, and having some demonstrations about that either allowing 

States to experiment with that—— 

Mr. WELLER. So, you would support giving clear authority to 

the States to experiment with wage insurance or account programs 

such as you have suggested. Do you think that is a good idea? 

Dr. KLING. I think that is an excellent idea. One of the things 

we are really lacking right now is an experience base in UI about 

how we would do these things. States have been very good in the 

past about doing that kind of experimentation and then letting us 

really see what works and what doesn’t. 

Chairman MCDERMOTT. Ms. Berkley. 

Ms. BERKLEY. Thank you. 

Given the time, can I submit my opening statement? 

Chairman MCDERMOTT. Of course. I want to get you and Mr. 

English in. 

[The information follows:] 

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Ms. BERKLEY. Our Nevada Department of Employment training and Rehab, when we spoke to them about this proposal, officially they are neutral on the McDermott bill but they think it 

would—they express strong support for Federal proposals that 

would provide Federal funding so that they could modernize our 

State programs, and receipt of Federal incentive funds would greatly assist Nevada in implementing modernization to its unemployment insurance program. 

Having said that, Nevada, since we don’t meet any of the criteria 

right now under your bill, Mr. McDermott, I am kind of curious. 

I don’t care who answers this, but as we know, in order to qualify 

for the first third of the funding offered in the proposals, we have— 

the States have to meet the alternative base period and look at the 

applicant’s last quarter wages. In Nevada, that doesn’t exist right 

now. Nothing else exists in the proposal, although it would give us 

great incentive. 

Here is my question. Nevada, it has a biannual session that lasts 

for 120 days. Our 2007 session is long over, and we are not meeting 

again until January of 2007. 

We are also in the middle of a modernization of the computer 

system and everything because we are still doing paper. That is 

going to take 4 to 6 years. 

Given that problem, given the circumstances, do you think Nevada is going to be at a terrible disadvantage of receiving Federal 

funds under this proposal? 

Chairman MCDERMOTT. Having served in the State legislature, 

maybe the Governor could call a short special session of 1 week to 

bring in the members and pass some changes. 

Ms. BERKLEY. Having served with our Governor here in the 

Congress, that would be a remote possibility, Mr. Chairman. Short 

of a special session, that is not ever going to happen. 

Chairman MCDERMOTT. One of the things you have to say is 

they can come in compliance anytime in the next 5 years. So, it is 

not a ‘‘one time, and that is it, they lose it.’’ 

Ms. BERKLEY. For a State like Nevada that doesn’t already provide benefits to individuals who lost full-time jobs but are now 

looking for part-time employment or that bases coverage on the 

first of four of the last five completed quarters, how large of a difference in coverage would this represent, Mr. Chairman. 

Chairman MCDERMOTT. It would be about a half a million people. If every State cut the option, it would be about a half a million 

people in the country that would be covered. 

Ms. BERKLEY. Dr. Kling, having come from a family that was 

low-wage earners, the idea that they would have any money to 

save in order to be part of an insurance program, that is also as 

likely as having a special session of the legislature. It is a great 

idea but—— 

Dr. KLING. Let me add that—in particular, what I had written 

down in the written part of the testimony is that for the very lowest wage workers, there would be essentially something that works 

like current UI, where because there is really no way for someone 

who is earning minimum wage to have a wage loss, the program 

can’t really be beneficial to them. 

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Ms. BERKLEY. I am not talking about minimum wage workers. 

I am talking about two people working in a family, who have a few 

kids and a mortgage and everything else. Things are tight out 

there right now. They don’t have extra money. A third of the people 

don’t even have health insurance. They are sure not going to put 

money into a rainy day fund. They are not going to make the mortgage if they do that. 

Chairman MCDERMOTT. Mr. English. 

Mr. ENGLISH. Thank you. I want to thank the Chairman for 

opening up this issue. 

There have been, for many years, proposals out there to extend 

unemployment benefits to part-time workers. 

Ms. Fagnoni, one of the issues that has always been raised, given 

the design of the unemployment insurance system in which people 

are being taxed on their job, in effect to give them job security in 

the form of the potential for unemployment benefits if they are laid 

off from full-time work; is there not a problem that when you extend these benefits to part-time workers, you will create the potential for full-time jobs to subsidize part-time work? How do you design a system that avoids that form? 

Ms. FAGNONI. We haven’t done any work directly on that. I 

would say that with part-time work—in any of these proposals, one 

would need to consider how to balance the goals of wanting to support those people who find themselves out of a job and who have, 

to some extent, paid into the system, or their employers have for 

them, and trying to look at what one would call the individual equity to how much somebody had put into the system. 

Of course, there are experience ratings to try to take care of who 

pays in the most and who takes out the most. 

It is clear, though, that the nature of the workforce has changed 

and there are more part-time jobs now than there were at the beginning when UI was first developed, as well as other kinds of 

work changes. I think it is a legitimate discussion to have to think 

about those—— 

Mr. ENGLISH. It is indeed. You anticipated my next question. 

What issues would be raised in adjusting experience rating if you 

were to move toward providing these benefits to part-time work? 

After all, there is the potential for employers to design jobs that 

in effect take advantage of the subsidy. 

So, how would you change experience rating in order to anticipate this problem? 

Ms. FAGNONI. You are correct in that with any kind of changes, 

one would want to take a careful look. In the interest of helping 

one group of people, one doesn’t want to run the risk of creating 

unintended effects, if you will, including not just subsidies, but also 

perhaps in order to avoid the kind of experience rating that would 

result in a certain kind of worker being less likely to be employed. 

So, one would need to carefully consider—I certainly agree with 

the idea of demonstrations. We can often learn a lot from what 

States do to test different things and think about all of those interactions. 

Mr. ENGLISH. Ms. Chasanov, in the last report of the Advisory 

Board, there was a significant amount of time devoted to the question of State solvency. There were many States that in effect had 

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been utilizing Federal subsidies pretty aggressively, and the Advisory Board had recommended raising the solvency standards for 

States to participate in the Federal system. 

I didn’t notice any reference to that in your testimony. Do you 

believe currently there is a need to strengthen the solvency of the 

Federal system by increasing the standard set for the States to 

participate? 

Ms. CHASANOV. At the time the Advisory Council was convened 

in the early nineties, they were certainly looking at a different set 

of post-recessionary trust fund balances as they looked across the 

States. So many of the States were in much worse shape than they 

are at this point. 

My testimony today has been focused on this bill, but I would say 

that the Council thought that the macro-economic stabilization role 

of unemployment insurance was critical. What often happened and 

what we had seen in the research that we had done was that, as 

State trust fund solvency began to decline, that ended up either increasing employer tax rates at the wrong time in the middle of a 

recession or ended up crunching down on eligibility or benefits for 

workers. 

So, the main purpose of those solvency standards was to help forward-fund the system, and that was a goal that was throughout 

the Council’s report. 

Mr. ENGLISH. Is that not a relevant goal now? 

Ms. CHASANOV. I certainly believe that that is one of many 

things that could be improved in the unemployment insurance system today. 

Mr. ENGLISH. I notice you testified with regard to extended 

benefits, but I am out of time so I will certainly bounce this back. 

I do believe it is very important as we move forward on reform 

that we consider carefully how to reform and protect the extended 

benefits program. 

I thank you, Mr. Chair. 

Chairman MCDERMOTT. Ms. Hammond, you had some comment relevant to that discussion that Mr. English was having? 

Ms. HAMMOND. I wanted to point out as far as the experience 

rating is concerned, in Virginia when we have problems that are 

not the employer’s fault—it is not the employer’s fault that her 

spouse found a job and she has to move with him. It is not the employer’s fault that, for example, somebody has to leave for compelling family circumstances. 

In those cases, what Virginia does is to noncharge those benefits 

to the individual employer and charge them to a statewide pool so 

it spreads the cost over a larger pool and doesn’t make that single 

employer responsible. 

Chairman MCDERMOTT. We thank you all for your help today 

and we appreciate your written testimony. I am sorry that we 

are—I have to cut short but we have to go over to vote. 

So, thank you all very much for coming. 

[Whereupon, at 1:55 p.m., the Subcommittee was adjourned.] 

[Submissions for the Record follow:] 

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Statement of Idaho Department of Labor 

Idaho comments on the special transfers in fiscal years 2008 through 2012 for 

Modernization based on modifications of law. 

Tying conditions to Reed Act distributions seems akin to blackmail, the federal 

government needs to recognize that states should be entitled to these funds without 

prejudice. Currently, the federal government does not return even 50 percent of the 

FUTA money collected from the respective state’s employers. 

All the combinations and permutations of this bill make it difficult to nail down 

the exact cost to the fund. Collectively we estimate (not knowing the IT/IS costs) 

the impact to the fund may be offset by the estimated disbursements of $25M over 

five years. Our concern is the impact after 2012 since our tax formula already puts 

the fund in a soft position. With these disbursements ($25M to $30M) it may be able 

to handle it. However, following the final disbursement in 2012 it is likely we will 

continue to live with the changes without further disbursements to offset the law 

changes and fall into a deficit financial hole we could never get out of. 

(2) The State law of a State meets the requirements of this paragraph if such 

State law- 

(A) uses a base period that includes the most recently completed calendar quarter 

before the start of the benefit year for purposes of determining eligibility for unemployment compensation; 

We are not in favor of allowing an alternate base period unless the claimant is 

first not eligible using a ‘‘regular’’ base period. Currently, employers file wage lists 

once a quarter with a due date of the last day of the month following the end of 

a quarter. Wages for the most recently completed quarter are not known until the 

due date plus the time it takes accounting to process the wage lists. It takes accounting 6 to 8 weeks to punch the wages lists. If we adopt this change accounting 

will have to change their process to punch wage lists in a shorter time frame. We 

may also need to adopt rules to encourage (or mandate) electronic filing so wages 

are available as soon as the report is filed. The first month of each quarter, when 

reports are not yet due for the most recently completed quarter would require staff 

to contact employers for wage information before a monetary determination is made. 

This would be an administrative burden on the department, drive up costs and become a huge inconvenience for employers if needed for every claim filed. 

or 

(B) provides that, in the case of an individual who would not otherwise be eligible 

for unemployment compensation under the State law because of the use of a base 

period that does not include the most recently completed calendar quarter before the 

start of the benefit year, eligibility shall be determined using a base period that includes such calendar quarter. 

We find this much more palatable than ‘‘A’’, and we are not opposed to this concept. This option has the same problems as ‘‘A’’, but reduces the administrative burden since fewer claimants would be eligible for the alternate base year. However, 

this would place an additional burden on tax collection staff and the employer community. Additionally, there would be costs associated with programming our legacy 

system as well as training of staff for administration. 

(3) The State law of a State meets the requirements of this paragraph if such 

State law includes provisions to carry out at least 2 of the following subparagraphs: 

(A) An individual shall not be denied regular unemployment compensation under 

any State law provisions relating to availability for work, active search for work, 

or refusal to accept work, solely because such individual is seeking only part-time 

(and not full-time) work, except that the State law provisions carrying out this subparagraph may exclude an individual if a majority of the weeks of work in such individual’s base period do not include part-time work. 

We are not opposed to extending coverage to part-time workers as long as the 

work was in covered employment and there are rules in place to stipulate they must 

seek work that provides a potential for a minimum number of hours, comparable 

to work used to figure base period eligibility, to be worked each week. Idaho currently has very low criteria for base period wage qualification. We are concerned 

about higher administrative costs as proper administration would require employers 

to report hours as well as wages on their quarterly reports. The department would 

also have to integrate hours worked into our current systems used for claims processing. There would also be an impact to the trust fund; potentially significant impacts since many workers have more than one part-time job. Additionally there is 

the argument that if we allow part time work seekers to accept only part time work 

to supplement their income, shouldn’t we also allow people working full time to receive unemployment insurance to supplement their income? 

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(B) An individual shall not be disqualified from regular unemployment compensation for separating from employment if that separation is for compelling family reasons. For purposes of this subparagraph, the term ‘compelling family reasons’ includes at least the following: 

(i) Domestic violence (verified by such reasonable and confidential documentation 

as the State law may require) which causes the individual reasonably to believe that 

such individual’s continued employment would jeopardize the safety of the individual or of any member of the individual’s immediate family. 

We are opposed to broadening the eligibility due to purely personal reasons. This 

goes against the basic concept of UI being a program to assist workers who are unemployed through no fault of their own due to actions of the employer. UI is not 

an entitlement program. Enactment of this concept would set the stage for UI to 

become another employer funded welfare program. This expansion goes too far in 

defining eligibility and blurs the line between entitlement and the insurance concept. It begins to move UI to more of a social program rather than unemployment 

insurance based on job attachment/reemployment. 

(ii) The illness or disability of a member of the individual’s immediate family. 

This proposal also extends coverage beyond the ‘‘covered’’ claimant to allow benefits when a person that is fully able and available to work chooses not to in order 

to care for an ill family member. This would add additional fact finding when adjudicating claims and potentially impact timeliness. Additionally, we believe it would 

be an extremely hard sell to the employer community as well as have a negative 

impact on tax rates in the long run. While funding would not come directly out of 

the individual employer’s account in the short run, in the long run (they would be 

relieved of chargeability), it would ultimately have to be socialized—potentially negatively impacting the tax rates for every employer. 

(iii) The need for the individual to accompany such individual’s spouse—— 

(I) to a place from which it is impractical for such individual to commute; and 

(II) due to a change in location of the spouse’s employment. 

We are in favor of allowing benefits only to the spouse of military personnel who 

must quit their job to follow the spouse. 

(C) Weekly unemployment compensation is payable under this subparagraph to 

any individual who is unemployed (as determined under the State unemployment 

compensation law), has exhausted all rights to regular and (if applicable) extended 

unemployment compensation under the State law, and is enrolled and making satisfactory progress in a State-approved training program or in a job training program 

authorized under the Workforce Investment Act of 1998. Such program shall prepare individuals who have been separated from a declining occupation, or who have 

been involuntarily and indefinitely separated from employment as a result of a permanent reduction of operations at the individual’s place of employment, for entry 

into a high-demand occupation. The amount of unemployment compensation payable 

under this subparagraph to an individual for a week of unemployment shall be 

equal to the individual’s average weekly benefit amount (including dependents’ allowances) for the most recent benefit year, and the total amount of unemployment 

compensation payable under this subparagraph to any individual shall be equal to 

at least 26 times the individual’s average weekly benefit amount (including dependents’ allowances) for the most recent benefit year. 

We are opposed to providing initial additional weeks of benefits beyond what the 

claimants initially qualify for. This is a disincentive for them to seek and accept 

work. This would reward workers who have not demonstrated a firm attachment to 

the labor market. There are already programs in place (WIA & Trade) to assist 

these types of workers. We do not have the UI resources to perform the type of case 

management this would require. 

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Statement of On Point Tech 

Having spent most of my adult lifetime involved with the Nation’s Unemployment 

Insurance (UI) program, I want to take this opportunity to commend you on your 

sponsorship of the Unemployment Insurance Modernization Act [HR2233]. The passage of this legislation will remediate several of the most troublesome shortcomings 

of the UI program, which are brought about by developments that could not have 

been envisioned at the time of the passage of the initial legislation in 1935. 

These are critically important issues given the changes that have taken place in 

the composition of the labor force, the transient nature of employment, and the proliferation of part-time employment that now characterize our economy. The $7 billion in new funding that you propose will enable the states to improve their programs dramatically, particularly in light of the flat and diminished funding that the 

UI program has suffered during the past several years. 

However, I fee obligated to call your attention to the need to strengthen the fraud 

detection and management component of the UI program nationwide. U.S. Government Accountability Office (GAO) Report GAO–07–635T shows UI fraud to be $3.9 

billion in FY2004, $3.3 billion in FY2005, and $3.4 billion in FY2006. As new classes 

of recipients are brought into the system and the amount of automation deployed 

increases, the amount of fraud should increase significantly. 

Modernized UI Benefits systems lean more heavily on new processes like taking 

claims over the Internet. The number of staff actually observing claims for signals 

of fraud taking place drops off, almost to the point of non-existence. Over the years, 

almost all major fraud incidents uncovered involved diligent UI staffers processing 

claims by hand who notices patterns in the claims data that were unusual and unexpected. This ‘‘eyes and hands’’ approach disappears with automated systems and 

must be replaced by automated fraud detection software. (Disclosure: My firm, On 

Point Technology, Inc., is the major provider of fraud detection and overpayment recapture software to the UI community.) 

The above mentioned GAO report data comes from the U.S. Department of Labor’s Employment and Training Administration’s Benefit Accuracy Measurement 

(BAM) program which samples and reviews individual UI claims and reports on the 

improper payments found. The type of fraud disclosed is what we refer to as individual fraud. In other words, individual fraud occurs when one person misreports 

information on their personal claim in order to qualify for benefits. What is not 

being reported by these figures is organized fraud. 

Organized fraud is when dozens or hundreds of UI claims are filed with the direct 

intent to embezzle funds from the UI program. These may be cases of group identity 

theft or fictitious employer schemes where UI employer accounts are established 

and taxes paid, where the only intent is filing claims against the fictitious accounts. 

(A $50,000 investment paying IU taxes for 100 fake employees can return over $1 

million in fraud profits. The same scheme can be repeated concurrently in multiple 

states with the same 100 Social Security Numbers.) The individual claims appear 

to be properly processed and paid. Only by a macro or pattern level examination 

can this fraud be readily found. Multiple schemes from $3 million to $12 million 

have been found. The State of California is currently prosecuting a scheme perpetrated by one extended family that was reported in a conference to be in excess 

of $80 million. (Since it is still under investigation, public information has not been 

released.) 

Be it $3.4 billion in individual fraud or an unknown amount of organized fraud, 

expanding the UI program and modernizing the claim and payment process will certainly increase the volume of fraud. I urge you and the Committee to consider the 

multi-year or permanent funding for controlling UI fraud and improper payments. 

I am available to expand on the thoughts contained in this letter and would appreciate very much the opportunity to meet with your Committee staff to share both 

my concerns and remedies. Thank you very much for the opportunity to communicate with you on this very important national issue. 

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Statement of UWC—Strategic Services on Unemployment & Workers’ 

Compensation 

Chairman McDermott, Ranking Member Weller, and Members of the Subcommittee on Income Security and Family Support, thank you for the opportunity 

to submit comments with respect to proposals to reduce barriers to unemployment 

insurance for jobless workers. 

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I am Douglas J. Holmes, President of UWC—Strategic Services on Unemployment 

& Workers’ Compensation (UWC). UWC counts as as a broad range of large and 

small businesses, trade associations, service companies from the Unemployment Insurance (UI) industry, third party administrators, unemployment tax professionals, 

and state workforce agencies. 

UWC fully supports efforts to maintain a sound unemployment insurance system 

and to assure that individuals who become unemployed through no fault of their 

own are able to apply for, and if otherwise eligible, receive unemployment compensation as temporary support during periods of unemployment. 

The UI system was designed to provide temporary cash support to individuals 

who become unemployed after a period of employment sufficient to meet workforce 

attachment requirements. Although UI provides a social safety net, it is an insurance program financed by employers through payment of state unemployment and 

federal unemployment taxes. It was never intended to be the universal source of 

cash payments for individuals that have no or insufficient attachment to the workforce to qualify for unemployment compensation benefits under the applicable state 

law, nor should it be. It is axiomatic that an individual must first be employed in 

order to be unemployed. 

In addressing the issue of ‘‘barriers’’ to unemployment insurance it is important 

to first define the population that is not benefiting from unemployment compensation payments. A close examination of the actual workings of the unemployment insurance system reveal that the number of individuals who ‘‘should’’ receive unemployment compensation payments but do not because of state law restrictions is very 

small. 

The ‘‘Recipiency Rate’’ methodology is not a valid statistical measure of 

those who should be paid unemployment compensation who are not 

Measurements such as the ‘‘recipiency rate’’ that are used as a basis for arguments that there are large numbers of individuals who ‘‘should’’ receive unemployment compensation but do not, fail to take into consideration that many individuals 

who are counted as ‘‘unemployed’’ for purposes of the Total Unemployment Number 

should not be included among those that could or should be paid unemployment 

compensation. 

For example, the total number of unemployed used in the calculation of the 

recipiency rate includes 1) individuals who were discharged for just cause from their 

jobs, 2) those who quit work without just cause, 3) those who have refused suitable 

work, 4) new entrants to the workforce that have no employment history, 5) reentrants to the workforce whose work history is not recent enough to be counted 

for UI benefit eligibility, 6) individuals unemployed due to a labor dispute other 

than a lock-out, 7) individuals receiving severance or separation pay, 8) those who 

have exhausted unemployment compensation benefits, 9) individuals who have chosen for whatever reason not to claim unemployment compensation, 10) self-employed individuals, and 11) undocumented aliens. None of these individuals are typically eligible to be paid weekly unemployment compensation, yet the calculation of 

the ‘‘recipiency rate’’ which compares the insured unemployment number with the 

total unemployment number seems to imply that all of these individuals should be 

paid benefits. 

A study of the ‘‘recipiency rate’’ methodology conducted for the New Hampshire 

Employment Security Economic and Labor Market Information Bureau in 1999 details the shortcomings of the ‘‘recipiency rate’’ methodology. 

There are many individuals who may not be working who are not and should not 

be eligible for unemployment compensation. 

In addition, it should be noted that there are some individuals who are paid unemployment compensation who are not counted in the total unemployment rate, including individuals who file for partial unemployment benefits ( i.e. they had some 

earnings with respect to a week of unemployment compensation that they claimed). 

This group typically includes low wage and part-time workers who are receiving 

partial unemployment compensation benefits. 

The actual percentage of individuals who may be eligible for unemployment compensation who are not paid unemployment compensation is more appropriately estimated by a review of the percentage of ‘‘job losers’’. The percentage of ‘‘job losers’’ 

who are paid unemployment compensation has historically fluctuated with economic 

cycles in the 80 percent to 90 percent range. 

The enactment of the new minimum wage legislation significantly reduces the 

number of individuals with lesser workforce attachments who may not qualify for 

unemployment compensation. 

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The recent enactment of federal and state minimum wage legislation has the effect of significantly reducing the number of individuals working 20 hours or more 

per week on average who may not qualify monetarily to establish a benefit year. 

An individual earning $7.00 per hour working 20 hours per week for 29 weeks 

during a four quarter base period meets the minimum wage requirements for unemployment benefit eligibility in all states. Many states have minimum wage requirements that are much lower; as low as $130 a year in Hawaii. Thirty-four states 

have minimum wage requirements for a year of $2400 or less. 

The effect of new federal requirements to pay unemployment compensation to a 

new group of individuals would be to reduce benefits to existing claimants and/or 

increase state unemployment taxes paid by employers. 

The effect of federal mandates with respect to the use of alternative base periods, 

relaxed work search requirements, payments of unemployment compensation to 

those who choose to quit work during periods of domestic violence, payment of unemployment compensation to those whose separation from employment results from 

the illness or disability of a member of the individual’s family, or payment to those 

whose separation from employment results from a need to accompany a spouse, will 

be to reduce unemployment compensation benefits that would otherwise be paid to 

claimants with greater workforce attachments and/or increase state unemployment 

compensation tax rates. 

This is true because unemployment compensation benefit coverage and benefit 

payments are determined under state law and each state is responsible to enact legislation that assures that there is sufficient dedicated funding in the state’s unemployment compensation benefit account to pay unemployment compensation benefits. 

Many states have enacted these provisions already without federal requirements 

as the result of state level negotiations between employers, legislators, governors, 

and representatives of organized labor and worker advocacy groups. As a practical 

matter, state laws balance the interests of all of these groups in determining benefit 

eligibility and unemployment tax rates. 

Responsibility and accountability for these decisions has been maintained at the 

state level for decades and should remain with the states. 

The costs of program and system changes related to conversion to an alternative base period system are significant 

As Unemployment Insurance Director in Ohio in 1988, I was directly responsible 

for conversion of Ohio’s benefit system to provide for the alternative base period. 

In order to pay for the cost of the state law change implementation, Ohio applied 

for and received funding from the USDOL. Federal funds were provided by USDOL 

but the amount provided did not fully cover the costs of the conversion. 

Issues in implementation included 1) policies procedures and forms to be used in 

obtaining the most recent quarterly wage data from employers, 2) the use of claimant affidavits in lieu of employer quarterly reports to assure timeliness of benefit 

application determinations, 3) revised charging of employer accounts to reflect the 

alternative base period, 4) policies and procedures needed to address transitional 

claims, and 5) system design, programming, system capacity, staff training, testing, 

and interstate coordination. 

An analysis and projection of costs to states and employers of implementation of 

alternative base periods is needed before determining the amount of administrative 

funds needed to assist states choosing to adopt alternative base period legislation. 

The increase in unemployment compensation benefits resulting from an alternative base period varies by state, depending on a number of factors, including the 

composition of the state workforce and the overall benefit eligibility provisions already in place. 

The additional cost in states with low minimum qualifying requirements would 

be more limited than states with higher minimum qualifying requirements because 

fewer individuals are disqualified in the first place. 

Studies of the increase in benefit costs associated with alternative base periods 

have estimated the increase in unemployment compensation benefit pay-out as a result of the alternative base period provision in the range of 1.1 percent to 6 percent 

annually. 

An analysis of the increased unemployment compensation benefit costs resulting 

from the implementation of alternative base periods is needed in determining the 

impact on state trust funds and employer taxes on a state by state basis. Without 

such an analysis a state considering whether to enact an alternative base period 

would not be able to properly assess the cost/benefit with respect to any special 

Reed Act distribution funding that might be available. 

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The focus of efforts to assist low wage and part-time workers should be to identify 

and remove barriers to employment. 

Individuals with minimal workforce attachment, particularly those with families 

to support, will not significantly benefit from unemployment compensation benefits. 

An individual working 20 hours a week and paid $7.00 an hour, if monetarily eligible, would typically qualify to be paid unemployment compensation of $70.00 per 

week, which may be reduced by partial earnings from part-time work during the 

week. This level of support is insufficient to assist in removing barriers to employment. 

Other governmental and privately funded support programs for low wage workers, 

particularly those providing support for workers with families, are much more significant and targeted in removing barriers to employment. Such individuals are 

typically eligible to receive services under the Workforce Investment Act (WIA), the 

Food Stamp Act, and the Temporary Assistance for Needy Families (TANF) program. Services under these programs include cash support payments for workforce 

participation, payment of travel expenses to employment, education and training, 

assessment services, treatment for substance abuse, English as a second language 

instruction, job readiness training, and subsidized child care. Many of these individuals may also benefit from the Earned Income Tax Credit (EITC) and the Workforce 

Opportunity Tax Credit (WOTC). 

A review of the array of programs designed to serve low wage and part-time workers, particularly those with families is needed to properly evaluate any gaps in the 

social safety net that should be addressed. 

The cost to states and employers of the new federal requirements with respect to 

alternative base periods and other benefit provisions should be determined before 

enacting new federal requirements. 

It has been proposed that if states already have enacted alternative base period 

provisions or enact new alternative base provisions and other benefit provisions, 

that states will receive a pre-designated share of a $7 billion special distribution 

into the qualifying state unemployment trust fund account and will receive a predesignated share of $100 million per year in additional administrative funding. 

There is no relationship between these distributions and appropriations and the 

increased administrative cost and increase in benefit costs associated with the new 

federal requirements. 

As a result, some states will receive a windfall in additional funding while others 

will be shortchanged or receive no supplemental funding if they elect not to enact 

the required provisions. It should be noted that four of the five states with the highest minimum qualifying wage requirements are also alternative base period states. 

A special distribution to these states would have no impact on reducing the number 

of low wage or part time workers and effectively reward states that have made it 

more difficult for low wage workers to qualify for benefits. 

This is inconsistent with the UI Federal/State partnership designed to properly 

share responsibility for funding of administration and benefit costs between states 

and the federal government. It sets up a series of winner and loser states and exacerbates the existing imbalance in administrative funding. 

In addition, it should be noted that state UI administration is already under funded by at least an estimated $300 million per year. An additional $100 million per 

year is insufficient to properly fund the UI system in the first place, let alone to 

fund the additional administrative costs of implementing alternative base periods or 

other federally required provisions. 

There are currently no projections on a state by state basis of the long term costs 

of alternative base period benefit increases and the other benefit provisions included 

in the new federal requirements to compare against the one-time special distributions. Without these projections, the cost of these proposals to states and employers 

as compared to the one-time distribution can not be determined. 

Also, to the extent that the $7 billion one-time distribution is greater than the 

costs associated with the new federal requirements, the federal unemployment trust 

fund accounts will be unduly depleted, putting the fund at risk of insolvency in the 

event of new legislated extended unemployment compensation that may be enacted 

during a future recession. 

States with the lowest percentage of the distribution that do not currently have 

alternative base periods would bear a higher burden of implementation. 

Conclusion 

An updated evaluation of the number of individuals with workforce attachment 

who are not paid unemployment compensation is needed. The evaluation should include a breakdown of the individuals who are not working and are not receiving unemployment compensation by causation to determine the numbers of individuals 

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who have become unemployed through no fault of their own, who are otherwise eligible, and are not being paid unemployment compensation benefits through the federal/state UI system. 

The review should also address the array of other programs, including TANF, 

WIA, Foodstamps, Medicaid, EITC and WOTC under which many individuals who 

have minimal workforce attachment or are working in low wage or part-time jobs. 

Careful analysis of the costs to states and employers of implementation and benefit increases due to alternative base periods and other benefit provisions on a state 

by state basis is needed to determine the appropriate federal funding to be provided. 

Without such an analysis, states and employers will be short changed in funding 

and federal unemployment trust fund accounts will be unduly depleted. 

Æ 

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