Unemployment Insurance: Consequences of Changes in State Unemployment Compensation Laws
Released: 2018-03-07T00:00:00

Introduction

Many states have enacted changes to their Unemployment Compensation (UC) programs in recent years. These changes may be a reaction to state UC financial stress, caused by the most recent recession (December 2007-June 2009), as well as a response to concerns about UC program integrity. In general, these states have been attempting to reduce the costs of UC benefits, which are financed through state taxes on employers. This reduction in state UC benefit spending may be achieved through two significant types of state UC changes: (1) a reduction in the duration of state UC employment benefits and (2) a reduction in the state UC weekly benefit amount.

This report first provides a brief overview of the unemployment compensation programs and benefits that may be available to eligible, unemployed individuals. It also analyzes the recent state UC financial stress and concerns about UC program integrity as context for state law changes. Next, the two categories of UC state law issues are discussed:

1. changes in the duration of state UC unemployment benefits and 2. changes in the maximum UC weekly benefit amount.

Overview of Unemployment Benefits

Several unemployment insurance (UI) programs may provide benefits to unemployed workers. When eligible workers lose their jobs, the UC program may provide up to 26 weeks of income support through the payment of regular state UC benefits. These UC benefits may be extended by the permanent-law EB program, which may provide up to 13 or 20 weeks of additional unemployment benefits if certain economic situations exist within the state. Until its expiration the week ending on or before January 1, 2014 (i.e., December 28, 2013; or December 29, 2013, in New York State), the temporary Emergency Unemployment Compensation (EUC08) program also provided up to four tiers of additional weeks of unemployment benefits to certain workers who had exhausted their rights to UC benefits in states with high unemployment.

Provided below is a brief description of the benefits available through these three UI programs: UC, EUC08 (when it was authorized), and EB. For detailed information on UI programs, including more details on the financing of unemployment benefit, see CRS Report RL33362, Unemployment Insurance: Programs and Benefits . For more details on the structure of (now-expired) EUC08 benefits, see CRS Report R42444, Emergency Unemployment Compensation (EUC08): Status of Benefits Prior to Expiration .

Unemployment Compensation Program

Authorized by the Social Security Act of 1935 (SSA; P.L. 74-271), UC is a joint federal-state program that provides unemployment benefits to eligible individuals. Although federal laws and regulations provide broad guidelines on UC benefit coverage, eligibility, and benefit determination, the specifics regarding UC benefits are determined by each state. This results in essentially 53 different programs. Generally, UC eligibility is based on attaining qualified wages and employment in covered work over a 12-month period (called a base period) prior to unemployment. All states require a worker to have earned a certain amount of wages or to have worked for a certain period of time (or both) within the base period to be monetarily eligible to receive any UC benefits. The methods states use to determine monetary eligibility vary greatly. Most state benefit formulas replace approximately half of a claimant's average weekly wage up to a weekly maximum. State taxes paid by employers on UC-covered wages finance UC benefits.

Maximum UC Benefit Duration

Until the recent state law changes described in this report, UC programs had been paying unemployment benefits for a maximum duration of 26 weeks. The only exceptions to the 26 week UC benefit maximum prior to these recent state law changes had been two states that provided more than 26 weeks of UC benefits (Montana: up to 28 weeks; Massachusetts: up to 30 weeks). There is nothing in federal law, however, that requires states to set their UC benefit duration maximum at 26 weeks. Thus, states have the discretion to offer fewer than 26 weeks as the maximum as well as to set their own UC benefit durations via their state UC laws. In the early decades of the UC program, there was more variation in the maximum duration of UC benefits across states, which also tended to be lower than 26 weeks. Yet since the 1960s—and until the 2011 state law changes—all states had chosen to provide up to at least 26 weeks of UC benefits to eligible individuals.

Emergency Unemployment Compensation Program (now expired)

On June 30, 2008, the Supplemental Appropriations Act of 2008 ( P.L. 110-252 ) created a new temporary, federally financed unemployment insurance program, the EUC08 program. EUC08 was the eighth federal temporary program that Congress created to extend the number of potential weeks of UC available to eligible, unemployed individuals during an economic slowdown. While it was authorized, state UC agencies administered the EUC08 benefit along with regular UC benefits. Prior to expiration, EUC08 benefits were financed with general revenue from the U.S. Treasury.

The authorization for this program expired the week ending on or before January 1, 2014 (December 28, 2013; December 29, 2013, for New York). There was no grandfathering of any EUC08 benefit after that date. Therefore, no EUC08 benefits are currently available.

Prior to program expiration, the EUC08 benefit amount was equal to the eligible individual's weekly regular UC benefits; the following four tiers of EUC08 benefits were available:

Tier I was available in all states (except North Carolina), up to 14 weeks. Tier II was available in states with a TUR of at least 6% (not available in North Carolina), up to 14 weeks. Tier III was available in states with a TUR of at least 7% (or an insured unemployment rate [IUR] of at least 4%; not available in North Carolina), up to 9 weeks. Tier IV was available in states with a TUR of at least 9% (or an IUR of at least 5%; not available in North Carolina), up to 10 weeks.

Extended Benefit Program

The Federal-State Extended Unemployment Compensation Act of 1970, P.L. 91-373, established the EB program. The EB program provides extended unemployment benefits in states that meet certain economic criteria. In all states, EB is available when a state's IUR or TUR reaches certain levels. For additional details on state triggers for the EB program, see CRS Report RL33362, Unemployment Insurance: Programs and Benefits .

The EB program imposes additional federal restrictions on individual eligibility for benefits beyond the state requirements for regular UC. In addition to all state requirements for regular UC eligibility, the EB program requires claimants to have at least 20 weeks of full-time insured employment or the equivalent in their base period and to conduct a systematic and sustained work search. Prior to the enactment of P.L. 112-96 , states were permitted to determine which benefit, EB or EUC08, was paid first, when EUC08 was authorized. Effective with P.L. 112-96 , states were required to pay EUC08 benefits before EB benefits until the EUC08 program expired December 28, 2013 (December 29, 2013, in New York State).

Under permanent law, EB benefits are funded half (50%) by the federal government and half (50%) by states. The American Recovery and Reinvestment Act of 2009 ( P.L. 111-5 ), as amended, temporarily changed the financing of EB benefits to be 100% federal funding from February 2009 through December 2013. (This temporary 100% federal funding for EB is now expired.) The EB benefit amount is equal to the eligible individual's weekly regular UC benefits.

There are two types of payable periods for EB benefits. First, if it meets certain state economic criteria and has certain state law trigger options in place, a state may pay EB benefits through an EB Unemployment Period . As discussed below, the duration of an EB Unemployment Period is based on the duration of regular UC benefits. For most states (i.e., those states with a UC maximum duration of up to 26 weeks), the EB Unemployment Period may provide up to 13 additional weeks of unemployment benefits to eligible individuals.

Second, a state may pay benefits through an EB High Unemployment Period if that state meets certain state economic criteria and has certain state law trigger options in place. Because the duration of an EB High Unemployment Period is based on the duration of regular UC benefits in most states (i.e., those states with a UC maximum duration of up to 26 weeks), up to 20 additional weeks of EB benefits may be available to eligible individuals.

Recent State UC Financial Stress

An original intent of the UC system, among other goals, was to help counter economic fluctuations, such as recessions. This intent is reflected in the current UC program's funding and benefit structure. When the economy grows, UC program revenue rises through increased tax collection and UC program expenditures fall, as fewer workers are unemployed. The effect of collecting more taxes than are spent dampens demand in the economy. It also creates a surplus of funds, or a "cushion" of available funds, for the UC program to draw upon during a recession. In a recession, UC tax revenue falls and UC program spending rises as more workers lose their jobs and receive UC benefits. The increased amount of UC payments to unemployed workers dampens the economic effect of earnings losses by injecting additional funds into the economy.

As a result of the most recent recession, December 2007-June 2009, and its accompanying prolonged and high unemployment, states paid out large amounts of UC benefits: $75.3 billion in FY2009 and $63.0 billion in FY2010 versus $30.2 billion in FY2006 and $31.4 billion in FY2007. This increase in state expenditures on UC benefits also led to large outstanding federal loans in many states. According to the U.S. Department of Labor (DOL), 36 states depleted the balance of their state unemployment tax act (SUTA) revenues within their Unemployment Trust Fund accounts and took out federal loans to continue to pay UC benefits. In 2010, for instance, outstanding federal loans to states totaled $40.2 billion at the end of the calendar year.

States may address this type of UC financial stress by (1) taking action to reduce UC expenditures (i.e., by decreasing UC benefits and/or limiting eligibility); (2) raising UC revenue (i.e., by increasing SUTA taxes); or (3) pursuing some combination of the first two options. The significant financial stress from the most recent recession contributed, in large part, to state legislative action during recent years. In response to similar state UC financial stress following prior recessions, states have typically reduced the amount of UC benefits paid to individuals through reductions in the maximum benefit amount or through changes in the underlying benefit calculations.

UC Program Integrity

Program integrity concerns constitute another factor to consider in understanding state UC reductions during recent years. In addition to a significant increase in state expenditures on UC benefits during the 2011-2015 period, there were also significant federal expenditures on unemployment benefits authorized through the EB and EUC08 programs during this period. For instance, in FY2011, $11.9 billion was paid out in EB benefits and $52.7 billion in EUC08 benefits, all federal expenditures. Because states administer all unemployment benefits, including EB and EUC08 benefits (when authorized), through their state UC programs, states were facing increased administrative pressure regarding program integrity. The Office of Management and Budget (OMB) has included UC in its list of "high-error" programs throughout this time period, with the nominal amount of all improper UC payments peaking in FY2010 at $17.5 billion. UC remains an OMB "high-error" program in the current year.

In this climate, Congress has taken an active interest in trying to reduce UC improper payments, including UC, EB, and EUC08 overpayments made to individuals. For instance, Congress enacted three federal laws during the 2011-2015 period that either added or clarified state administrative responsibilities to decrease benefit overpayments ( P.L. 112-40 ; P.L. 112-96 ; and P.L. 113-67 ) or imposed new restrictions on UC eligibility ( P.L. 112-96 ). Additionally, Congress held two hearings during this period to examine state UC program integrity: House Ways and Means Committee, Subcommittee on Human Resources, "Ending Cash for Convicts and Other Ways to Improve the Integrity of the UI Program" (September 11, 2013), and House Ways and Means Committee, Subcommittee on Human Resources, "Protecting the Safety Net from Waste, Fraud, and Abuse" (June 3, 2015).

DOL also prioritized program integrity efforts during this time period, for instance, by "making an immediate call to action to all state administrators to ensure that UI [unemployment insurance] integrity is a top priority and to develop state specific strategies to bring down the UI improper payment rate." DOL also provided supplemental administrative funding opportunities to states during this period. This heightened interest in UC program integrity may have encouraged states to reduce UC benefits via the state law changes, such as reductions to UC maximum duration or weekly benefit amount.

State Law Changes to UC Benefit Duration

In response to similar state UC financial stress following prior recessions, states have typically reduced the amount of UC benefits paid to individuals through reductions in the maximum benefit amount or through changes in the underlying benefit calculations. Prior to the expiration of EUC08, however, most states were temporarily prohibited from reducing UC benefit amounts through changes to benefit calculation and, therefore, acted to reduce UC benefit duration as an alternative means to decrease total UC benefit payments. Therefore, these state UC benefit duration reductions are, in part, a response to UC financial crises facing states.

At the same time, however, the duration for current federal unemployment benefits—any EB periods (and each tier of the EUC08 program when it was authorized)—are calculated based on state UC benefit duration. Thus, states that have enacted laws to reduce the duration of regular UC benefits have also reduced the duration of EB benefits (and EUC08 benefits when that program was still authorized).

Currently, there are nine states with decreased maximum UC durations in effect:

Arkansas decreased its state UC maximum duration from 26 weeks to 25 weeks, effective March 30, 2011. Effective October 1, 2015, Arkansas further reduced its UC maximum duration to up to 20 weeks. Effective January 1, 2018, Arkansas reduced its maximum duration to up to 16 weeks. Florida decreased the maximum UC duration from 26 weeks to a variable maximum duration, depending on the state unemployment rate and ranging from 12 weeks up to 23 weeks. Up to 12 weeks will be available if the state unemployment rate is 5% or less. Each 0.5% increase in the state unemployment rate above 5% will add an additional week of UC benefit duration. Finally, up to 23 weeks of regular UC benefits will be available if the state unemployment rate is at least 10.5%. This benefit reduction was effective January 1, 2012. Georgia decreased its UC maximum duration from 26 weeks to a variable maximum duration that ranges between 14 weeks and 20 weeks, depending on the unemployment rate in the state. A maximum UC duration of 14 weeks will be available if the state unemployment rate is 6.5% or less. Each 0.5% increase in the state unemployment rate above 6.5% will add additional weeks of UC benefit duration up to a maximum of 20 weeks of UC benefits if the state unemployment rate is at least 9%. This benefit reduction was effective May 2, 2012. Idaho decreased its UC maximum duration from 26 weeks to a variable maximum duration, ranging from 20 weeks up to 26 weeks and depending on the state unemployment rate. If the state unemployment rate is 2.9% or lower, then up to 20 weeks of UC benefits are available. Each subsequent 1.0% increase in the state unemployment rate raises the maximum UC duration by increments of one week, up to 26 weeks of UC benefits if the state unemployment rate is at least 8.0%. Kansas decreased its UC maximum duration from 26 weeks to a variable maximum duration, using a tiered system based on the state unemployment rate. Up to 16 weeks will be available if the state unemployment rate is less than 4.5%; up to 20 weeks if the state unemployment rate is at least 4.5% and less than 6.0%; and up to 26 weeks if the state unemployment rate is at least 6.0%. This benefit reduction was effective for individuals filing an initial claim for UC benefits beginning on or after January 1, 2014. Michigan decreased its UC maximum duration from 26 weeks to 20 weeks. This change was effective for individuals filing an initial claim for UC benefits on or after January 15, 2012. Missouri decreased its UC maximum duration from 26 weeks to 20 weeks, effective April 13, 2011. In 2015, Missouri enacted another law to further decrease its UC maximum duration from 20 weeks down to a variable duration based on state unemployment rate: (1) 13 weeks if state unemployment rate is less than 6.0%; (2) additional week added to 13 weeks for each 0.5% increase in state unemployment rate; (3) 20 weeks if state unemployment rate is at least 9.0%. In an opinion issued July 26, 2016, however, the Missouri Supreme Court found this 2015 law unconstitutional. Therefore, UC maximum duration in Missouri remains up to 26 weeks. North Carolina decreased the maximum UC duration from 26 weeks to a variable maximum duration, depending on the state unemployment rate and ranging from 12 weeks up to 20 weeks. Up to 12 weeks will be available if the state unemployment rate is 5.5% or less. Each 0.5% increase in the state unemployment rate above 5.5% will add an additional week of UC benefit duration. Finally, up to 20 weeks of regular UC benefits will be available if the state unemployment rate is greater than 9%. This benefit reduction is effective for individuals filing an initial claim for UC benefits on or after July 1, 2013. South Carolina also decreased its UC maximum duration from 26 weeks to 20 weeks, effective June 14, 2011.

In addition, one state enacted a law with that decreased maximum UC duration only for a particular calendar year:

Illinois enacted a law that decreased UC maximum duration in the state from 26 weeks to 25 weeks, effective only for calendar year 2012. Therefore, up to 26 weeks of UC benefits are currently available in Illinois.

Table 1 also provides details on these state changes to UC benefit duration.

Consequences of Reduced UC Benefit Duration for Federal Unemployment Programs

Calculation of Benefit Duration for EUC08 Tiers (when EUC08 was authorized)

Prior to the expiration of EUC08, the duration of each tier of benefits was calculated through a formula based on state UC benefit duration. Therefore, states that enacted laws to reduce the duration of regular UC benefits also experienced a reduction in the duration of EUC08 benefits when the program was authorized.

Specific formulas for the duration of each tier of EUC08 (when authorized) are presented below. Examples of adjusted EUC08 benefit durations—based on a weekly benefit amount of $300 and a new maximum UC duration of 20 weeks—are also provided:

Tier I of EUC08 (prior to expiration) Duration formula: 54% of the duration of an individual's total regular UC benefits in benefit year Illustration of adjusted duration (formerly, the unreduced EUC08 tier I duration would have been up to 20 weeks—based on up to 26 weeks of unreduced state UC benefits—at a weekly benefit amount of $300) 54% of 20 weeks of UC = 10.8 weeks; up to 10 weeks at weekly benefit amount of $300 and the last week prorated at $240 ($300/0.8 = $240) Tier II of EUC08 (prior to expiration) Duration formula: 54% of the duration of an individual's total regular UC benefits in benefit year Illustration of adjusted duration (formerly, up to 14 weeks at $300) 54% of 20 weeks of UC = 10.8 weeks; up to 10 weeks at weekly benefit amount of $300 and the last week prorated at $240 ($300/0.8 = $240) Tier III of EUC08 (prior to expiration) Duration formula: 35% of the duration of an individual's total regular UC benefits in benefit year Illustration of adjusted duration (formerly, up to 13 weeks at $300) 35% of 20 weeks of UC = 7 weeks; up to 7 weeks at weekly benefit amount of $300 Tier IV of EUC08 (prior to expiration) Duration formula: 39% of the duration of an individual's total regular UC benefits in benefit year Illustration of adjusted duration (formerly, up to 6 weeks at $300) 39% of 20 weeks of UC = 7.8 weeks; up to 7 weeks at weekly benefit amount of $300 and the last week prorated at $240 ($300/0.8 = $240)

EUC08 tier duration calculations (prior to program expiration) for each state that enacted a reduction in regular UC benefit duration are provided in Table 2 .

Calculation of Benefit Duration for EB Payable Periods

The duration of benefits for the two types of EB payable periods are set through calculations similar in structure to the calculations for EUC08 tier durations (when EUC08 was authorized). As was the case with the EUC08 program, state reductions in UC benefit durations lead to proportional reductions in the duration of the EB payable periods.

The EB payable period duration calculations and illustration of adjusted EB durations (using $300 as the weekly benefit amount and a new UC maximum duration of 20 weeks) are below:

EB Unemployment Period Duration formula: 50% of the duration of individual's total regular UC benefits in benefit year Illustration of adjusted duration (formerly up to 13 weeks at $300) 50% of 20 weeks of UC = 10 weeks; up to 10 weeks at weekly benefit amount of $300 EB High Unemployment Period Duration formula: 80% of the duration of individual's total regular UC benefits in benefit year Illustration of adjusted duration (formerly up to 20 weeks at $300) 80% of 20 weeks of UC = 16 weeks; up to 16 weeks at weekly benefit amount of $300

Table 2 displays EB payable period duration calculations for each state that has enacted a reduction in regular UC benefit duration.

States with Reduced Weekly Benefit Amounts

P.L. 110-252 , as amended, included a "nonreduction" rule that made the availability of federally financed EUC08 benefits (when authorized) contingent on not actively changing the state's method of calculation for UC benefits, if the method would have decreased weekly benefit amounts. This "nonreduction" rule was a condition of the EUC08 federal-state agreement prior to EUC08 expiration. In general, states were not permitted to pay an average weekly UC benefit amount that is less than what would have been paid under state law prior to what was in effect as of June 2, 2010, and still be able to pay EUC08 benefits. However, states could reduce weekly benefits if that reduction happens automatically in certain circumstances as required by a state law that was in place before the enactment of P.L. 111-5 . Any reduction to the UC weekly benefit amount also translates into reduced EUC08 (when authorized) and EB weekly benefit amounts.

Prior to P.L. 110-252 , 36 states had enacted state laws that calculate the maximum weekly UC benefit via automatic adjustments based on the average weekly wage in a state. Therefore, if the average weekly wage declines in these states, they may experience automatic reductions in UC average weekly benefit amount, which are permitted under the "nonreduction" rule. For instance, in 2011, New Jersey and Oklahoma appear to have met these conditions and to have experienced automatic reductions in their state UC weekly benefit amount. Similarly, in 2012, Hawaii also seems to have met the necessary conditions to automatically reduce the state UC weekly benefit amount.

P.L. 112-96 provided a specific exception to this UC "nonreduction" rule in the case of state legislation that was enacted before March 1, 2012. States that made changes to the regular UC benefit amount prior to March 1, 2012, were not subject to the "nonreduction" rule.

In February 2013, North Carolina enacted legislation that included a provision to actively reduce UC weekly benefit amounts in the state. Effective on or after July 1, 2013, this state law provision violated the "nonreduction" rule and, therefore, terminated the EUC08 agreement between North Carolina and the Secretary of the U.S. Department of Labor. All tiers of EUC08 ended in North Carolina as of June 29, 2013. With the expiration of the EUC08 program as of the week ending on or before January 1, 2014 (i.e., December 28, 2013; or December 29, 2013, in New York State), the "nonreduction" rule is no longer effective.

Any state UC benefit reductions also reduce weekly amounts for EB benefits (and EUC08 benefits when authorized), which are paid out in the same amount. Only individuals filing new state UC claims after the effective date for reduced UC durations, however, would experience reductions in UC, EUC08 (when authorized), or EB benefits.