North Carolinians who have lost their jobs through no fault of their own stand less

Transcription

1 BTC Brief BUDGET & TAX CENTER March 2016 ENJOY READING THESE REPORTS? Please consider making a donation to support the Budget & tax Center at MEDIA CONTACT: ALEXANDRA F. SIROTA 919/ alexandra@ncjustice.org BUDGET & TAX CENTER a project of the north carolina JUSTICE CENTER P.O. Box Raleigh, NC CHANGES IN STATE UNEMPLOYMENT INSURANCE HURTING WORKERS AND COMMUNITIES BY ALEXANDRA F. SIROTA, BTC PROJECT DIRECTOR North Carolinians who have lost their jobs through no fault of their own stand less chance of collecting unemployment insurance or if they do replacing prior wages than before changes were made to the system in At the same time unemployment insurance (UI) is doing less to stabilize the temporarily unemployed and the communities where they live, it also has failed to establish prudent solvency thresholds that would help avoid having to borrow money from the federal government in the next economic downturn. North Carolina UI failing to provide temporary, partial wage replacement The unemployment insurance system s purpose is to provide temporary, partial wage replacement at a level that staves off a drop in consumer spending that would destabilize the broader economy. By failing to design the system to cover a signifi cant share of those who have lost their jobs and to provide payment that is meaningful relative to the wages earned through prior work, the system is not as effective as it should be. When Ui doesn t help jobless men and women meet basic needs and stay attached ot the labor market, it erodes purchases of goods and services in the local economy. In other words, an inadequate UI system doesn t just hurt the jobless; it hurts the businesses where they would shop and, by extension, the economy as a whole. North Carolina s unemployment insurance system served its role adequately before changes legislated in It was by no means generous, falling in the middle of the pack among all states on most measures. In the second quarter of 2013, North Carolina reached 39 percent of jobless workers with unemployment insurance 24th in the nation. Today the state ranks last: just 11 percent of jobless North Carolinians received unemployment insurance payments in the third quarter of (See Figure 1). For those who do receive unemployment insurance fewer than 25,000 North Carolinians in December 2015 the average weekly payment amount has fallen by more than $65 a week on average since the second quarter of North Carolina had an average weekly benefit amount of $301 back then 25th in the nation. In the third quarter of 2015, the average weekly benefit was just under $237 46th in the country. 2 This $250-a-month loss in money coming into a household forces difficult 1

2 BTC Brief FIGURE 1: Too few North Carolinians receive unemployment insurance today to stablilize families, communities decisions for families. As an example, for a household with one adult, one child, $250 is roughly equivalent to a monthly food budget or health care costs. 3 Another way to illustrate the decline in support to jobless workers from UI is to look at what share of prior wages the unemployed receive. In the second quarter of 2013, UI payments in North Carolina averaged 36 percent of wages, which was 25th in the nation. In the third quarter of 2015, average weekly UI payments as a share of average weekly wages dropped to 27 percent 44th in the nation. 4 UI fails to stabilize local North Carolina labor markets The recent announcements of a series of mass layoffs to occur in 2016 at a brewery in Eden, NC (520 jobs), a truck manufacturing plant in Salisbury (936 jobs) and at related manufacturing facilities in Gaston and Rowan counties (1,200 jobs) will prove a signifi cant test to a system already demonstrated to be ineffective in serving jobless workers and their communities. 5 Indeed, the uneven nature of the economic recovery with some North Carolina communities still mired in unemployment and others faring better is made worse by the changes made to UI in Under the previous system in North Carolina, as in most other states, workers who lose their job through no fault of their own can receive up to 26 FIGURE 2: Maximum duration of unemployment insurance now tied to state unemployment rate 12 5% or less 13 > 5% up to 6% 14 > 6.0% up to 6.5% 15 > 6.5% up to 7% 16 > 7.0% up to 7.5% 17 > 7.5% up to 8% 18 > 8.0% up to 8.5% 19 > 8.5% up to 9% 20 above 9% weeks of unemployment insurance payments. North Carolina now provides no more than 20 weeks. And now the maximum length for receiving UI payments is allowed to fl uctuate, according to the statewide unemployment rate. That means right now North Carolina s jobless workers can receive a maximum of only 13 weeks until the duration is reset again based on January 2016 data (see Figure 2). SOURCE: House Bill 4, The December

3 BTC Brief state unemployment rate was 5.6 percent, an increase over the prior year, meaning that the sixmonth calibration of maximum weeks lags economic conditions statewide. It also fails to refl ect the variation in job opportunities across the state. In that same month, 55 North Carolina counties had unemployment rates higher than the state rate. In 14 counties, the unemployment rate was a full two percentage points higher than the state rate. 6 In part because the state unemployment rate fails to capture the economic realities in communities across the state, the unemployment rate itself should not be the only indicator used to assess the health of the labor market. Measures like employment to population levels and labor force participation levels are critical to understanding the degree to which jobless workers are fi nding work and staying engaged in looking for work. Another measure that is helpful to assess the level of job opportunities in counties is the ratio of jobless workers to job openings produced by the state Department of Commerce. In December 2015, 50 of North Carolina s 100 counties reported two or more jobless workers per job opening. 7 This means that even if every jobless worker in those counties found a job there would still be one jobless worker without employment. In sum, basing the maximum duration of UI payments on the average unemployment rate works against many unemployed persons and their communities and the goal of moving people to employment. First, conditions vary across the state as evidenced from the data above. So someone could live in an area of unemployment much higher than the state as a whole and would lose unemployment insurance because of it. Second, a declining state unemployment rate at any given time does not necessarily signal an improved labor market overall. FIGURE 3: Weeks receiving unemployment insurance for the average jobless worker tracks availability of jobs The unemployment rate can decline as it did in 2014 primarily due to people giving up on fi nding a job (and no longer being counted as unemployed), not an increase in people working. And third, certain groups of jobless workers may fi nd it more difficult to fi nd work quickly due to the need for skill upgrades and their age, for example. Average Duration Total A set maximum number of weeks at a level suffi cient to cover the duration on unemployment insurance of the average jobless workers is a better policy. Most states provide UI payments for a maximum of 26 weeks. It is clear that North Carolina s average duration has been responsive to economic conditions. When jobs are available as they were in the 1990s jobless workers will move to employment quicker than when they are not (see Figure 3). This suggests that artifi cial thresholds don t make it more likely people will go back to work. Instead, they undermine the ability of the system to help families get by until work is available. SOURCE: US Department of Labor, ET Financial Data Handbook 394 Report, North Carolina, 1990 to

4 BTC Brief North Carolina UI system ill-equipped for today s economic realities The economic transition in North Carolina from manufacturing to service employment, the decline in middle-wage jobs, changing demographics of the workforce and the urbanization of growth prompted North Carolina to modernize unemployment insurance in the 1990s. Many of those reforms were repealed in 2013 and additional barriers were erected. The prospects of technological unemployment and a future of work where the relationship between employers and employees is changed presents challenges for designing an unemployment insurance that serves to stabilize the economy. As technology evolves, there could be signifi cant loss of occupations due to automation that will create more frequent and longer spells of unemployment. 8 Two particularly important barriers to effective functioning of the unemployment insurance system under these emerging economic trends are the length of time people have to wait for UI payments and the lack of integration and funding for skills training to help pepople move to new occupations. The 2013 changes make North Carolina the only state to require jobless workers to wait a week before they receive unemployment insurance each time that they make a claim. And, the lack of dedicated funding to help jobless workers receiving unemployment insurance get retrained for new occupations and specifi cally to receive an industry-recognized credential that requires skills training for more than 13 weeks would allow hurts the state s ability to help people adapt to the changing opportunities in the labor market. Both of which will be critical as the future economy is transformed by automation. It is time to build a solvent and balanced unemployment insurance system During the Great recession, North Carolina was among many states that had to borrow money from the federal government to make UI payments. The state paid back the money, primarily through reducing UI benefi ts to jobless workers. Now the state needs to turn its attention to reassess the current approach and make changes that will fi nance a UI system that meets the state s economic needs. FIGURE 4: North Carolina s Trust Fund is not solvent SOURCE: US Department of Labor, Annual Program Performance Data, North Carolina. Unemployment insurance systems work by collecting unemployment insurance payroll taxes from employers whose contributions to a Trust Fund allow the system to pay unemployment insurance when joblessness is high. The ideal financing method is to establish adequate reserves in good times so that funds are available to pay benefits without significantly changing the tax structure for employers in a downturn. In order to build a fi nancing system that is forward fi nanced, it is 4

5 BTC Brief necessary to address the rules that trigger UI tax cuts for employers. Under current law, a second employer tax cut (the fi rst came in 2015) will occur once the Trust Fund reaches a reserve ratio where it has $1 for every $1 in insured wages in the economy. Such a threshold is too low to ensure the system can provide adequate temporary wage replacement and or even sustain existing payments without borrowing in a future downturn. Economists generally point to a reserve ratio that represents $2 for every $1 in insured wages as healthy. 9 This reserve ratio is based on what is needed to cover wages in the economy a fl oor to prevent the bottom from falling out when people lose jobs through no fault of their own and shrink their spending. Such a reserve ratio would require North Carolina to have at least $3 billion in reserves. 10 Today it has more than $1.3 billion in reserves. North Carolina s reserve ratio plummeted beginning in the 1994, despite the recovery from the 1991 recession taking hold, due to the pursuit of a series of cuts to the state unemployment insurance tax for employers (see Figure 4). There are other ways to measure the solvency of an unemployment insurance system by taking into account historic experience in paying out benefi ts so that the system can cover workers during periods of high job loss. One such measure, called the Average High Cost Multiple (AHCM), is the average of the three most recent high cost calendar years that include either 3 recessions or at least 20 years history. While proponents of the drastic reductions in unemployment insurance benefi ts would argue that this measure is meaningless under the new normal where UI payments to jobless workers has been so reduced, it is important to note that the system prior to the 2013 cuts represented the middle of the road relative to other states. Furthermore, the changing nature of the economy and the severity of the last downturn suggest a more fi scally responsible approach is needed to avoid future borrowing. This solvency measure should therefore also inform decisions about the balance needed in the Trust Fund to effectively meet the mandate of ensuring jobless workers have adequate wage replacement to stabilize the economy. The Advisory Council on Unemployment Compensation, a federal advisory panel, recommended in 1995 that states maintain a pre-recession AHCM of 1.0. To reach that threshold in North Carolina in 2016, the Trust Fund would need to have a balance of $2.6 billion. There is much work to be done to establish an effective unemployment insurance system in North Carolina. Despite the campaign season rhetoric, North Carolina s recent policy changes have hurt jobless workers and their communities and left the state with less support to prepare for a strong economic future. 1. US Department of Labor, Unemployment Insurance Data Summary, Second Quarter 2013 and Third Quarter US Department of Labor, Unemployment Insurance Data Summary, Second Quarter 2013 and Third Quarter Sirota, Alexandra, Tazra Mitchell and Cedric Johnson, North Carolina Living Income Standard: Boom in Low-Wage Work means Many North Carolinians don t make an Adequate Income. North Carolina Justice Center: Raleigh, NC. 4. US Department of Labor, Unemployment Insurance Data Summary, Second Quarter 2013 and Third Quarter Richard Craver, September 14, 2015, Miller Coors to close Eden brewery in September 2016 Winston-Salem Journal; Staff Reporter, January 4, 2016, 936 Workers to be laid off at Freightliner Salisbury Post; Editorial, February 16, 2016, Round Two at Freightliner Salisbury Post. 6. Local Area Unemployment Statistics, December 2015, All North Carolina Counties. 7. NC Works, Area Summary of Labor Supply, All Counties, December Accessed at: 8. Walden, Michael, July North Carolina s Future Job Market and Policy Responses. Prepared for the Institute for Emerging Issues. 9. McHugh, Rick and Andrew Stettner, February State Unemployment Insurance Trust Fund Solvency: How Are States Doing in the Continuing Job Slump. National Employment Law Project: New York, NY. 10. Analysis based on the US DOL Forecast Solvency Calculator. 5

6 The Legacy of House Bill 4: North Carolina s Unemployment Insurance Program Is No Longer Working Presentation by National Employment Law Project North Carolina Justice Center April 7, 2016 George Wentworth Senior Staff Attorney gwentworth@nelp.org

7 Characteristics of an Effective Unemployment Insurance Program The primary goal of unemployment insurance (UI) is to provide workers who lose jobs involuntarily with partial wage replacement that will: Allow workers to meet basic necessities of living for themselves and families (e.g. housing, food, transportation) Allow workers to conduct an active search for a new job that is as close a match as possible to job they lost for a reasonable period of time Minimize disruption in local economies (e.g. stimulate spending, avert foreclosures and evictions, prevent fall into poverty, promote best possible employment outcomes). 2

8 HB4 Dramatically Reduced the Capacity of UI to Help Unemployed NC Workers Lower Maximum. HB4 reduced maximum benefit amount from $535 (with indexed increase) to $350 weekly (without indexing) The maximum benefit of $350 represents 40% of NC s average weekly wage ($869) Lower Average Benefits. HB4 changed the formula for calculating weekly benefit in a way that was designed to substantially reduce average weekly benefit In 2012, average weekly benefit amount was $298; today the average benefit is $235 (a reduction of 21%) Less Weeks. Before HB4, eligible unemployed workers could receive up to 26 weeks of benefits; today that maximum is 13 weeks 3

9 How HB4 Reduces Weekly Benefits for Most UI Claimants Formula should aim to provide 50% of pre-layoff weekly earnings Most common means to that goal is to divide highest quarter earnings in base period by 26 (23 states) 2 nd most common approach is to average 2 highest quarters (17 states) HB4 averages last 2 quarters in base period (even if no wages)- no other state uses this formula; arbitrarily depresses benefits based on recent wage decline; disproportionately impacts workers with repeated bouts of unemployment, temporary and part-time workers $350 maximum reduces benefits for any worker averaging more than $700 per week in wages 4

10 HB4 Moves Wage Replacement Value of UI in NC from Middle to Back of the Pack Nationally The combined impact of the dramatic reduction in the maximum benefit and a new restrictive benefit formula that no other state uses has eviscerated the wage replacement value of UI for NC jobless workers. Average Benefit. Today, NC s average weekly benefit of $235 ranks 46 th in US (national average is $328). In 2012, average benefit of $298 ranked 25 th in US Replacement Rate. Today, NC average weekly benefit replaces 27% of state s average weekly wage (43rd in US) In 2012, average benefit replaced 36.6 % of average weekly wage (21st in US) 5

11 NC s Average Weekly Benefit Amount Now Replaces Much Lower Share of State Average Weekly Wage 45% % of Average Weekly Wages Replaced by Average Weekly UI Benefits in NC and the U.S., by quarter, Jan to Feb Recession North Carolina U.S. % of Average Weekly Wage 40% 35% 30% 25% NC: Q2.2013, 35.8% U.S.: Q2.2013:33.4% U.S.: Q3.2015:33.6% 20% NC: Q3.2015, 27.1% Source: NELP calculations of NC and U.S. average weekly wage data, by quarter, from the Quarterly Census of Employment and Wages, and average weekly benefit data from ETA report 5159, USDOL/ETA-OUI. Average benefit amounts cover State UI only and apply to total unemployment. 6

12 Since HB4, UI Recipiency Has Plummeted in North Carolina In 2012, 24% of unemployed NC workers were receiving state UI benefits and (and another 25% were receiving federal EUC benefits) Since HB4, the percentage of unemployed workers receiving UI benefits has dropped to 12% This is the 2 nd lowest UI recipiency rate in the nation (Florida is last at 11%) The national UI recipiency rate is 28% 7

13 Fewer than 1 in 8 Jobless North Carolinians Receives UI--Less than Half the U.S. average Source: NELP calculations of monthly UI continued claims from ETA report 5159, USDOL/ETA-OUI, and monthly NSA unemployment data from Bureau of Labor Statistics. Regular programs include State UI, UCFE, and UCX; all programs include all regular programs plus federal extensions and Extended Benefits. 8

14 Why Are Only 1 in 8 Jobless NC Workers Receiving Unemployment Insurance? Likely factors driving drop in UI recipiency include: Reduction in maximum weeks from 26 to 13 Elimination of alternate base period (recent workforce entrants) More restrictions on personal reasons for leaving employment New benefit formula, multiple waiting weeks disproportionately impact workers with repeated bouts of unemployment and workers in part-time and temporary industries Access Issues (increase in process disqualifications, reporting requirements) 9

15 HB4 Dramatically Reduced the Share of New UI Applications that Result in First Payments Source: NELP calculations of ETA 5159 data, USDOL/ETA-OUI. Due to data limitations, new initial claims and first payments are limited to intrastate claims for State UI benefits. Interstate claims, and claims for the UCFE and UCX programs, are excluded. 10

16 Cutting Available UI Benefits Leaves Large Numbers of Unemployed Without Income Prior to July 2013, NC UI program provided up to 26 weeks of UI benefits (like 42 other states). Average duration of unemployment in NC was 41.8 weeks in 2012 and Effective July 1, 2013, HB4 implemented a sliding scale maximum tied to state unemployment rate (12 weeks of benefits when rate is 5% or less up to 20 weeks when rate is over 9%). Today, NC provides maximum of 13 weeks, 2 nd lowest in nation (Florida maximum is 12 weeks). 11

17 HB4 Undermines Role of UI in Helping Unemployed NC Workers Find Good Jobs Studies show that UI helps keep unemployed workers attached to the labor market Immediately before HB4, roughly 50% of NC claimants exhausted 26 weeks of state UI benefits without finding new employment Even with lower unemployment rate, 48.7% of NC claimants currently exhaust 13 weeks of state UI benefits without finding new job (4 th highest rate in US) Nationally, the rate at which UI claimants exhaust state benefits has dropped from 45% to 38% in this same period 12

18 Honey, I Shrunk the UI Program: HB4 Decimated Any Stimulative Impact of UI Benefits on NC Economy UI stimulates local economies. Each UI dollar generates $1.55 in economic activity. (Zandi, Moody s Economy.com) Recession Performance. NC paid more than $1 billion annually in state UI benefits from ($2.7 B in 2009) Program immediately cut nearly in half. In first year after enactment (July 2013-June 2014), UI payouts in NC declined from $1.24 billion to $673 million (a 45% decrease during year when unemployment rate dropped 1.5 points or 13%). Long-term effects far worse. In 2005 when unemployment rate was under 5.4 %, NC UI program put $867M into state and local economies. In last year (ending Feb.2016) with comparable unemployment rate (5.5%), NC UI program paid $273M less than 1/3 of 2005 payout. 13

19 UI Benefits Paid in NC Disproportionately Low Relative to State s Unemployment Rate Source: NELP calculations of ETA 5159 benefits paid data, covering State UI, UCFE, and UCX programs. Monthly SA state unemployment rate data are from BLS. 14

20 North Carolina UI Program Measures Before and After House Bill Average Benefit $298 (25) $235 (46) Replacement Rate 36.6% (21) $27.1% (43) (Benefit as % of average wage) Recipiency Rate 24% (35) 12% (51) (% of unemployed receiving UI) Maximum Weeks Average Duration 16.2 wks (29) 11.0 wks (52) Exhaustion Rate 54.4% (6) 47.6% (4) (% of claimants exhausting UI without finding job) 15

21 Even as Program Shrinks, State s Delivery of UI Benefits Slows US Supreme Court has held that for UI program to serve its purpose under the Social Security Act, benefits must be delivered in a timely manner ( when due ) Federal standard: 87% of first payments must be made within 3 weeks of applying for benefits. In 3 years before HB4, NC made 82.4% of first payments timely (34 th in US) Since HB4 became effective in July 2013, NC ranks last in the nation in first payment timeliness (64.3%) Cases requiring adjudication have average turnaround of 5 weeks ( Dept. of Commerce report 2/3/16) 16

22 HB4 Was Too Extreme and Overshot its Mark; NC UI Program Now Far Outside Mainstream Business interests were served by HB4: Debt has been repaid Increased FUTA taxes eliminated Trust Fund being replenished Benefits program is serving less than 1 in 8 unemployed and paying out third of benefits in comparable pre-recession period All aspects of program that benefit workers and help economy have been badly damaged, ranking NC at or near the bottom in every measure of program efficacy NC UI program will be ineffective in next downturn Less weeks will mean less federal help Long-term unemployed will suffer more, lapse into poverty more quickly 17

23 Time to Restore Balance & Equity: A Checklist for Change Before redistributing Trust Fund revenues into more employer tax cuts, NC executive & legislature need to review the consequences of HB4 and identify measures to restore balance Checklist for change: 1. Increase maximum duration of benefits - 42 states pay 26 weeks; 3 states (MI, SC, ARK) never pay less than 20 weeks 2. Increase maximum benefit/index to wage increases 3. Change benefit formula from last 2 base period quarters- 23 states use highest quarter (23 states); 17 states use average 2 highest quarters 4. Review impact of other HB4 changes on recipiency 18

24 National Employment Law Project 75 Maiden Lane, Suite 601 New York, NY tel fax National Employment Law Project. This presentation is covered by the Creative Commons Attribution-NonCommercial-NoDerivatives license fee.

25 The Legacy of House Bill 4: North Carolina s Unemployment Insurance Program is No Longer Working The primary goal of unemployment insurance (UI) is to provide workers who lose jobs involuntarily with partial wage replacement that will: (1) Allow workers to meet basic necessities of living for themselves and families (e.g. housing, food, transportation). (2) Allow workers a reasonable period of time to conduct an active search for a new job that is as close a match as possible to the job they lost. (3) Minimize disruption in local economies (e.g. stimulate spending, avert foreclosures and evictions, prevent fall into poverty, promote best possible employment outcomes). In less than three years, HB 4 has transformed the NC UI system from one that meets these goals to one that does not. The most damaging changes include: Largest decrease of maximum benefit amount in US history. HB4 reduced maximum benefit amount from $525 (with indexed increase) to $350 weekly (without indexing).the maximum benefit of $350 represents 40% of NC s average weekly wage ($869).. Lower average benefit amount. HB4 changed the formula for calculating weekly benefit in a way that was designed to substantially reduce the average weekly benefit. In 2012, the average weekly benefit amount was $298; today the average benefit is $235 (a reduction of 21%). Replacement Rate. Today, the NC average weekly benefit replaces 27% of state s average weekly wage (43rd in US). In 2012, the average benefit replaced 36.6 % of average weekly wage (21st in US). Second fewest weeks of UI benefits in the nation. Before HB4, eligible unemployed workers could receive up to 26 weeks of benefits; today, NC provides maximum of 13 weeks, 2 nd lowest in nation (Florida maximum is 12 weeks). The overwhelming majority of states (42) provide a maximum of 26 UI weeks. Since UI helps jobless workers stay attached to the labor market and search for jobs that are the best match to skills and earning potential, cutting weeks of UI in half means unemployed workers are often forced to take jobs that pay less or do not utilize their skills and experience or fall out of the labor market earlier. Only 1 in 8 unemployed North Carolinians are receiving unemployment insurance. NC has the second lowest recipiency rate in the nation. In 2012, 24% of unemployed NC workers were receiving state UI benefits and (and another 25% were receiving federal EUC benefits). Since HB4, the percentage of unemployed workers receiving UI benefits has dropped to 12%. This is the 2 nd lowest UI recipiency rate in the nation. (Florida is last at 11%)

26 UI stimulates local economies but HB4 has decimated any stimulative effects. Each UI dollar generates $1.55 in economic activity. (Zandi, Moody s Economy.com). NC paid more than $1 billion annually in state UI benefits from ($2.7 B in 2009). In the first year after enactment of HB4 (July 2013-June 2014), UI payouts in NC declined from $1.24 billion to $673 million (a 45% decrease even though the unemployment rate only dropped 1.5 points or 13% during that same period). Contrasting comparable years before and after HB4 shows its devastating impact on the size and scope of the program even more clearly. In 2005 when NC s unemployment rate was 5.4%, the NC UI program put $867 million into the state s economy. In the past 12 months with an unemployment rate of 5.5%, the NC UI program paid out $273 million less than one-third of the payout in 2005, the most recent comparable year economically. Even as the UI program shrinks, delivery of benefits slows. To be effective and actually help mitigate the economic impact of job loss, UI benefits must be paid timely. Since HB4 became effective in July 2013, NC ranks last in the nation in meeting the federal first payment timeliness standard. (87% of all first payments within 3 weeks of filing.) Since HB 4, NC has made only 64.3% of payments in that time frame. HB4 was too extreme and overshot its mark; the NC UI program is now far outside the national mainstream. Business interests were served by HB4. The federal debt has been repaid. Increased FUTA taxes have been eliminated and the Trust Fund is being replenished. But the benefits program is serving less than 1 in 8 unemployed and paying out a third of the benefits it provided in a comparable pre-recession period. All aspects of the program that benefit workers and help the economy have been badly damaged, ranking NC at or near the bottom in every measure of program efficacy. The North Carolina UI program will be ineffective in the next downturn. A smaller state program with fewer weeks will mean less federal help when the next inevitable recession occurs. Long-term unemployed will suffer more and lapse into poverty more quickly. Time to restore balance to the NC unemployment insurance program. Before redistributing Trust Fund revenues into more employer tax cuts, NC executive & legislature need to review the consequences of HB4 and identify measures to restore balance to the system. Key action items include increasing the maximum duration of benefits, increasing the maximum weekly benefit amount (and restoring indexing to wages), adjusting the benefit rate formula and examining why UI recipiency is decreasing so dramatically.

27 Unemployment Insurance Financing in North Carolina Dr. Wayne Vroman The Urban Institute North Carolina Justice Center April 7,

28 Outline The trust fund and UI taxes UI benefits Summary 2

29 3,000 Figure 1. North Carolina: UI Benefits, Taxes and Trust Fund Balance 2,000 1, ,000-2,000-3,000 Benefits Taxes Trust Fund Balance Data in $ millions 3

30 Aspects of UI Trust Fund Low balance prior to Great Recession Below $400 million at end of 2007 Outstanding debt to Treasury from 2009 to 2015 Low response of UI taxes after 2007 Already on top tax schedule (Schedule I) in 2007 Single schedule for employers with negative reserves Repayment of Treasury loans included FUTA tax credit offsets of about $900 million Low wage employers made a large share of repayments 4

31 Aspects of State UI Taxes Zero minimum tax rate in most recent years Minimum above zero in 2014, 2015 and 2016 Low maximum tax rate Maximum below 7.0 percent in all recent years Low maxima imply large employer subsidies Taxes and charged benefits: employers with negative reserve ratios below -20 percent, 2010 to 2014 Charged benefits - $858 million UI Taxes - $205 million Subsidy - $653 million 5

32 Changes in UI Benefits Reduced rate of inflow into benefits Shortened benefit duration Reduced weekly benefits and replacement rate (ratio of weekly benefits to weekly wages) 6

33 Figure 2. First Payments/New Unemployment Spells First Pay/ New Unemployment Spells 7

34 30.0 Figure 3. Measures of UI Benefit Duration, 1988 to Potential Duration Actual Duration Duration Exhaustees Duration in weeks 8

35 0.45 Figure 4. Replacement Rate (Weekly Benefits/Weekly Wages), Replacement Rate (Weekly Benefits/Weekly Wages) 9

36 3,000 Figure 5. Actual Benefits and Loss of Benefits ,500 2,000 1,500 1, Total Benefits No Change - Benefits Counterfactual Loss of Benefits Benefits in $ millions 10

37 Summary Trust fund balance in March 2016 about $1.5 billion UI trust fund recovery during due to both large benefit reductions and tax increases Unprecedented benefit reductions since mid-2013 Reduced inflows into benefits Reduced average benefit duration Lower weekly benefits Lower benefits reduce UI program effectiveness Higher taxes since 2012 Continuing large subsidies to high tax-rate employers Low-wage employers paid a very large share of tax increases 11

38 Statement from Lynne Walter Raleigh, NC I started receiving unemployment benefits after being laid off on June 25th, I qualified for 19 weeks. The benefits themselves helped because I suddenly didn t have an income, and I would not have been able to pay for food or my mortgage otherwise. But applying for the benefits was a terrible experience. I m a pretty intelligent person I have two undergraduate degrees and a graduate degree in social work. Thank god I have all of that because it was awful; it's such a user-unfriendly process that doesn t make any sense. They send you this ridiculous amount of paperwork that doesn t explain all of the requirements they have. You have to go in person for an interview, but they don t tell you everything that you need to bring. The system treats grown human beings as if they re incompetent children. Then there s the fact that when you re looking for work and have to apply to a certain number of jobs a week, they don t reemphasize that if you apply to the same place for more than one job, that place only counts once. For example, if you were to apply to the North Carolina Department of Health and Human Services, which is gigantic, you can only count that one time. And the Triangle is a bigger area what if someone lived out in a rural community and there are three or four employers, maximum? What are you supposed to do? The whole process was painful. It wasn t like you were approved and then started receiving benefits. You re sent a card with benefits not a check or direct deposit but this terrible card that has service fees attached. At the time it was through Wells Fargo, and you could only withdraw certain amounts at a time, which wasn t enough to cover my mortgage. Then when I went to file my taxes, I was told my unemployment benefits were taxed. I wasn t working I pay into this system so if, god forbid, something happens and I have to use it, I can, and then you hit on me on the back end and tax me for it? It was just never ending pain. Neither the time nor the amount was enough. At the time I was laid off, the maximum amount you could qualify for was $350 a week. It s ridiculous. And our General Assembly and Governor opted not to expand Medicaid so that's another hit: first being laid off unjustly, then receiving cruddy unemployment assistance, and then told I have to pay my own insurance. I haven t worked full-time since I have worked part-time and done contract work. A maximum of five months isn t a lot of time for unemployment benefits, and all the while our General Assembly and Governor were saying, There s no recession here, the unemployment rate is getting better. But, the unemployment rate doesn't count people who have maxed out on their benefits and are no longer in the system, or who are underemployed they aren't tracked and aren t counted. We aren t counted. (919)