Unemployment and Unemployment Insurance

The fiscal impact of sustained high unemployment rates is painfully clear to all state policymakers. The length of time individuals are unemployed is also having a hugely detrimental impact on state and federal bottom lines and will likely continue to impact state fiscal stability long after the recession has passed.

Unemployment rates remain high and people are unemployed for longer, exhausting state unemployment trust funds quickly.  More states are borrowing from the federal government to cover costs, which could have an impact on future fiscal stability.

State eNews Issue #42 | March 17, 2010

While the debate over health care reform may be front and center on Capitol Hill this week, budget deficits and the jobs crisis that underlies them continue to headline conversations in state capitols.

Congress may soon follow suit. Whether health reform passes or not, Congress is poised to pivot to a series of bills, known collectively as the “jobs agenda,” which could have a direct impact on state...

It’s no secret: During this recession, record numbers of workers who lost jobs are drawing benefits from state unemployment funds. Many states are feeling the pinch. In fact, the U.S. Senate approved legislation Tuesday night that extends federal emergency unemployment benefits for workers who have exhausted their basic state unemployment benefits.  But that won’t resolve the dire unemployment insurance situation.

As unemployment rates have skyrocketed in the economic downturn, state unemployment insurance funds are being depleted at increasing rates.  As funds run out, states are borrowing from the federal government, raising taxes and cutting benefits. 

As the national economy warily recovers from the Great Recession, state finances continue to face monumental challenges in grappling with the sharpest drop in tax receipts in decades.  And, even after slashing their budgets substantially in fiscal year 2009, states are staring at new mid-year gaps that have opened up in the current fiscal year (2010) with more gaps forecasted for fiscal years 2011 and 2012.  While none of this is new information, what makes the state fiscal outlook quite daunting is that the current revenue shortfalls and huge budget gaps masks a number of enormous fiscal challenges looming in such areas as healthcare, education, public pensions, emergency management,  infrastructure, transportation and unemployment insurance.  States will have to contend with these significant challenges once the current crisis abates.

States bear enormous responsibility for administering the nation’s safety net programs. They are the first responders when unemployed workers apply for unemployment benefits, food assistance and welfare. The American Recovery and Reinvestment Act of 2009 expanded some safety net support, temporarily filling in some of the benefit gaps.