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Christopher Anderson and Jim Stergios

Reform jobless insurance

(Istockphoto/Globe Staff Illustration)
By Christopher Anderson and Jim Stergios
February 22, 2011

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AS WE limp out of the Great Recession, the official unemployment rate still hovers near double digits. When those who have stopped looking for a job are added in, the rate nearly doubles.

But by reforming one program, Massachusetts could reap 10,000 new jobs, add $3.8 billion in wages, increase economic output by $7.5 billion, and take in $30 million of additional tax revenue over the next decade, according to the economic consulting firm IHS Global Insight. That program is unemployment insurance, and the Commonwealth’s current version is the costliest in the nation. Massachusetts’ unemployment insurance program is funded entirely by a tax on employers, who are willing to pay a premium to gain access to the Commonwealth’s skilled workforce, its world-class universities, and innovative culture.

But employers need a stable, predictable cost structure to create jobs. When it comes to unemployment insurance, the Tax Foundation’s 2011 study of state business tax climates ranks Massachusetts 49th. At $638 per job, the Commonwealth’s unemployment insurance tax burden is twice the national average.

Things got worse in January. Three years of high unemployment combined with these uncompetitive features have depleted the funds available to pay benefits, which triggered a 40 percent increase in the unemployment insurance taxes employers pay. On a per-job basis, this increased the tab to $897, prompting both the Senate and the House to approve a unanimous freeze on the rate, and the governor to indicate his support.

Massachusetts could replenish the fund by borrowing money from the federal government at little or no interest. It would be a wise short-term move, but the Commonwealth’s unemployment insurance program needs much broader reform.

Individuals need only work for 15 weeks in a single quarter to qualify for benefits. As a first step, the state should extend that to the 20 weeks over two quarters required by other states.

We also provide benefits for a longer period. Forty-eight states allow individuals to collect for 26 weeks; in Montana, it’s 28 weeks. But Massachusetts offers benefits for up to 30 weeks.

Between 2000 and 2008, just bringing benefit duration in line with 48 states would have reduced the burden on Massachusetts employers by about 14 percent. In 2010 alone, they would have saved $213 million had the benefit limit been set at 26 weeks.

The need to reduce benefit duration is underscored by the fact that the federal government routinely provides extended unemployment benefits during periods of high unemployment. Those federal benefits currently extend for up to 99 weeks and, since 26 weeks is the point at which most state benefits expire, that’s when they kick in.

Companies that use the system frequently pay higher unemployment insurance taxes than those with stable workforces. Despite this sliding scale, companies that rarely use the system still subsidize “frequent fliers.’’ Reducing the subsidy by forcing frequent users to pay more would ease the burden on stable employers.

If these common-sense reforms had been in place last year, the overall burden on Massachusetts employers would have been reduced by 14 percent, from nearly $1.6 billion to just under $1.4 billion. The savings would have been achieved without adjusting state unemployment benefit levels, which are the richest in the nation.

More should be done to fix unemployment insurance. Many seasonal workers treat it as an annual income supplement, collecting for many years in a row. Some small business owners and self-employed individuals do the same thing, gaining access to benefits by essentially laying themselves off.

Reforming Massachusetts’ unemployment insurance program isn’t about shifting the burden from employers to individuals. The changes suggested here would keep in place a safety net comparable to any other state in the country.

They would also make it easier to create the jobs those who are collecting unemployment so desperately want. And that’s the best outcome for everyone.

Christopher Anderson is president of the Massachusetts High Technology Council. Jim Stergios is executive director of the Pioneer Institute.