Benefit Payment Costs of Unemployment Insurance Modernization: Estimates Based on Kentucky Administrative Data

Authors

Christopher J. O'Leary, W.E. Upjohn Insitute for Employment ResearchFollow

Upjohn Author ORCID Identifier

https://orcid.org/0000-0002-3372-7527

Publication Date

3-25-2011

Series

Upjohn Institute Working Paper No. 11-172

DOI

10.17848/wp11-172

Abstract

The American Recovery and Reinvestment Act (ARRA) of 2009 provided financial incentives for UI modernization. The financial incentive is the state share of $7 billion available nationwide. States can receive one-third of their allocation by having an alternate base period (ABP) for monetary determination of UI eligibility that includes the most recently completed calendar quarter. States can receive the remaining two-thirds of their allocation for having two of four additional program features: 1) UI eligibility while seeking only part-time work, 2) UI eligibility after job separations due to harassment or compelling family reasons, 3) continuation of UI benefits for at least 26 additional weeks after exhaustion of regular benefits while in approved training, and 4) dependents’ allowances of at least $15 per dependent up to $50. This paper presents estimates of the UI benefit payment costs of these five program changes based on data from the Commonwealth of Kentucky. To date 39 states have received modernization payments for having an ABP, and 32 states have received the remaining two-thirds of funds available. The numbers of states adopting each of these additional features are as follows: 25 for seeking part-time, 18 for family reasons, 14 for exhaustee benefits while in training, and 7 for dependents’ allowances. Estimates of the UI benefit payment costs for these features, based on Kentucky data, suggest a pattern of states choosing UI modernization features to minimize the expected benefit payment costs. However, for states broadening UI eligibility through modernization, UI benefit payment costs will be higher for any given level of unemployment. Liberalized eligibility rules must be balanced by structural financing enhancements to ensure long-term fiscal stability of the system.

Issue Date

January 2011

Note

Based on research done for the Commonwealth of Kentucky under a subcontract to the W.E. Upjohn Institute from the Urban Institute and was prepared for presentation at the Labor and Employment Relations Association (LERA) session titled “Unemployment Insurance Benefits and Financing during the Great Recession,” part of the Allied Social Science Association (ASSA) conference held in Denver, Colorado, January 8, 2011.

Sponsorship

Urban Institute

Subject Areas

UNEMPLOYMENT, DISABILITY, and INCOME SUPPORT PROGRAMS; Unemployment insurance; Benefits and duration; Benefit financing