State Unemployment Insurance Reserves Are Not Adequate

Authors

Christopher J. O'Leary, W.E. Upjohn Institute for Employment ResearchFollow
Kenneth J. Kline, W.E. Upjohn Institute for Employment Research

Upjohn Author ORCID Identifier

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

https://orcid.org/0000-0002-0366-3390

Series

Upjohn Institute working paper ; 20-321

DOI

10.17848/wp20-321

Issue Date

March 2020

Abstract

Regular unemployment insurance (UI) benefits are paid from reserves held in state accounts at the U.S. Treasury. The Great Recession exhausted the majority of UI reserve accounts, and not all states have rebuilt reserves. We examine the adequacy of current state and systemwide UI reserves to weather a mild, moderate, or severe recession in the coming months. Our results suggest that a recession as severe as the average of those occurring since 1975 would cause 18 states to exhaust UI reserves. Our simulations account for the fact that several states have cut benefit generosity since the Great Recession ended. Results suggest that despite federal incentives for forward funding, reserves are insufficient in many states. By accepted standards, state benefit provisions are not excessive, but state-imposed constraints on financing make the system slow to recover from debt. We suggest modest actions for UI financing reform.

Subject Areas

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