Report: Unemployment Insurance Fund Needs Overhaul

There are few experiences in life as traumatic as losing a job. Often the only thing standing between workers who have lost a job through no fault of their own and complete financial ruin is an unemployment insurance check. But, as a new report details, the unemployment insurance lifeline for California workers is threatened by structural flaws that have forced the system billions of dollars into the red.

The California Labor Federation report, “Unemployment Insurance: Underfunded and Undervalued,” calls for immediate action to put the Unemployment Insurance (UI) Fund on a path to solvency that ensures families experiencing sudden unemployment will continue to be able to count on unemployment insurance benefits.

Under the flawed current system, California has racked up more than $10.5 billion in debt to the federal government, forcing the state to borrow from the worker-funded Disability Insurance fund just to stay afloat.

California Labor Federation Executive Secretary-Treasurer Art Pulaski:

Workers who have experienced the trauma of losing a job through no fault of their own understand how vital unemployment insurance is to their families. We can’t allow our state’s Unemployment Insurance Fund to slide into an abyss of debt that threatens laid-off workers’ unemployment checks. It’s time for sensible solutions that create a solvent fund that workers can rely upon in a time of need.

There are a number of problems with the UI system. Currently, California lags far behind neighboring states in terms of benefits paid to unemployed workers and contributions required by employers.

The report offers a path to solvency that also would increase benefits to workers. Among the fixes needed:

Increase and index the taxable wage base. To bring the UI fund into balance and keep up with rising inflation and wages, the taxable wage base must be adjusted upward now and should be indexed to automatically rise over time.

Expand the tax rate schedule. Without changes to the UI tax rates, especially the top tax rates, the value of an experience-rated system will be lost along with the incentive to keep workers working.

Move to a forward-funded system. Rather than waiting for an economic downturn to replenish the fund, California should use economic booms to grow the balance of the UI fund when it is financially easiest for employers to pay more.

Establish an employer surcharge to repay federal loans. California should join the 20 other states who levy a special assessment on employers to cover the cost of federal loans.

Fixes for Unemployed Workers

Index benefits to account for rising wages and inflation. By pegging benefits to a percentage of the state’s average weekly wage, California can ensure that benefits will track wages and provide a similar value to workers over time.

Create a dependents’ allowance. Adding a dependents’ allowance helps the unemployment insurance system keep families out of poverty during periods of job loss.

View the full report.