Jobless benefits a vicious cycle for employers
Tuesday, August 24, 2010
Finding a job is the best substitute for an unemployment check, but as more and more Americans exhaust their jobless benefits, employment opportunities remain sparse.
In July, the state unemployment rate was 8.6 percent, down from 9.5 percent a year ago; however, in parts of Washington it is in double-digits. The Portland-Vancouver metro area reports 13.3 percent unemployment, about the same as last year. Economists worry that it may take years for our economy to return to its peak of a couple of years ago.
Ironically, the longer we experience high unemployment, the harder it will be for private employers to begin hiring.
That’s because Washington employers bear the entire burden for funding unemployment benefits. Many small businesses in our state saw their unemployment insurance (UI) taxes jump 300 to 400 percent the beginning of this year, and preliminary indications are employers may have to brace for an average 27 percent increase in January. In addition, state lawmakers returning to Olympia will face intense pressure to increase unemployment benefits further, which will increase the UI taxes even more.
Employers are caught in a vicious cycle. Our unemployment system is experience rated, meaning that as layoffs increase, UI taxes increase as well, leaving employers with less money to keep people working and create new jobs. In addition, there’s an additional socialized UI tax which requires all employers to share the burden of UI taxes on employers who went out of business or are in highly seasonable occupations.
Unfortunately, skyrocketing UI taxes are just part of the problem.
Some lawmakers want to hike general taxes as well to bail the state out of its projected $3 billion revenue shortfall, and next January, employers will face yet another round of increases in workers’ compensation taxes, which pay for workplace injuries.
In essence, private employers could be looking at a triple whammy next year: higher taxes and fees, higher unemployment taxes and higher workers’ compensation premiums.
None of the several initiatives on the ballot this fall addresses the vicious cycle of UI taxes. But astoundingly, union leaders and some legislators plan to introduce legislation that will increase unemployment benefits, extend coverage to more people who quit their jobs, and add additional weeks of jobless benefits - all of which will push UI taxes even higher.
They need to understand that higher unemployment benefits are counterproductive if they cripple employers’ ability to hire or, worse yet, put them out of business. Legislators should focus on increasing jobs, not jobless benefits.
As the listless economy shambles on, the state’s UI trust account, funded by employers, is being drained. Hopefully, it won’t go bankrupt as it did in the 1980s, forcing us to borrow from the federal government to pay unemployment benefits.
Currently, 31 other states have exhausted their unemployment insurance trust accounts. Since the recession began, those states have borrowed just under $40 billion from the feds, and the situation is expected to worsen by year’s end.
Borrowing money to pay jobless benefits creates a larger problem as employers - the job creators - will be hit with even higher taxes, because the loans must be repaid with interest.
The best solution to joblessness is jobs. Instead of constantly expanding jobless benefits, legislators should help spur job creation by reducing regulatory costs for employers, cutting taxes, and providing economic incentives. A reenergized economy will provide more tax revenue to the state, replenish the unemployment trust account and give working families the security of a job.
There really is no substitute for a paycheck.
Don Brunell is the president of the Association of Washington Business. For more about AWB, visit www.awb.org.