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Unemployment Insurance Policy in New England: Background and Issues

Author

Listed:
  • Robert Tannenwald

    (Federal Reserve Bank of Boston)

  • Christopher J. O'Leary

    (W.E. Upjohn Institute for Employment Research)

Abstract

Most states have exhausted their unemployment insurance (UI) trust fund and borrowed from the federal government at least once during the past 35 years. Under such circumstances, states are required by law to raise UI taxes to replenish their trust funds and to pay off their debts to the federal government. Since higher UI taxes increase employer costs, replenishment forces states into a trade-off between economic competitiveness and trust fund adequacy. Competitive pressures have raised questions about prevailing standards of adequacy and the speed at which they should be attained. Consequently, several states are contemplating tax reductions despite low reserves. This article provides background information and analysis intended to clarify issues underlying the UI policies of New England in general and a tax reduction under consideration in Massachusetts in particular. The main point is that alternative UI policies should not be judged solely by the yardsticks of economic competitiveness and trust fund adequacy. Allocative neutrality and economic stabilization are also relevant concerns. UI systems necessarily force some industries to subsidize others, thereby distorting the allocation of resources in favor of subsidized firms. Yet, many of the same features responsible for these allocative distortions affect economic stability. Every UI alternative entails trade-offs among these rival concerns.

Suggested Citation

  • Robert Tannenwald & Christopher J. O'Leary, 1997. "Unemployment Insurance Policy in New England: Background and Issues," Upjohn Working Papers 97-49, W.E. Upjohn Institute for Employment Research.
    • Handle: RePEc:upj:weupjo:97-49
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    References listed on IDEAS

    as
    1. Joseph M. Becker, 1980. "Unemployment Benefits: Should There Be a Compulsory Federal Standard?," Books, American Enterprise Institute, number 650799, September.
    2. Christopher J. O'Leary, 1998. "The Adequacy of Unemployment Insurance Benefits," Book chapters authored by Upjohn Institute researchers, in: Laurie J. Bassi & Stephen A. Woodbury (ed.),Reform of the Unemployment Insurance System: Research in Employment Policy, volume 1, pages 63-110, W.E. Upjohn Institute for Employment Research.
    3. Frank Brechling & Louise Laurence, 1995. "Permanent Job Loss and the U.S. System of Financing Unemployment Insurance," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number pjl, November.
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    Cited by:

    1. Wayne Vroman & Stephen A. Woodbury, 2014. "Financing Unemployment Insurance," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(1), pages 253-268, March.
    2. José María Arranz & Carlos García Serrano, 2015. "Los sistemas de prestaciones por desempleo de “experience rating”. Un análisis de los despidos temporales y los subsidios cruzados en España," Hacienda Pública Española / Review of Public Economics, IEF, vol. 212(1), pages 129-168, March.
    3. Yolanda Kodrzycki, 1998. "Effects of employer-provided severance benefits on reemployment outcomes," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 41-68.
    4. Christopher J. O'Leary & Robert Tannenwald & Wei-Jang Huang & Pei Zhu, 2000. "Alternative Measures of State UI Systems," Upjohn Working Papers 00-62, W.E. Upjohn Institute for Employment Research.

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    More about this item

    Keywords

    unemployment; insurance; New England; Tannenwald; O'Leary;
    All these keywords.

    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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