Unemployment Insurance Modernization Act: The Heritage Foundation 2009 Labor Boot Camp
What Does Unemployment
Insurance Modernization Act (UIMA) Do?
- It extends the 0.2 percentage point FUTA payroll tax until
- It provides $7 billion in federal incentive payments over five
years to states that make certain changes to their unemployment
insurance (UI) systems.
- One-third of the incentive payments would go to states that
modify the base period used to calculate eligibility for UI
benefits to include the most recently finished calendar
- Two-thirds of the incentive payments would go to states that
permitted at least two of the following three types of workers to
collect UI benefits:
- Part-time workers;
- Workers who leave their jobs for compelling family reasons,
- Illness or disability of a family member;
- Moving to accompany a spouse who moved after a job change;
- Domestic violence.
- Workers in a "declining" occupation who have exhausted their
regular UI benefits but are in an approved job-training program for
a "high-demand" occupation.
- Current law provides unemployment insurance to protect workers
against the risk of unexpectedly losing their jobs and stabilizes
their income for several months while they look for new work.
- Unemployment insurance is not an unemployment benefit paid for
not working but insures workers against an unexpected event outside
their control, much like home insurance protects against a
- Workers who voluntarily leave their job do not qualify for
unemployment insurance because the decision to leave employment was
theirs. The government does not want to subsidize unemployment,
just as an insurance company would not pay a claim for a home
deliberately burned down.
- UIMA shifts UI toward a more general unemployment benefit.
Workers have the choice of seeking part-time or full-time
employment. Families decide together whether a spouse will move to
take a new job. UIMA shifts the UI system from one that protects
workers from the risk of unemployment toward one that pays workers
who are unemployed.
- UIMA encourages states to generously expand their UI systems
but provides funding for only a portion of the added costs. $7
billion over five years covers only a fraction of the added costs
of the expanded UI benefits necessary to receive the incentive
- Many state UI systems are underfunded as unemployment claims
have risen during the downturn. The Department of Labor recommends
that states maintain a balance of at least one year's worth of
benefits in recessions. Nineteen states currently have reserves of
less than one year. Indiana, Michigan, and South Carolina have
already exhausted their trust funds and are borrowing from the
- States should not be encouraged to take actions that would
further drain their UI trust funds when many of those funds are
- The legislation provides incentive payments to states that
provide UI benefits to workers who leave work to care for ill
- Any illness, no matter how trivial, would qualify for UI
payments under this legislation. A worker could get UI payments for
leaving his job to care for a spouse who has the flu.
- Lax qualifying provisions would encourage abuse.
- Additional UI benefits are frequently claimed to provide
significant economic stimulus.
- The studies that come to this conclusion ignore the effect of
UI benefits in raising unemployment and incorrectly assume that
unemployed households spend every dollar of UI benefits they
receive. Empirical studies contradict both of these
- Heritage Foundation macroeconomic modeling accounting for both
these factors show that for each dollar spent extending UI benefits
to 46 weeks, GDP expands in the first year by just $0.17. Almost
any other use of resources would provide a greater short term boost
to the economy.
- The consequences of extended unemployment benefits are some of
the most conclusively established results in labor economic
research. Extending either the amount or the duration of UI
benefits increases the length of time that workers remain
James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The