Unemployment Insurance: Will it put Boeing and other businesses on a one-way flight out of the state?

Washington leaders are scrambling to find ways to convince Boeing to keep its new 7E7 project in state. Almost everyone involved (with the possible exception of labor officials) agrees reforming the state's current unemployment insurance (UI) system is a must. To address Boeing's concerns, meaningful action must be taken by June 20, the date the state's 7E7 application is due.

We suggest lawmakers address five key problems in our state's UI system, and not just for Boeing's sake, but for all businesses suffering under our current UI system.

1. UI rates are inflated—an unfair financial burden for employers.

2. UI benefits are inordinately high—an incentive for workers to remain unemployed.

3. The UI program suffers a lack of enforcement and accountability—fraud and overpayments occur too frequently.

4. Washington gets insufficient returns for money invested in the federal UI program.

5. State officials play favorites when they disperse UI benefits.

These problems are not new. EFF has been talking about them for two years, and Boeing CEO Alan Mulally made it clear as early as January 2002 that Washington has the costliest unemployment insurance system of all the places the company does business—not just in the nation, but the world.

Unemployment Insurance Comparison
(Numbers provided by state UI departments and Boeing)

In the years since 1985 when Washington's current UI system was created, Boeing officials claim the company has paid $270 million more than it actually costs to cover their employees. And Boeing is not the only business affected by Washington's costly and onerous UI policies. Small businesses—the backbone of our state economy—also need relief.

Meaningful UI reforms should include:

1. Aggressive enforcement of the law.
In fiscal year 2001, the federal government reported that Washington had an UI overpayment rate of 10.9 percent (See EFF PH 12-22). Eligibility must be fully verified before payments are made. Misuse of UI by some individuals is robbing other workers of funds which could be available for wage increases. Contrary to popular belief, UI taxes are not exclusively shouldered by businesses, but by employees as well in the form of lower benefits, salaries, and job opportunities. That being the case, rather than prioritizing expedient payment of UI claims, Washington's Employment Security Department (ESD) should instead focus on accurate payments to those truly eligible. ESD must also return to the intent of the law and shift the burden of proof back to unemployed instead of the former business (See EFF PH 12-21). Finally, ESD should embrace efforts to contract out some overpayment collections, as Colorado and Oregon have done, which to this point the department has rejected.

2. Prompt job searches for claimants.
An immediate revision to the system requiring prompt job search and re-employment is mandatory to improve our state's UI program. Much like the Jobs Plus program in Oregon, if unemployed individuals in our state are not able to quickly find a job, the state should find one for them. Oregon data shows that when given the choice of finding a job or having one chosen for them, more individuals will be motivated to aggressively seek employment on their own. UI claimants should also be required to report their job search activities to their former employers. This would assure adequate oversight of job search activities. Adopting Oregon's short term approach would position the state to make the transition to employee-owned UI accounts.

3. Adopt employee-owned trust funds.
State lawmakers should redesign the current UI system to allow employees to set up unemployment insurance accounts that they own. A predetermined amount of money would be deposited out of each employee's paycheck into a special, interest-bearing account that the employee would own and could take with them if they left one job for another. Upon retirement, unused funds would belong to the employee (See EFF PH 12-23). This may require a federal waiver.

4. Request that Congress eliminate the state's mandatory contribution to the federal program. Washington's congressional delegation should work to ensure that UI funds contributed by our state's employers stay in our own community, allowing us to creatively invest these funds for a larger state UI trust. This also leaves the potential for lowering the tax burden on businesses, while still maintaining a healthy UI trust fund (See EFF In-Brief 11-4).

Prepared by Jason Mercier, Budget Research Analyst (360) 956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org