POLICY HIGHLIGHTER

Volume 13, Number 26
August 14, 2003

Subsidize jobs, not unemployment
Put people to work through job subsidies

Jason Mercier | Evergreen Freedom Foundation
Washington legislators are to be commended for making long-awaited changes to the state’s onerous unemployment insurance (UI) system this year. By making Washington’s eligibility and benefits criteria more reasonable, businesses and job seekers will finally be able to start focusing some of their attention on improving our state’s economy.

While the recent changes were long overdue, they are only a first step.

Consider that in 2002 the average UI claimant in Washington was unemployed for 18.6 weeks (among the nation’s ten longest periods). During that time, these individuals received benefits equal to roughly half of their former wages to pay for food and housing. More than one third of all claimants exhausted their claim eligibility, which often lasted six months or more. Overall, Washington spent more than $30 million per week in 2002 for UI benefits.

State officials should consider the success of Oregon’s Jobs Plus program. Rather than pay UI claimants to conduct job searches — which sometimes consists of little more than making three phone contacts a week, Oregon’s program offers wage subsidies to participating employers who hire unemployed individuals and provide valuable on-the-job training.

The program allows claimants who are having a hard time finding work to offer employers a subsidy equal to 13 weeks of their UI benefit check if the employer agrees to provide on-the-job training and a regular wage. The subsidy (or “UI Wage Option”) would amount to roughly $3,000 over three months, and would subsidize about 50% of the wage of the employee.

The program brings no additional cost to the state. For the average claimant, Washington already pays 18.6 weeks of UI benefits. Providing a job through 13 weeks of wage subsidy will save the state money and promote a stronger economy.

UI Wage Option Details
Washington’s Employment Security Department currently identifies claimants likely to exhaust their benefit eligibility and targets them for extra services, including federal training programs. Due to budgetary constraints, the department can only serve a portion of the 38% who exhaust their claims. Under the Jobs Plus system, the state could use the UI Wage Option as another tool to help these individuals find work.

To fund the program, Washington could simply enact “diversion” legislation, as was done in Oregon. This diversion could use a portion of the funds that normally would go to the Washington UI Trust Fund (where UI money goes). The diversion would not change the UI tax that employers currently pay. This program will result in decreased claims against the Trust Fund because claimants will be working.

To avoid any abuse by employers, the UI Wage Option would not be used in any case where it would displace a regular employee. In Oregon, very few incidents of abuse have been reported in the six years of statewide operation.

Expected results
UI was created in part as an economic stabilizer, but the UI Wage Option is even better. It will double the impact of UI dollars and target growth:

• Business Growth - In Oregon, where a similar program has operated statewide since 1996, an Oregon Employment Department survey reported that over 80% of businesses that used the program said it helped their business by: 1) lowering costs, 2) increasing their capacity and/or 3) supporting expansion. Because the program is targeted, it guarantees growth.
  
  
• Economy - To the extent UI benefits fuel the economy, the UI Wage Option will more than double that impact because wages paid by employers to hire claimants will be more than double their UI benefits, with employers paying the other half in exchange for the added production they receive from a new worker.
  
  
• Increased Production - With the UI Wage Option, money spent on benefits will directly increase economic production because claimants will work instead of remaining unemployed and unproductive. Add to this the multiplier effect of tax revenue on wages paid and savings to the UI Trust Fund, and the impact is substantial.
  
  
• Increased Claimant Income - Subsidized jobs have paid about $9 an hour, which is over twice as much as the same employee would receive in UI benefits. Also, according to an Employment Department study in Oregon’s subsidized wage program, in addition to their on-the-job training, 68% of participants found a job after their time in the program.
  
  
• Universal Availability - The UI Wage Option would allow every employer to participate. This means that all employers can add help in improving their business, whether it is an additional salesperson or some other worker.

More experience, income and growth
In the worst case scenario, a claimant in the jobs program would work 13 weeks and not get a job. But compared to merely receiving UI benefits and doing nothing, the claimant would have twice as much money, more work experience and training, and a connection with another employer.

Meanwhile, employers and the economy gain 13 weeks of production and growth.

A UI Wage Option program would serve as a good interim reform while efforts are made locally and nationally to move Washington toward a system of employee-owned UI accounts that would belong directly to workers. (See EFF PH 12-23)

Prepared by John Courtney, Senior Fellow, The American Institute For Full Employment & Jason Mercier, EFF Budget Research Analyst.

Contact: 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