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Title: Dismantling Policy through Fiscal Constriction: Examining the Erosion in State Unemployment Insurance Finances

Citation Type: Journal Article

Publication Year: 2013

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Abstract: One common proposition in welfare state literature is that programs financed through dedicated payroll taxes tend to have durable sources of revenue. I examine American unemployment insurance (UI) as an example of a self-financed social insurance program whose benefits have been dismantled over time because of an inability to maintain a constant base of revenue going against the received wisdom in the literature. I first examine the long run decline in state UI finances and conclude that changes in UI taxes, rather than UI benefit generosity or economic conditions, have been associated with the largest declines in state finances. In particular, states are subjecting a declining proportion of workers wages to UI taxes. In the second part of the paper, I examine why more states have not pursued reforms to strengthen UI finances, specifically indexing their UI taxes to growth in average wages to maintain a constant wage base. I find that opponents of more generous UI benefits have generally succeeded in preventing indexation, thus constricting UI finances and gradually retrenching benefits over time. My findings have implications for those seeking to improve UI solvency and for the study of welfare state retrenchment more generally.

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Authors: Hertel-Fernandez, Alexander

Periodical (Full): Social Service Review

Issue: 3

Volume: 87

Pages:

Data Collections: IPUMS CPS

Topics: Poverty and Welfare

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