An Agenda for a Better New York: Modernizing New York’s Unemployment Insurance System

June 2000. A new report by Jennifer McCormick and Trudi Renwick. Executive summary below; also see full report.

On the last day of the 1998 Legislative Session, a significant Unemployment Insurance (UI) reform bill was passed by both houses of the legislature and later signed into law by Governor Pataki. This wide-ranging bill addressed many aspects of the UI program: employer tax rates, the taxable wage base, the maximum benefit amount, seasonal employers and individual eligibility. A more limited set of reforms, some of which corrected technical difficulties with the 1998 package, passed in January 2000.

Unfortunately, even with the these recent reforms, New York’s UI program, quite simply, has not kept pace with the changing nature of the state’s labor force. First, while New York’s employed labor force is covered in the highest proportion ever, New York’s unemployed workers are covered in the smallest proportion ever. While this saves on payments out of the already precariously financed trust fund, it runs counter to the nature of the program. The large share of the unemployed that does not receive benefits raises important policy questions about the design of the program. Some of the 1998 reforms to the New York program actually exacerbated the problem — making it more difficult for some insured workers to qualify for benefits. New York’s choice of the insured unemployment rate as a “trigger” for extended benefits saves the state money but leaves thousands of long-term unemployed workers without benefits and denies the state significant federal matching funds when the economy most needs fiscal stimulation.

Second, benefits that are paid out are often inadequate. Sporadic legislative initiatives to lift the ceiling on the maximum weekly benefit have trailed behind increases in the cost of living. The 1998 UI reform legislation increased the maximum weekly benefit from $300 per week to $365 per week. This was an important and needed change. But, even more importantly from a conceptual perspective, it also provided that in September 2000 the maximum weekly benefit would be increased again but this time not to an amount set forth in the law, but to one-half the average weekly wage in the state. The new law provides for the application of this indexing approach only on this single occasion, but a clear precedent has been established on which New York should build. This paper explains why this indexing approach is so important and why it should become a permanent, regular feature of New York State’s UI system. This paper also explores further reforms which would increase the adequacy of benefits for the lowest paid workers and workers with dependents.

Third, the health of New York’s trust fund is poor: its balance as a percent of total wages is smaller than all but two states — Maine and Texas. Even the 1998 increase in maximum taxable earnings from $7000 to $8500 was not sufficient to restore a healthy reserve in the trust fund.

Fourth, there are a number of administrative concerns which should be addressed. The State Advisory Council was been left without effective staff support. Increasingly the New York State Department of Labor is relying on automated telephone systems to administer the UI program. Neighborhood UI offices have been closed leaving hundred of applicants without access to UI experts to resolve eligibility and benefit issues.

While federal law drives much of the UI program, New York State has a great deal of flexibility it could use to strengthen its UI system. This paper will describe briefly how the UI program works, examine current issues facing New York’s system in greater detail and make a series of recommendations to improve the system. While significant changes were enacted in 1998, many reforms that would improve the economic security of New York’s labor force have yet to be accomplished. New York should:

  • Modify the eligibility requirements that leave so many of the unemployed without benefits;
  • Strengthen the adequacy of benefits;
  • Index the taxable wage base; and
  • Reactivate the State Advisory Council and carefully monitor the implementation of new UI rules and particularly the telephone claim system.