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By Amy Shaw
VP of Communications & Marketing
Michigan Manufacturers Association
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On July 22, President Obama signed yet another unemployment benefit extension into law — the fourth since the beginning of the economic downturn. The road to the President’s desk wasn’t an easy one. Weeks of debate preceded the bill’s passage with the battle lines drawn not over whether benefits should be extended so much as over where the money would come from to cover the cost, not only for this extension but for any that may follow.

Impact on Michigan
The measure will enable the unemployed to qualify for benefits through Nov. 30, 2010, and cover retroactive payments to the week of June 13, 2010. According to the Unemployment Insurance Agency, it will provide compensation for 9,500 unemployed Michigan workers who exhausted their state unemployment benefits after the federal Emergency Unemployment Compensation (EUC) and Extended Benefit (EB) programs expired. It will also extend benefits for 60,000 unemployed workers who had been receiving EB until the program ended. Due to the retroactivity included in the legislation, any charges resulting from the lapse in 100 percent federal reimbursement for extended benefits will be credited back to employer accounts prior to the new benefit year.

Who pays?
While increasing benefits at the state level results in increased costs for employers, they will not incur any additional costs (at least not directly) for this federal extension. That’s the good news. However, because the measure was classified as “emergency spending,” it was not subject to congressional pay-go rules, so it was able to be passed without the corresponding spending cuts called for by Republicans. The $34 billion cost for helping 2.5 million unemployed workers will be absorbed into the federal deficit which is currently hovering at over $13 trillion.

This round of the fight is over, but the debate will continue. Unemployment benefits are an issue of constant and often heated debate at both the state and federal level. How much is to be paid and for how long are the central points of contention, regardless of whether the issue is being addressed in the state legislature or in Congress. Who pays for those increased benefits is an important part of the equation as well. Adding the cost of federal benefit extensions to the budget deficit ultimately comes at a cost to every taxpayer. State unemployment benefits, on the other hand, are 100 percent employer paid. So every state level increase is forced directly on employers. Ironically, there is a cost to workers as well since increasing benefits results in more unemployed workers. It’s a vicious cycle.

Whenever politicians propose changes to unemployment benefits, they must be reminded of the real purpose behind them. Unemployment insurance is intended to provide a temporary benefit sufficient to satisfy basic needs of workers who become unemployed through no fault of their own. It is not intended to guarantee an employee’s standard of living during periods of unemployment. Most would agree that it also was never designed to provide benefits for over two years, meaning that the system is already being stretched beyond the original intentions of the law.

The temptation for political intervention (i.e. state or federal legislation to increase the amount of benefits, length of time benefits are paid, or who is eligible) will remain high until the number of unemployed workers declines. While we want to believe that the worst is over, some economists are warning that there will likely be at least one more push for unemployment benefits at the federal level. Goldman Sachs economist Alec Phillips stated that unemployment benefits are extended an average of 23 months after the unemployment rate has peaked during a recessionary period. If history holds true, unemployment benefits will need to be extended through September 2011, based on the peak having been reached in October 2009. Once again, the determination of how to pay for that extension would have to be made.

Educating legislators
In November, we’ll be voting in a whole host of new legislators — many of whom will have no real understanding about the Unemployment Insurance system or the impact that changes to the system, in terms of increasing benefits or changing eligibility rules, can have on employers. They may not recognize that increasing the cost of benefits will increase the number of unemployed workers in Michigan. With unemployment expected to be a lingering problem that they may feel compelled to take a stab at when they take office next year, it is essential to help them understand the implications of any changes they may choose to propose.

Let your legislator know that unemployment benefits aren’t free. Employers can’t afford for policymakers to tamper with the state’s unemployment system. And Michigan can’t afford the consequences that would result if they do — including jeopardizing our tenuous road back to recovery.

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