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Unemployment Insurance Policy in New England: Background and Issues

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Author Info

  • Robert Tannenwald

    (Federal Reserve Bank of Boston)

  • Christopher J. O'Leary

    ()
    (W.E. Upjohn Institute for Employment Research)

Abstract

Most states have exhausted their unemployment insurance (UI) trust fund and borrowed from the federal government at least once during the past 35 years. Under such circumstances, states are required by law to raise UI taxes to replenish their trust funds and to pay off their debts to the federal government. Since higher UI taxes increase employer costs, replenishment forces states into a trade-off between economic competitiveness and trust fund adequacy. Competitive pressures have raised questions about prevailing standards of adequacy and the speed at which they should be attained. Consequently, several states are contemplating tax reductions despite low reserves. This article provides background information and analysis intended to clarify issues underlying the UI policies of New England in general and a tax reduction under consideration in Massachusetts in particular. The main point is that alternative UI policies should not be judged solely by the yardsticks of economic competitiveness and trust fund adequacy. Allocative neutrality and economic stabilization are also relevant concerns. UI systems necessarily force some industries to subsidize others, thereby distorting the allocation of resources in favor of subsidized firms. Yet, many of the same features responsible for these allocative distortions affect economic stability. Every UI alternative entails trade-offs among these rival concerns.

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Bibliographic Info

Paper provided by W.E. Upjohn Institute for Employment Research in its series Upjohn Working Papers and Journal Articles with number 97-49.

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Date of creation: Apr 1997
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Handle: RePEc:upj:weupjo:97-49

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Keywords: unemployment; insurance; New England; Tannenwald; O'Leary;

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References

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  1. Christopher J. O'Leary, 1996. "The Adequacy of Unemployment Insurance Benefits," Book chapters authored by Upjohn Institute researchers, in: Advisory Council on Unemployment Compensation: Background Papers, volume 3, pages EE1-EE60 W.E. Upjohn Institute for Employment Research.
  2. Frank Brechling & Louise Laurence, 1995. "Permanent Job Loss and the U.S. System of Financing Unemployment Insurance," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number pjl.
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Cited by:
  1. Wayne Vroman & Stephen Woodbury, 2014. "Financing Unemployment Insurance," Upjohn Working Papers and Journal Articles 14-207, W.E. Upjohn Institute for Employment Research.
  2. Yolanda K. Kodrzycki, 1998. "Effects of employer-provided severance benefits on reemployment outcomes," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 41-68.
  3. Christopher J. O'Leary & Robert Tannenwald & Wei-Jang Huang & Pei Zhu, 2000. "Alternative Measures of State UI Systems," Upjohn Working Papers and Journal Articles 00-62, W.E. Upjohn Institute for Employment Research.

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