Blog Posts > Efforts to Cut Unemployment Based on False Premise
March 6, 2024

Efforts to Cut Unemployment Based on False Premise

Earlier this week the House Finance committee passed SB 841, hastily drafted legislation that would make major changes to the state’s unemployment insurance system to the detriment of the state’s workers. These changes include cutting the number of weeks of unemployment benefits available to the state’s unemployed workers, reducing overall benefits for many workers, and increasing bureaucratic red tape. One justification for cutting the number of weeks of unemployment benefits is that it would help keep the state’s unemployment trust fund solvent. However, these concerns are dramatically overblown. In fact, the state’s unemployment trust fund is healthier than it has ever been in recent years.

As of March 5, 2024, West Virginia’s unemployment trust fund had a balance of $387.3 million, one of its highest balances on record and over $25 million more than it ended March of 2023 with. West Virginia began 2024 with the highest trust fund balance by far than it had in any year in over a decade with a balance of $407 million.

While the trust fund has declined from $407 million at the end of 2023 to $387 million in March of 2024, that decline is typical and due to timing issues and seasonal factors. First, unemployment typically spikes in the beginning of the year as construction projects are paused and seasonal retail employees are laid off. This past year, the unadjusted unemployment rate jumped from 3.7 percent in September to 4.7 percent in January, while the year before it jumped from 3.3 percent to 4.1 percent, before falling back down to 3.3 percent. This means more money is being paid out of the trust fund in the first few months of the year due to these seasonal factors.

In addition, timing issues with businesses paying their unemployment taxes artificially depress the trust fund in the beginning of the year. Businesses pay an average tax of 2.7 percent on the first $9,000 in wages for each employee. Since most businesses pay their taxes quarterly, most of their unemployment tax is paid in April and May, making February and March the lowest months of the year for receipts, as few payments into the trust fund have been made from the last quarter of the prior year.

As the chart below shows, each April and May of the past two years has seen a spike in the balance of the trust fund, as more payments have been made. The trust fund then remains fairly stable the rest of the year, as payments in and out of the trust fund are largely the same, until the winter months, then the balance spikes again in April and May, which means it will likely climb above $400 million again in the next two months.

One measure of trust fund solvency used by the U.S. Department of Labor is the trust fund balance as a share of total wages. Using this measure, West Virginia ranks well, and better than several states that use indexing. West Virginia’s measure of 1.4 percent ranks 17th best among the 50 states and is better than numerous states with fewer weeks of benefits, including of Alabama (1.0 percent), Kentucky (0.9 percent), Missouri (0.6 percent), Oklahoma (0.6 percent), and Florida (0.5 percent), and is tied with North Carolina at 1.4 percent. Montana, the one state that offers more than 26 weeks of benefits, is ranked 7th best in trust fund solvency.

Another factor benefiting West Virginia’s trust fund solvency is the state’s relatively modest benefit amount. Average weekly benefits in West Virginia are $422. That is lower than three of its neighboring states and below the national average of $437. Lower than average benefits also contribute to the state’s solvency measure.

The past two years have shown in multiple ways how unemployment insurance reduces hardship but doesn’t reduce labor force participation or harm the state’s economy. However, cutting the number of weeks available to workers in an attempt to protect the trust fund is misguided. If lawmakers want to have a serious conversation about long-term solvency of the trust fund, it would be welcomed by parties on all sides, who want to ensure the benefits are available to workers who need them. But rushing a flawed plan with many potential unintended consequences through under the false premise of a crisis would be a mistake.

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