State Unemployment Insurance Modernization and Economic Recovery of American Working-Age Families after the Great Recession
The purpose of this study to investigate the relationship between state Unemployment Insurance (UI) Modernization and economic recovery of American working families. It has been critiqued that the official definition of the Great Recession (GR), primarily determined by peaks and troughs in real Gross Domestic Product and real Gross Domestic Income for the country as a whole, does not well capture the duration of the economic hardship. Many low- and middle-income families experiencing layoffs, reductions in working hours, or difficulty finding stable jobs are still struggling to meet their basic needs and re-establish stable income resources. Under the 2009 American Recovery and Reinvestment Act, Congress provided $7 billion for states to reform their UI programs in order to remedy the unfair disqualification and provide adequate support for unemployed families. However, great variation existed among states’ policy choices, including the failure of 16 states to complete UI modernization. Despite the growing research on the GR, economic well-being, and social policies, to date researchers have not yet performed a longitudinal analysis of the economic well-being of working families and its relationship with state UI modernization. This study fills this gap in the literature.
Methods
Using a longitudinal panel data from the 2008 Survey of Income and Program Participation, I employed an innovative three-level multilevel modeling (observations-households-states) to investigate the relationship between state UI modernization and systematic changes in monthly economic well-being (measured by income-to-poverty ratios, adjusted for family sizes) among working-age families across 50 states during a 56-month period. The total number of household-month observations is 1,322,511 and the sample size of households is 38,333. Analytic procedures were as follows. First, I tested the nonlinearity of economic recovery rate and its random effect across states. Second, the main effect of state UI reform and its interaction with time were tested. Third, state and family characteristics were introduced to adjust the main policy effect. Finally, I compared the changing policy effects by re-centering the time variable. Parameters were estimated by using the restricted maximum likelihood method.
Results
The results showed that an average American working family’s economic well-being has been significantly decreased since the GR. Although the linear growth rate changed from negative to positive during the post-recessionary period, the average level of economic well-being in December 2012 remained far below the level in May 2008. Compared families in states completing UI modernization to those in states not completing policy reform, I found that the former group had a higher level of economic well-being (γ001=46.03**) and experienced a larger recovery rate (γ201=.52*). The economic gap had been getting larger after the end of federal incentive funding in August 2011, suggesting the policy effect lasted in post-recessionary years.
Conclusions and Implications
This study concludes that working families in states actively reforming their UI programs had better economic well-being and larger recovery rates than those in non-reformed states. This longitudinal evidence supports continued efforts to improve UI eligibility rules in response to the increased needs and changing characteristics of workforce.