Unequal Social Protection for Workers: Exploring State Unemployment Insurance Approaches before and after the Great Recession

Background and Purpose

The purpose of this paper is to explore states’ Unemployment Insurance (UI) approaches to social protection for workers. Historically high and prolonged unemployment during the Great Recession (2007‒2009) and its aftermath has challenged the federal-state UI system to provide responsive and adequate social protection for unemployed workers. In the meantime, state UI systems underwent considerable policy changes in financing, eligibility, and benefit rules. Past UI policy studies mostly focused on describing state variations in certain characteristics or studying bivariate relationships between UI policy characteristics. None of these works addressed the interrelationships among multiple UI characteristics, nor did they explore states’ distinct UI approaches. Without an understanding of the interrelationships among UI policy characteristics and a comparative study of states’ UI approaches, we are left with an inadequate analysis to inform coordinated policy responses at both the state and federal levels. This research addresses the following questions. (1) Were there distinct state UI approaches before and after the Great Recession? (2) What were the characteristics of the distinct state UI approaches? (3) Did the distinct state UI approaches remain comparatively stable over time?

Methods

I collect multiple state UI policy characteristics in financing, eligibility, and benefit rules from three publicly available data sources (1) the Comparison of State UI Laws; (2) the Significant Provisions of State UI Laws; and (3) the UI Data Summary. I use advanced model-based cluster analysis and means comparison tests to analyze the multidimensional characteristics of the 51 UI programs in 2007 and 2014. The Bayesian information criterion (BIC) is computed over different models to determine the number of clusters and the type of models that most closely fit the observed data. Between-cluster means comparison tests are performed to examine the distinct UI characteristics of different clusters; within-cluster means comparison tests are used to detect absolute and relative changes in UI characteristics from 2007 to 2014.

Results

Findings indicate two distinct state UI approaches to social protection (BIC=-2508.868). The high protection approach, compared to its counterpart, the low protection approach, is characterized as combining financing adequacy with program designs of high taxable wages and average tax rates; high program accessibility with program designs of inclusive eligibility criteria; and high wage replacement with program designs of high benefit levels. These two approaches remain comparatively stable over time. However, both show a declining trend in social protection performance from 2007 to 2014. The weakening and unequal state UI protection has exposed unemployed workers to the risk of economic insecurity.

Conclusions and Implications

The current research advances our knowledge about the underlying policy logics of state UI policy designs. The relative weight that state policy makers give to social protection and other policy concerns (e.g., market stabilization, work disincentive, and interstate competition) are systematically carried through a set of political decisions on UI financing, eligibility criteria, and benefits rules. This research is particularly timely in light of the new UI modernization proposal of 2016, which reflects the idea of strengthing the federal responsibility.