Recent legislative action will further undermine the health of state’s unemployment insurance system

Source:  US DOL, Quarter 4 of 2020, Unemployment Insurance Data Summary

As the 2021 session of the North Carolina General Assembly draws to a close, legislative leaders should be taking action to strengthen the state’s inadequate and miserly unemployment insurance system.

Unfortunately, they are pursuing precisely the opposite course.

Recently, in fact, they added an amendment to an unrelated bill that will block modest scheduled increases to unemployment insurance tax rates for employers that keep the system solvent.

Meanwhile, there has been no action to address problems in the system that earned North Carolina the title of being the worst state to be unemployed.

North Carolina’s unemployment insurance system fails to provide people who’ve lost their jobs through no fault of their own with sufficient replacement of lost wages to cover basic needs. What’s more, it provides those meager benefits for too short a time to support a worker through their job search.

The current system also falls far short of fulfilling its mission to stabilize the economy during downturns (click here for a list of simple and necessary policy changes that lawmakers should enact in 2021).

Of course, North Carolina has always had one of the lowest tax rates in the nation — both in terms of the rate and the amount paid per employee. In 2020, employers contributed $121 on average for each covered employee. In that same year, North Carolina had a tax rate lower than 39 states, and as a share of total wages paid in the state, the tax rate was half the national average.

Keeping such low rates in place will have immediate and long-term negative consequences. Simply put, when unemployment insurance tax rates are kept low and benefits meager, working people suffer. That, in turn, causes economic recoveries to drag on and raises the costs to us all in the form of increased hardship, poorer  health outcomes, reduced lifelong earnings, and lower economic mobility for people.

What’s more, when unemployment insurance tax rates are kept low, the system isn’t likely to remain financially sound. North Carolina should have already learned this lesson in the 1990s. Tax cuts for employers during that decade set the state up for insolvency during the Great Recession. The burden of keeping the state system solvent was shifted onto jobless workers in the form of lowered and shortened benefits.

If tax contributions of employers had been kept at adequate levels, North Carolina could have done a much more effective job of aiding workers in crisis and boosting the health of its economy. Simply matching the national average tax rate on total wages would give North Carolina the funds to ensure jobless workers have better wage replacement rates and are supported for the average length of time it actually takes to find a job. The state could also use these funds to expand access to unemployment benefits for part-time workers and other historically excluded workers, support streamlined operations for workers and employers, and connect job seekers to workforce training.

The bottom line: By keeping employer taxes low while refusing to improve things for workers and their families, lawmakers have signaled that working people will continue to be an afterthought in legislative policymaking and are doubling down on an economic approach that will continue to serve us all poorly.

Alexandra Sirota is the Director of the N.C. Budget and Tax Center.

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