WISCONSIN – THE FIRST STATE TO PROVIDE UNEMPLOYMENT BENEFITS

Prior to 1932, when a person became unemployed, they collected their last paycheck – and they were on their own. There was no financial safety net for the worker or his or her family. It was a terrible thing to be out of a job, often leaving families without any means of support. Wisconsin was a leader in addressing this problem. It began the first unemployment insurance (UI) program in the United States, enacting it into law in 1932.

Not only did unemployment benefits help the unemployed and their families, it helped business regain and retain good skilled employees who went on layoff.

With the current unemployment rate in the city of Sheboygan at about 12 percent – somewhere under 10 percent for Sheboygan County overall – this might be a good time to review how the system works.

The centerpiece of the UI program, the Unemployment Reserve Fund, contains the money used to pay benefits to jobless individuals. During good times, the fund is intended to grow (to a record $1.8 billion in 2000); during poor economic times the fund will fall (to a negative $1.27 billion as of March 18, 2010). Once the reserve fund is depleted, states can borrow from the federal government; Wisconsin began collecting federal funds in February 2009.

It should be noted that Wisconsin ran out of monies in its Unemployment Reserve Fund in the deep recession of the early 1980s and needed to borrow at its peak from the federal Unemployment Reserve Fund and, at its peak, had an outstanding loan balance of $737 million in April 1984. Once Wisconsin came out of the recession, they adjusted employee benefits downwards and added additional employer fees that allowed the state to pay off its federal loans by May of 1987.

Not having enough money in Wisconsin’s Unemployment Reserve Fund and needing to borrow from the federal government put Wisconsin, as well as other states, in a tough economical and financial situation for a much longer period than necessary.

A total of 490,595 Wisconsin residents received at least one UI check in 2009. This was up 63.9 from the prior peak of 299,326 in 1983. It is difficult to plan for a recession and even more difficult to plan for what might be the number of unemployed – future national and world economic conditions are unknown. They can be light, moderate – or violent.

The average Wisconsin weekly benefit payment in 2009 was $287.50, the 34th highest nationally. All surrounding states had higher average benefits, ranging from $359.95 in Minnesota to $308.68 in Michigan. The average weekly benefit here was 38.5 percent of the average weekly wage; so benefits depend on what you have earned. While the state does set a minimum number of benefit weeks, both the state and the federal government can provide, as they have, additional weeks of unemployment benefits.

As with many programs, UI revenues primarily come from taxes. The majority of Wisconsin businesses are subject to the UI employer tax. Employers pay two taxes: a basic tax and a solvency tax. The basic tax is based on the employer’s unemployment experiences – employers with more layoffs pay more than those with stable employment. A solvency tax is credited to the general fund and is used to pay unemployment claims that cannot be charged to a specific employer’s account (there are a number of reasons for the fund such as for a new employer that goes out of business).

The unemployment tax rate paid depends on a tax rate schedule. The state has four such schedules and they depend mostly on what is in the Wisconsin Reserve Fund balance and the balance in the employer’s individual account.

While this column can only provide a limited background on Wisconsin’s unemployment insurance program, it is useful to understand how it works. Much of the information mentioned in this column comes from the Wisconsin Taxpayer’s Alliance publication, “The Unemployment Reserve Fund,” published in March of 2010, Vol. 78 No. 3, and from the state of Wisconsin.