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Loss of low-wage jobs fuels higher unemployment benefits for highly paid workers

Loss of low-wage jobs fuels higher unemployment benefits for highly paid workers

The disproportionate number of low-wage workers who lost their jobs during the epidemic is having a counterintuitive effect on the states unemployment system: itre increasing benefits for highly paid workers.

Beginning Oct. 3, the maximum unemployment insurance premium rose from $855 to $974 a week, an increase of up to $119 p.a. for those making about $89,000 yearly or more. This is an annual adjustment that doesnt affect those making under that amount. , Due to the dramatic increase in the states average weekly wage on which the maximum benefit is calculated - caused by the large decrease in low-wage workers, the increase is much greater than usual.

Between March 2020 and March 2021, the average weekly wage increased by an unprecedented 14 percent, to nearly $1,700, triggering changes that, according to business groups, would put employers on the hook for higher taxes that feed the states unemployment trust fund.

Due to COVID-19's record-high payouts and legislative changes, this fund, which provides benefits when workers are laid off, is now in billions of dollars in debt, with employers paying less than they need to pay into it for decades. The Legislature authorized borrowing $7 billion to pay off the deficit and cover future shortfalls earlier this year.

A newly created state commission set up to reform the unemployment trust fund is examining the many factors that go into bolstering the precarious system. Workers' advocates are urging companies to contribute more to the fund, noting that any tax increases tied to an increase in the average weekly wage would be relatively minor, and employers concern is a red herring to justify slashing unemployment benefits. On the other hand, business associations are urging employers to adjust the way benefits are paid to keep employer contributions under control.

Christopher Carlozzi, a member of the UIAdvisory Committee, stated, UI is presently causing utmost concern, adding that the situation is getting worse. , Massachusetts is the state director of the National Federation of Independent Businesses and a member of The Unemployment Insurance TrustFund Study Commission, which is being created by the Massachusetts Unemployed Insurance Association. The cracks in the system were clearly visible during the COVID crisis.

During the epidemic, average weekly wages in the United States increased this year as low-paid workers, many of them women and people of color, were laid off. This, in turn, pushed a larger portion of the workforce to be made up of higher-income earners.

According to Wayne Vroman, an economist at the Urban Institute, the increase was the most significant in states with highly skilled workers, such as Massachusetts, New York, and California. The maximum weekly unemployment benefits in a number of states have risen more than normal they increased $85 in Washington and $60 in Oregon - but the $119 increase in Massachusetts, which already had the country's highest maximum unemployment payout, according to the Century Foundation think tank.

According to those who study unemployment insurance, this abrupt increase in the maximum benefit is a result of the epidemic and will most likely ease or decrease in years to come. Between 2019 and 2020, the maximum benefit increased by $32, for example, while the benefit was only $32. It rises about 3 to 4 percent in most years.

The real problem is what drove the maximum benefit up: all the lower-wage workers who lost their jobs or had to leave during the epidemic and werent included in the wage average, according to state Senator Patricia Jehlen, who co-chairs the unemployment trust fund commission.

She stated in a statement to the Globe that many of those workers are still out of work and are now without unemployment benefits, and I am deeply concerned about their livelihood and ability to support their families.

While white-collar workers who could work from home were significantly less likely to lose their jobs during the epidemic, white collar workers with more flexibility to work remotely were much less susceptible to losing their employment.

Its just another example of the tragedy of a two-tier economy. Monica Halas, an employment attorney at Greater Boston Legal Services, said, The rich got richer and the poor got poorer."

However, many low-wage earners deemed as essential workers were given raises during the epidemic, according to Jon Hurst, president of the Retailers Association of Massachusetts, noting that they may also be eligible for higher unemployment benefits in the future.

The tax rate for unemployment insurance in Massachusetts is determined by how much each employer uses the system. The first $15,000 of workers' annual wages are subject to change depending on the employer. (Unemployment compensations are set at 50 percent of a claimants wages, up to 5% of the average weekly wage.) Employer groups are concerned that if a rise in maximum unemployment benefit puts more strain on an already insolvent trust fund, those taxes may be raised. Workers' advocates note that high earners are less likely to be laid off and the impact would be minimal.

The $15,000 taxable wage base in Massachusetts is significantly lower than in some other states, including Washington, where its $56,500, and Alaska, which has a base of $43,600. For a Massachusetts employer with workers who make $150,000, only 10 percent of those wages are subject to the unemployment insurance tax, while employers with employees making $30,000 are paying taxes on roughly half of their wages, according to Phineas Baxandall, dc, Massachusetts Budget and Policy Center senior analyst. That means that firms with low-income workers, whose wages pay the same amount of employer taxes to the fund as more highly paid workers, are in effect subsidizing unemployment payments for higher-paid workers in real terms, according to him.

He noted that raising the amount of wages subject to unemployment insurance tax and indexing it to keep pace with wage growth would not only help the fund, but it would also make the system more equitable. However, the major corporations that pay higher wages would most likely protest.

They would cry bloody murder, and unfortunately their voice is often louder than others, Baxandall said, noting that the unemployment system has been a save for businesses during the epidemic by putting money into the hands of customers who otherwise would not have had the ability to spend. We should be praising the UI system for having saved the economy. The challenge is to ensure that it will be strong for the next recession.

Increased employers' contributions to the unemployment fund would make it even more expensive to conduct business in Massachusetts, according to business groups, noting that the rise in the average weekly wage would also trigger other tax and premium increases. So, in addition to benefits freezes, tighter eligibility requirements, and adjustments to how frequently the average weekly wage is calculated, discussions about fixing the unemployment system must also include adjustments in how the weekly average wage will be calculated.

Many individuals are already out of the job market, according to workers advocates. Those with varied work schedules are sometimes denied benefits outright due to the way eligibility is determined, they added.

Given all of the challenges with the states unemployment system, there is at least one thing that everyone seems to agree on: Itd be in dire need of reform.

Rosalin Acosta, the states labor secretary, warned that, although there are levers you can pull on both sides to adjust employer contributions and workers benefits, change wont occur overnight.

UI is an extraordinarily complex animal, and that is why we are where we're at, because it's kind of been a little bit of hedging, if not an effortless, she added. At the end of the day though... there is a finite number of things you can do.

Katie Johnston is available at katie.johnston@globe, Inc. Follow her on Twitter @ktkjohnston and follow her via @KtKJohnston.

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