Indexing unemployment benefits is a simple and effective way to encourage self-sufficiency, minimal taxation, and fiscal responsibility.
One of conservatism's core principles is a limited government. This value is expressed through policies that promote minimal taxation and fiscal responsibility in government while encouraging self-sufficiency and a positive work ethic in the body politic.
No other issue perfectly encapsulates the need for limited government principles than unemployment insurance (UI). UI is a joint state-federal program that provides temporary cash benefits to unemployed workers who are unemployed through no fault of their own. While UI can be a vital safety net, it is ripe for abuse by government and fraudsters alike. The most flagrant examples of this abuse occurred during the Covid-19 pandemic.
Covid-19 sparked the greatest increase in UI spending ever seen in the nation’s history. Through the course of the pandemic, specialized unemployment programs alone issued roughly $653 billion in benefits. The three federal pandemic unemployment programs that issued these funds were:
1. The Federal Pandemic Unemployment Compensation (FPUC) program: “added a weekly supplement of $600 to the amount individuals received in state unemployment. This supplement was later reduced to $300.”
2. The Pandemic Unemployment Assistance (PUA) program: “expanded eligibility to workers who cannot receive traditional unemployment benefits − self-employed workers, gig workers, freelancers, and independent contractors. Additional pandemic relief legislation allowed these benefits to last for up to 79 weeks.”
3. The Pandemic Emergency Unemployment Compensation (PEUC) program: “extended the length of time that individuals can receive unemployment benefits. Generally, benefits are available for up to 26 weeks, but the PEUC program enabled individuals to claim them for up to 79 weeks.”
While these programs greatly benefited the immunocompromised and the roughly 4.2 million who lost their jobs due to government prohibition of business operations, they were also frequently abused. Most of this abuse manifested from the FPUC. This program inflated benefits to such a degree that it incentivized Americans to forgo employment, finding that UI would provide a higher income than their current job or a prospective job. This led many bad actors to capitalize on the opportunity by committing outright insurance fraud to the tune of roughly $400 billion. These individual actors are, of course, culpable for their crimes, but the scale of the offenses implicates the federal government. By pairing stay-at-home orders and extensive restrictions on business with what amounted to a universal basic income program, the federal government—through either sheer incompetence or willful intent—incentivized the public to become reliant on taxpayer dollars for their everyday needs. This example showcases how delicate UI is and how ineffective the federal government is at its administration.
Fortunately, UI is generally managed at the state level. As a result, states can implement significant reforms to ensure that these benefits are administered as a true safety net that supports people as they seek work. The most compelling of these reforms is unemployment benefit indexing, which would require unemployment benefits to respond to market conditions and the state’s unemployment rate. When implemented, fewer benefits are available when jobs are abundant, and the unemployment rate is low. This permits a subsequent increase in benefits during periods when jobs are harder to find, and the unemployment rate is high. Simply put, under unemployment indexing, the average resident will have more or less time to find employment depending on market conditions.
As of June 2024, 12 states across the nation have implemented indexing, including:
· Alabama;
· Arizona;
· Florida;
· Georgia;
· Idaho;
· Kansas;
· Kentucky;
· Louisiana;
· Massachusetts;
· North Carolina;
· Oklahoma; and,
· Tennessee.
The first state to implement this reform was Florida in the wake of the Great Recession. The reform set the maximum length of benefits at twelve weeks when the unemployment rate was less than 5% and twenty-three weeks when unemployment was 10.5% or greater. This reform was put to the test during Covid 19 and performed well.
As the nation began to recover from the onset of the pandemic in mid-late 2020, Florida’s unemployment trust fund managed to maintain a balance of $1.4 billion. At the same time, Texas’ fund held $217 million. Opponents of indexing might suggest Florida’s success was at the expense of recipients, but this could not be further from the truth. During that same period, Floridians were averaging under nine weeks on UI with an unemployment rate of 9.8%, while Texans averaged over fourteen with an unemployment rate of 8.4%.
Since the goal of UI is to help people find a new job as quickly as possible, it is clear that the indexing model outperforms the traditional model used here in Texas. Even when faced with a higher unemployment rate—meaning more competition—Floridians were able to find jobs more efficiently than Texans. If the state wants to promote fiscal responsibility in government while encouraging self-sufficiency amongst the general public, the legislature must adopt indexing.
This has already been attempted in Texas with Senate Bill 150 (Springer, SP: Capriglione, 88R). SB 150 would have brought Texas’ UI program into the modern era, replacing the current model that retains twenty-six weeks of benefits regardless of market conditions. Instead, the bill would have introduced a sliding scale of benefit amounts tied directly to the state’s unemployment rate. Under this bill, unemployment benefits would be set at a minimum of twelve weeks when unemployment is at 5.5% or fewer and a maximum of twenty-seven weeks when unemployment is greater than 10%. The program would update the unemployment rate quarterly to ensure that benefit amounts accurately reflect market conditions.
In addition, to protect UI from fraud, the legislature should pass legislation similar to that introduced by Sen. Creighton and Rep. Patterson in 2023 (SB1847/HB4902) that requires more robust eligibility checks and verification that claimants are actively seeking work as required by federal law.
The passage of this legislation in the 89th Session would not only safeguard the state’s unemployment trust fund but would also help fill the roughly 676,000 job openings in Texas. Furthermore, it would reduce the high tax burden that the extant program places on business. Simply put, indexing unemployment benefits is a simple and effective way to practice limited government values by encouraging self-sufficiency, minimal taxation, and fiscal responsibility.