New Ways of Evaluating State Unemployment Insurance

by Robert Tannenwald, Christopher J. O'Leary, and Wei-Jang Huang
March/April 1999

Comparisons among state unemployment insurance systems can be misleading. Frequently quoted indicators of the generosity of their benefits, competitiveness, and adherence to the experience-rating principle are influenced by states' relative economic conditions, thereby obscuring underlying structural differences. Moreover, because the indicators are statewide averages, they obscure important intrastate differences in tax and benefit treatment across types of firms and workers.

This article offers alternative indicators based on a simulation approach designed to alleviate these problems. The authors use the simulated experiences of representative workers and firms to compare 28 states and contrast the results with those obtained from more conventional indicators. Given the intricacy of the issues and the harsh trade-offs involved, it is not surprising that debates concerning state UI policy are so contentious. The authors point out that policymakers reviewing the simulations can gain insight into the nature of the trade-offs among policy goals entailed in various UI options. This may even help them to identify "win-win" situations, in which a policy innovation that furthers one goal simultaneously furthers another.

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