Unemployment insurance: A boost or a bust for Michigan’s economy?

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Capital News Service
LANSING – A recent employment report suggests that expanding unemployment insurance benefits will help both struggling workers and Michigan businesses.
The Michigan League for Human Services, a nonprofit advocacy organization for low-income workers, reported that expanding unemployment insurance benefits would pump money into Michigan’s struggling economy.
“By providing unemployment insurance benefits, the state is helping the worker but is also supporting the local economy so that (unemployed citizens) can continue to spend money on the things they need in their local community,” said Peter Ruark, senior policy analyst for the League.
The report recommends preserving access to temporary unemployment insurance benefits for unemployed workers, and expanding the population of workers that receive them while they look for work.
Michigan has one of the worst unemployment rates in the country so it was a surprise when it was the first to cut the time workers could receive payments from 26 weeks down to 20 weeks, Ruark said.
If a community has a high level of unemployment and its unemployment insurance is cut even further, then there will be less cash flow through the local businesses, which could lead to even more job loss, Ruark said.
The League is not the only group looking hard at Michigan’s unemployment insurance system.
Officials at the Small Business Association of Michigan have a different view. Unemployment insurance is funded by a tax on employers and is based on the earnings of individual employees.
“It’s a hidden tax because it floats under the radar. A lot of people don’t consider the strain it causes the business community in the state,” said Dave Jessup, director of government relations. “We’re looking at solutions to mitigate the burden initially on businesses and incite some long coming reforms to the system.”
The current unemployment system is entirely funded by taxes levied on employers on a per-employee basis. The fund from which weekly unemployment payments are drawn owes about $3.2 billion borrowed from the federal government, Ruark said.
The tax is a disincentive to hire more employees, Jessup said. “It’s almost a payroll tax.”
Jessup said as of now his organization does not have a “solid plan” as to how they plan to push for reforms.
“There are plenty of ways that the system can be managed leaner,” he said. “The system in a lot of ways bleeds money needlessly.”
Michigan state Chamber of Commerce officials have said that tackling unemployment insurance reform is one of its top priorities, saying the current, “broken” system only harms Michigan businesses.
Wendy Block, director of health policy and human resources for the chamber, said the extensive debt to the federal government needs to be addressed to help businesses.
“Reimbursements of these borrowed funds, plus interest, have begun to automatically trigger progressively higher, across-the-board, state and federal (unemployment insurance) tax increases on employers,” Block testified before the Senate Reform, Restructuring and Reinventing Committee.
Ruark was surprised by the stance of the Michigan Small Business Association.
“It’s interesting that this was a small business group that made that statement because small businesses are the most vulnerable when the economy is at a downturn and they have the most to gain when money is put into people’s pockets,” he said.
“They will hire more people when they see a growing demand for their product or service,” he said. “Unemployment insurance benefits help some places to stay in business.”
The National Employment Law Project reports that cutting unemployment benefits is an attack on one of the most effective ways to boost spending and economic output. It reported that the benefits put a bit over $2 billion into the state’s economy in 2010.

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