by Gerry Bradley
March 18,2015
Legislation that would have cut unemployment insurance (UI) benefits for workers who have been laid off was struck down in the state House of Representatives this week. Hopefully that means the issue is dead for this session. Further cutting UI benefits would have made a system that is already failing even worse.
New Mexico’s UI system is failing both the workers—who desperately need it to stay afloat between jobs—and the state—which also needs it to keep the already weak economy from a further downward spiral. UI payments have been slowed, and benefits were even cut in previous years, in part to keep insurance premiums on businesses low. While businesses are enjoying lower premiums, they are not enjoying having fewer customers with money to spend on their goods and services. Fewer customers ultimately lead businesses to lay off employees, who then have less money to spend—thus the downward spiral. Further cutting benefits would have led to even less money circulating in the economy and helping families put food on their tables and a roof over their heads.
Unemployment insurance has both a moral and an economic dimension. From a moral point of view, the intent of UI is to keep people who are unemployed through no fault of their own from falling into financial ruin. The economic rationale for the program is that UI, along with food stamps (now known as SNAP), is a so-called automatic stabilizer that keeps the demand side of the economy from collapsing during a recession.
The moral rationale for the UI program is strong: people who lose their jobs or who are laid off in the course of a recession are victims of the workings of the business cycle that always afflicts the capitalist economic system. The Great Recession that began at the end of 2007 was the most severe downturn since the Great Depression in terms of output and employment lost.
In New Mexico the unemployment rate rose to 8 percent during the recession, and was very slow to fall from its peak. During the early course of the recession the UI program was performing its dual functions well: unemployed people were being helped and the UI program was making a contribution to restoring the health of the economy by shoring up demand for the goods and services provided by the state’s businesses.
In 2009, an average 72 percent of the unemployed received payments under the UI program—this is called the ‘recipiency ratio.’ Of those beneficiaries, 46 percent were covered by the New Mexico UI program and an additional 36 percent were covered by emergency federal programs. The picture began to deteriorate in 2010, though, when 66 percent of the unemployed were receiving UI payments (with 34 percent covered by the state program and another 32 percent covered by the federal add-ons). The situation continued to worsen slightly in 2011, with an overall recipiency ratio of 63 percent (32 percent state and 31 percent federal). By 2012 just 55 percent of the unemployed were receiving benefits (32 percent state and 23 percent federal).
During this time, the shifting political balance of forces on the national level was leading to declining availability of UI, even though the recession in the labor market was clearly not over. In 2013 only 36 percent of the state’s unemployed were receiving UI (26 percent state and 10 percent federal). By the first quarter of 2014, which brought the expiration of all emergency federal programs, only 25 percent of the state’s unemployed were receiving UI. By the third quarter of 2014 (the latest quarter available) the UI recipiency rate was stagnant at 26 percent (23 percent state and 3 percent federal). That is, only a quarter of the unemployed were receiving UI benefits.
The severity of the recession had led the balance in the New Mexico UI Trust Fund—the fund from which UI benefits are paid—to fall from almost $600 million before the recession, to below $50 million in 2014. This should have been corrected by raising employer taxes substantially to replenish the fund, but that is not the approach the state took. Instead, in 2011 the Legislature cut the number of dependents who could receive the dependent allowance of $25 per week per dependent to two, down from the four, dealing a blow to large families. The Legislature also restricted the availability of UI payments for students. An employer rate increase was approved by the Legislature in 2011, but vetoed by the Governor. Another slight UI rate increase was approved by the 2012 Legislature and approved by the Governor.
By the third quarter of 2014 the UI Trust Fund balance had grown to $83.3 million, but this was due to the improvement in employment growth not the modest rate increase, which did not take effect until January 2015. It is still far too small. An adequate UI Trust Fund balance is probably in the $800 million to $1 billion range, judging from how rapidly the trust fund was depleted during the recession that began in 2008.
The recovery from the national recession has been glacially slow in New Mexico, as the state ranks 45th in the nation for its labor force participation rate. By December 2014, the unemployment rate in New Mexico was 6.1 percent, 18th highest among the states, and a half point above the national rate.
The failure of the New Mexico’s policy toward the unemployed, as shown by our state’s abysmal UI recipiency rate, is both moral and economic. It is unconscionable for the state to leave its unemployed residents with no options but to spend all of their savings and end up destitute. The failure is also economic, as UI cannot fulfill its function of ‘automatic stabilizer’ to maintain demand for the goods and services of the state’s businesses. Proposals to further cut unemployment benefits should be defeated.
Gerry Bradley, MA, is Senior Researcher and Policy Analyst for NM Voices for Children. Reach him at gbradley@nmvoices.org.