by Gerry Bradley
July 29, 2014
Unemployment insurance (UI) has both a moral and an economic dimension—and New Mexico’s UI system has failed on both fronts. From a moral point of view, the intent of unemployment insurance is to keep people who are unemployed through no fault of their own from falling into financial ruin when they lose a job. The economic rationale for the program is that UI, along with SNAP (food stamps), is one of the so-called “automatic stabilizers” that keep the demand side of the economy from collapsing when the nation falls into 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. In New Mexico the unemployment rate peaked at 8 percent in 2010, and has yet to return to pre-recession levels. During the early course of the recession the UI program was performing its dual functions well. The moral aspect: unemployed people who were looking for work and who were out of a job through no fault of their own were being helped by the UI program. From an economic perspective, the UI program was helping to restore the health of the economy by shoring up demand for the goods and services provided by the state’s businesses and preventing the state’s economy from falling into a downward spiral fueled by falling wages and falling consumption.
In 2009, for example, on average 72 percent of the unemployed received payments under the state and federal UI programs. Of that 72 percent (called the ‘recipiency ratio’) 46 percent were covered by the New Mexico UI program and 36 percent were covered by emergency federal programs. The picture began to deteriorate in 2010, though, as just 66 percent of the unemployed were receiving UI payments, with 34 percent of the unemployed covered by the state program and 32 percent covered by the federal add-ons. The situation continued to worsen slightly in 2011, with an overall recipiency ratio of 63 percent, with 32 percent covered by the state and 31 percent by the federal program.
In 2012 the recipiency rate had fallen to 55 percent with a 32/23 percent state/federal split. At the national level, the hostility of the conservative majority in the U.S. House of Representatives toward the unemployed was beginning to prevail. Nationally and in the state, this shifting political balance was leading to the declining availability of UI, even though the labor market had clearly not recovered. In 2013 only 36 percent of the unemployed were receiving UI, with 26 receiving UI under the state and only 10 percent under the federal program. With the expiration of all emergency federal programs, only 25 percent of the unemployed were receiving UI by the first quarter of 2014—despite the fact that the New Mexico economy was still shedding jobs.
The severity of the recession had nearly drained the New Mexico UI Trust Fund, the fund from which UI benefits are paid. It fell from almost $600 million before the recession to below $50 million in 2014. The Legislature should have replenished the fund by substantially raising employer taxes, but that is not the approach that the state took. Prior to 2011, UI recipients with dependents could receive an extra allowance of $25 per week, per dependent for up to four dependents. In 2011, the Legislature cut the number of dependent allowances from four to two, dealing a blow to many families. UI benefits for students were also restricted. The Legislature did approve an employer tax increase, but it was vetoed by the Governor. In 2012 a small UI tax increase was approved and signed by the Governor.
By April 2014, the unemployment rate in New Mexico was 6.9 percent. That’s the 15th highest among the states, and is still above the national rate of 6.3 percent. New Mexico has had the lowest rate of job growth of any state, at negative 0.5 percent, having lost 4,400 jobs from April 2013 to April 2014. New Mexico’s low UI recipiency rate shows that New Mexico has been failing its unemployed workers. The failure is both moral and economic. It is unconscionable for the state to leave its unemployed workers to spend all of their savings and then 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.
Gerry Bradley is Senior Researcher and Policy Analyst for NM Voices for Children. Reach him at email@example.com.