Panel Paper: The Effect of State Unemployment Insurance Modernization on Economic Recovery of American Working Families

Thursday, November 6, 2014 : 10:15 AM
Taos (Convention Center)

*Names in bold indicate Presenter

Yu-Ling Chang, University of Washington
Purpose and Background.  The purpose of this study is to explore the relationship between state Unemployment Insurance (UI) Modernization and economic recovery of American working families. It has been critiqued that the official definition of the Great Recession (GR), primarily determined by observing peaks and troughs in real Gross Domestic Product (GDP) and Gross Domestic Income (GDI) for the country as a whole, does not well capture the duration of the economic hardship. Many families experiencing job losses during the GR are still struggling to re-establish stable family income resources. Under the 2009 American Recovery and Reinvestment Act, Congress provided $7 billion for states to reform their UI programs in order to remedy the unfair disqualification and provide adequate support for unemployed families. However, great variation existed among states’ policy choices, including the failure of 16 states to complete UI modernization. Despite the growing research on the GR, economic recovery, and income support policies, most of previous studies employed cross-sectional data analyses or used aggregate indicators to measure economic well-being at the national level. To date researchers have not yet conducted a longitudinal analysis of the economic recovery of working families and have not explored its relationship with state UI modernization. This study fills this gap in the literature.

Method.  Using a panel data from the 2008 Survey of Income and Program Participation, I tested a taxonomy of multilevel models for working families’ economic growth trajectories (2008-2012). An innovative three-level model approach was employed to investigate systematic changes in economic well-being (income-to-poverty level) among households across 50 states during a 56-month period. The total number of household-month observations is 1,322,511 and the sample size of households is 38,333. The first set of models tested the nonlinearity of economic recovery rate and its random effect across states. The second set of models tested the effect of state UI reform and its interaction with time. The third set of models introduced state and family characteristics to adjust the main policy effect. The final set of models compared the changing policy effects by re-centering the time variable. Parameters were estimated by using the restricted maximum likelihood method.

Findings and Implications.  The results of unconditional growth models show that an average American working family’s economic well-being has been significantly decreased since the GR. Although the linear growth rate changed from negative to positive during the post-recessionary period, the average level of economic well-being (γ000=357, p<.01) in December 2012 remained far below the level in May 2008. Compared families in states completing UI reform to those in states not completing reform, this study found that the former group had higher economic well-being (γ001=46.03, p<.05) and experienced a larger recovery rate (γ201=.52, p<.1). This economic gap has been getting larger after the end of federal incentive funding in August 2011, suggesting the policy effect might last in post-recessionary years. Future research could further explore the mechanism through which state UI policy affected working families’ economic well-being (e.g., the accessibility of UI compensation and work support service).