Association for Public Policy Analysis & Management

High and prolonged unemployment during the Great Recession (GR, 2007‒2009) and its aftermath has challenged the Unemployment Insurance (UI) system to provide responsive and adequate social protection for workers. Under the federal-state system, substantial variations in program designs and performance exist across states. In response to the GR, states' UI systems underwent considerable changes in financing, eligibility, and benefit rules. Although the past UI studies have documented state variations in UI design and performance measures, none of these works addressed the interrelationships among multiple measures, nor did they explore states’ distinct UI approaches. Without an understanding of the interrelationships among UI characteristics and a comparative study of states’ UI approaches, we are left with an inadequate analysis to inform coordinated policy responses.

To fill the gap, this research addresses the following questions. 1. Were there distinct state UI approaches before and after the GR? 2. What were the characteristics of these distinct approaches? 3. Did these distinct approaches remain stable over time? 4. What were the changes in social protection for each approach before and after the GR?

Methods

Ten state UI policy characteristics in financing, eligibility, and benefit rules were collected from three governmental data sources: (1) the Comparison of State UI Laws; (2) the Significant Provisions of State UI Laws; and (3) the UI Data Summary. Advanced model-based cluster analysis was used to analyze the multidimensional characteristics (i.e., taxable wage base, tax rate, reserve ratio, required minimum wage, eligibility modernization, recipiency rate, maximum weekly benefit, replacement rate, maximum benefit duration, and exhaustion rate) of the 51 UI programs. The Bayesian Information Criterion was computed over different models to determine the optimal number of clusters and the type of models that most closely fit the data. Finally, policy characteristics for each cluster and their relative and absolute changes before and after the GR were examined.

Results

Findings from the cluster analysis indicate three distinct state UI approaches to social protection. The low protection approach, compared to its counterparts, is characterized as low financing capacity, low program accessibility, and low benefit adequacy. In contrast, the two relatively high protection approaches are characterized as higher program accessibility and benefit adequacy. However, they are distinct in financing strategies — high taxable wage base and reserve ratio vs. high tax rate. These three approaches remain comparatively stable over time; however, all show a declining trend in social protection. The weakening UI protection has exposed America’s workers to the risk of economic insecurity.

Conclusion and Implications

This research advances our knowledge about the interrelated policy characteristics and their underlying policy logic of state UI systems. The relative weight that state policymakers give to social protection and other policy concerns (e.g., market stabilization, work disincentive, and interstate competition) are systematically carried through a set of political decisions on UI financing, eligibility criteria, and benefits rules. This research is particularly timely in light of the new UI modernization proposal, which reflects the idea of strengthing the federal responsibility and UI’s social protection.