Jobless Benefit Costs to Increase
For the first time in seven years, most businesses in California will pay more in unemployment insurance premiums in 2003 as the state’s weak economy has put a strain on the employer-funded program that offers benefits to jobless workers.
Although the rate hikes are modest, with most employers paying an additional $21 per worker next year, the increase comes at a time when companies already are struggling with soaring costs for workers’ compensation, health insurance and electricity and are facing higher taxes and fees to plug the state’s mammoth budget deficit.
“It’s another nail in the coffin of profitability,” said Martyn Hopper, state director of the National Federation of Independent Business, which has 38,000 members in California, mostly small employers. “The timing couldn’t be worse.”
Over the last year, the state’s unemployment trust fund has declined 23% to $4.3 billion, according to the state Employment Development Department. Under a formula in state law, employer premium rates are automatically adjusted each year based on the total amount of benefits paid out to jobless workers.
That figure has risen sharply over the last year and half as California’s unemployment rate has jumped from a pre-recession low of 4.7% in early 2001 to 6.4% last month. More than 1.1 million Californians are unemployed; about half of them are receiving benefits. A slow job market means most are staying jobless longer, putting further stress on the state’s resources.
Experts say it’s unfortunate that California, like some other states, has created a system that hits employers hardest precisely when the economy is at its worst. Known as “flexible funding,” it results in employers paying the lowest rates in boom years when unemployment is scant and there are few demands on the trust fund. The flip side is that firms have to pony up during recessions and pay higher rates to keep up with rising claims.
“They don’t tax as much as they should during the booms, so they have to raise taxes during the bust,” said economist Jeffrey Wenger, an expert on unemployment insurance at the Washington-based Economic Policy Institute. “They really put themselves in a pickle when times are hardest.”
In addition to a rising number of unemployed workers, California’s system also is being strained by higher benefits. In 2002, maximum benefits increased to $330 a week from $230 a week. Next year the top weekly benefit will increase to $370 for a maximum of 26 weeks.
Employers foot 100% of the cost of unemployment insurance from a tax on the first $7,000 of an employee’s wages. Under the current rate structure, companies with the best claims histories pay $49 per employee annually. Next year, that figure will increase to $63 -- a 29% jump. Increases will ripple across the rate schedule. The top premium of $378 per employee won’t increase, but more companies will have to pay it.
Temporary staffing firms, which employ thousands of workers, will be among those whose profits are hit hardest.
“This clearly has an impact on our margins,” said Darin Meadows, area manager for Manpower Inc., which employs more than 6,000 in the Los Angeles area.
