Funds In: The Taxable Wage Base

The taxable wage base determines how much employers contribute to the unemployment insurance program. An employer contributes a percentage of the wages for each of its employees. The percentage is based on the actual wages or the taxable wage, whichever is lower. The taxable wage has increased very little through the years, which means that an employer with higher paid employees contributes a smaller percentage of his total payroll than one who employs lower paid workers.

In addition to this inequality in contribution, there is an inequality in compensation. Although the employer of a highly paid person is contributing only a percentage of the low taxable wage, that employee is entitled to unemployment compensation equal to half of his salary (or the limit set by state law). A person who earns considerably less is entitled to considerably less compensation, even though his employer may be contributing a similar amount to the unemployment fund.

The seemingly obvious fix to this problem, of course, is to increase the taxable wage base. In the case of unemployment benefits, this would certainly level the field considerably. Unfortunately, the taxable wage base affects many more things than the unemployment insurance program and efforts to change it will be met with great resistance.

Funds Out: Controlling Costs

Another way of strengthening the unemployment insurance system is to decrease the amount of money being paid out. One way of doing this is to increase the waiting period for receiving benefits from one to two weeks. This would encourage an unemployed person to more aggressively seek reemployment. The problem, however, is that those needing benefits most-lower paid individuals with little to no savings-would have serious difficulties getting by with no income for two full weeks.

Another proposal is to enforce more rigidly the eligibility requirements. This could prevent overpayment to individuals not actively seeking employment. Although widely accepted as positive measure, the implementation of such would increase administrative costs (perhaps to the point of being counter-effective).

Use of Funds

Some proponents of reforming the unemployment program favor an expansion of the scope of the program. This expansion might include the institution of job placement and training programs and assistance with relocation. Some argue that individuals pursuing retraining should remain eligible for unemployment benefits. Although most proposals of this nature have merit, the issue remains as to whether such functions belong in the unemployment insurance program, a program designed for the purpose of reducing the financial strain of individuals temporarily displaced from the workforce.

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