Marketplace reports on how difficult unemployment has become

The Marketplace radio show had an excellent feature on May 10th about the changes to unemployment that have occurred since the great recession:

Note: Hat tip to Democurmudgen for this story.

As with Andrew Stettner’s examination of this issue, the focus here is mostly on legal changes to shorten or reduce benefit eligibility.

But, as also obvious in the Marketplace piece, many states have, like Wisconsin, simply made it that much harder to even claim unemployment benefits in the first place. For instance, here are a few of the barriers that now exist in Wisconsin to filing an unemployment claim:

On-line only claims-filing

• In rural Wisconsin (and even suburban Wisconsin), on-line access is limited and mostly phone-based. So, folks need to fill in numerous forms and detailed information by pecking away on their phone keyboards.
• The on-line system is English-only.

Job registration

• Claimants MUST create a job-seeking profile on the https://jobcenterofwisconsin.com/ website.
• As part of this process, an English-only survey needs to be completed.
• As part of this process, a resume needs to be created. But, that resume needs to be typed in. Uploading a PDF of a resume is NOT allowed. Copying and pasting of resume sections is a possibility for some.

Attending job training events

• Claimants must travel and attend a seminar about searching for work that features the https://jobcenterofwisconsin.com website.
• Claimants must also travel and meet with a DWD jobs counselor about their job search efforts.
• For more than half of Wisconsin’s population, these trips require a drive of an hour or more.

In a state where broadband access to the Internet is universally acknowledged as limited, the barriers listed here are substantial. It is through these barriers that the state discourages folks from even applying in the first place.

To those that say these barriers are an exaggeration, please then point out all the efforts the Department has undertaken to advertise and explain this on-line filing process, to make it more accessible and easier to understand, and to remove the barriers to access (by having job counselors travel to claimants, for instance, rather than the other way around).

I’m waiting.

The state of the unemployment trust fund and employer taxes

The January 2019 news about declining employer taxes was stellar. The May 2019 financial report reveals that the trust fund is in even better shape: nearly $1.9 billion as of April 30th.

Note: of course, benefit payments continue their decline, dropping 6.7% from 2018 numbers to $330.9 million as of April 2019. Employer taxes are also down $23.9 million, to $330.9 million, for January to April 2019.

At the May 22nd meeting of the Advisory Council, there was a presentation on the health of the unemployment trust fund. An excellent chart in this presentation presents the current situation:

As evident here, the trust fund is at a near record high while claimants’ benefits and employers’ taxes are dropping like rocks down the proverbial well. Two charts showcase how benefits and taxes have markedly declined since 2011 (benefits) and 2012 (taxes) relative to total payroll in the state.

So, what Wisconsin has experienced the last eight to nine years is ahistorical — only around 37% of claimants applying for unemployment benefits end up receiving any benefits rather than the more typical 55% of applicants.

Note: Department personnel continue to remark about how benefit payments are at record lows without offering any explanations or theories for why these record low benefit payments are occurring. As noted in this blog, this problem of record-low benefit payments is not unique to Wisconsin. But, it does seem from this same note that changes in how states are administering their unemployment law disqualifications are responsible for much if not all of this decline. Shouldn’t the Department finally take ownership of its own culpability for what has been going on the last eight to nine years or at least explain why the legal changes and administrative practices adopted under the prior governor to make it more difficult to claim unemployment benefits are somehow NOT connected to this decline in unemployment benefits?

At a minimum, Department staffers need to read Andrew Stettner’s excellent analysis of state unemployment systems and the changes in eligibility standards and application rates describes the impact of these changes and why these changes should be re-examined and most likely reversed.

To understand how healthy the unemployment trust fund actually is, three different scenarios for the future were played out in this presentation.

• In one scenario, the economy continues along its current course, benefit payments remain anemic, and the unemployment rate returns to the normal 4-5% for Wisconsin. Here, the trust fund continues to be robust in the short-term. But, growth of the fund eventually slows, and the fund begins to decline slightly in the long-term.
• In the second scenario, the economy continues along its current course, but benefit payments return to the historical experience of Wisconsin. While no recession is assumed to take place, the trust fund balance starts to take a hit in 2020 and a switch to the more aggressive tax schedule C will be needed by 2026 or so.
• In the third scenario, a mild recession in 2020 occurs. Even with the anemic level of benefit payments continuing — 37% — the bottom of the trust fund drops out such that less than $500 million is left in the fund by 2022. And, in the long-term, the most aggressive tax schedule — Schedule A — needs to be triggered to start pumping money back into the trust fund.

In other words, these scenarios indicate that the trust fund balance — despite being at record levels — is wholly inadequate given the current size and scope of Wisconsin’s economy. Only a Pollyanna desire for the economic equivalent of sunshine and rainbows to continue indefinitely keeps the unemployment trust fund from imploding.

The current fetish with minimizing employers’ taxes is just one culprit behind this carefree thinking. Economists have begun explaining, that there is no correlation whatsoever between employers’ tax rates and business success. What remains to be seen is what the Advisory Council will do about all these problems: keep current policies and administrative practices in place or begin the process of changing these policies and practices. As many of these simply relate to the Department’s bureaucratic preferences in how it administers unemployment law (and, in numerous places represents a sharp conflict with that law), there is much that can be done immediately to correct at least the unparalleled decline in benefit payments before we find ourselves in the middle of a recession and with no oar available to avoid the waterfall towards which we race.

Low unemployment rates and low unemployment benefits — record lows for a reason

Mark Sommerhauser’s article about possible changes to criminal prosecution of unemployment fraud has a remarkable chart detailing the roller coaster plunge in unemployment benefits in Wisconsin since the end of the great recession.

In 2018, only $1.11 million in first-week unemployment benefits were paid out in Wisconsin. Here are some numbers to provide some perspective on this decline in unemployment benefits.

Historical comparisons

At the January 2019 Advisory Council meeting, the financial report included some jaw-dropping numbers regarding the stellar decline in unemployment taxes employers pay and the even steeper drop in unemployment benefits being paid to claimants. Tom McHugh explained during his presentation that benefit payments in 2018 had not been this low prior to 1994.

So, a comparison between the years 2018 and 1994 seems in order. Monthly claims history data reveal:

| Year | Init. claims | Benefits paid |
| 1994 | 430,452      | $405,625,564  |
| 2018 | 283,398      | $397,746,075  |

So, while the amounts of benefits paid are relatively close — a difference of around $8 million — there is a difference of 147,000 initial claims between the two years. These numbers mean that in 2018 the Department paid on average $1403 in unemployment benefits for each initial claim, whereas in 1994 the Department paid on average $942 in unemployment benefits for each initial claim that year.

In part, the lower number in 1994 exists because the maximum weekly benefit that year was only $243, whereas in 2018 the maximum possible weekly benefit rate was $370.

But, this data also includes information about the weeks being claimed versus the weeks that are actually compensated.

| Year | Weeks claimed | Weeks compens. | Prct. |
| 1994 | 2,589,895     | 2,443,988      | 94.4% |
| 2018 | 1,659,861     | 1,352,076      | 81.5% |

In 2018, just over 81% of the weeks being claimed were leading to actual payment of unemployment benefits, whereas in 1994 fully 94.4% of initial claims led to the payment of unemployment benefits.

The available weekly claims data for these years adds another eye-popping wrinkle to this comparison: the size of the labor force.

| Year | Init. claims | Covered emply. |
| 1994 | 452,526      | 2,301,412      |
| 2018 | 279,912      | 2,817,338      |

Note: changes in the number of initial claims being filed likely exist because of what is being measured: weekly versus monthly claims data.

So, in 2018 there was a drop of nearly 62% in initial claims from 1994 even through the number of covered employees actually increased by more than 500,000. If eligibility for unemployment benefits was the same in 2018 as it was in 1994, there should obviously have been more unemployment claims given the 500,000 employee increase in the eligible labor force. But, rather than an increase in claims in 2018 there has instead been sharp dive in unemployment claims.

Someone might argue that the workforce in Wisconsin has substantially changed from 1994 to 2018. That explanation does not hold much water.

This chart shows that there have been slight declines in manufacturing from 1994 to 2017 in Wisconsin as a percentage of the workforce (from 25.44% of the workforce to 21.21% of the workforce) as well as in public sector employment (15.06% to 12.84% of the workforce). But, the real changes have not been so much in the makeup of the workforce so much as in the percentage of who belongs to a union. Only private construction has NOT seen a dramatic drop in both union coverage and union membership from 1994 to 2017. And, those drops are by half or more from what existed in 1994. So, the decline in unionization is at least strongly correlated with the decline in Wisconsin employees receiving unemployment benefits in this state.

Fraud comparisons

The other major factor at play with the decline in unemployment benefits is the increased prosecution by the Department for alleging fraud.

As the Department’s fraud allegations are a relatively new phenomena (while unemployment fraud has always existed as a category, prosecutions did not begin in earnest until this last recession), this data cannot provide a look back all the to 1994. But, this data does reveal what the Department has been doing since 2011.

Here, the number of fraud cases as a percentage of total initial claims actually increased in 2013 and 2014, declined in 2015 and 2016, and has held steady at 1.67% of total initial claims in 2017 and 2018.

The over-payments being assessed as percentage of benefits being paid out, however, actually increased slightly in 2018, going from 1.11% of all unemployment benefits paid out in 2017 to 1.18% in 2018.

The decline in collections in 2018 from 2017 was more sizable, dropping from 3.14% of all benefits paid out to 2.58% of all unemployment benefits paid out in 2018.

Noticeably, the collection of over-payments allegedly connected to fraud were in 2018 still more numerous than collections for non-fraud over-payments. Only in 2011, the first year of the Walker administration, was the ratio of fraud to non-fraud over-payment collections well below 100% (at 55.51% that year).

What’s next?

This month, the Department announced that unemployment rates are at a record low of 2.8%. As Jake has described these numbers, this low unemployment rate masks significant job losses in Wisconsin. Wisconsin is trailing the rest of the mid-west in job growth (and the mid-west itself as a region is trailing the rest of the nation in job growth).

The 1994 numbers described above indicate that while the state’s economy has not actually changed all that much from what existed in 1994, the unemployment system itself has markedly change. Even with a maximum weekly benefit rate in 2018 that is $127 higher than what existed in 1994, total unemployment benefits being paid out are about the same in 2018 in absolute dollars (i.e., NOT adjusted for inflation), 24 years later. This stagnation is shocking.

The big change with unemployment during the last eight years or so is the expansive and aggressive charging of unemployment fraud by the Department for accidental claim-filing mistakes. The case law is now over-flowing with decisions about how the Department has charged claimants with fraud for accidental claim-filing mistakes, defended those charges despite all evidence to the contrary, and even sought retribution against those who dared challenge the Department’s wishes on this front.

And, it is obvious to anyone filing unemployment benefits today about how complicated and difficult the claims-filing process has become. It is now all too easy for someone to make an accidental mistake during their weekly claim certification and then find themselves facing charges for unemployment concealment simply for not understanding what is being asked.

Note: this confusion and resulting mistakes ares even more likely when language and technology barriers are considered. Unemployment claims are on-line only now and STILL only in available English.

Finally, the decline in union representation and coverage from 1994 to 2018 indicates that the institutions that could have raised alarms and fought back against these changes to the unemployment system today lack the strength and support to conduct such a fight. As a result, these fundamental and far-reaching changes to the unemployment system have occurred without significant challenges.

A possible change on the UI fraud vendetta?

Mark Sommerhauser had an article this past Sunday for the Wisconsin State Journal about the push started by the prior administration for charging fraud against claimants for their non-intentional, claim-filing mistakes.

Not surprisingly, the former unemployment administrator, Joe Handrick, talked up how claimant fraud cases were, according to him, always legitimate.

Handrick said he fears those efforts could lose momentum under a provision of Evers’ plan for the next state budget, which calls for eliminating the one-week waiting period. Handrick said the waiting period was crucial in enabling state officials to catch fraudulent applications.

Handrick also rejects claims that some people prosecuted for fraud only made mistakes, saying the department long has distinguished between intentional and inadvertent omissions by claimants that lead to benefit over-payments.

“The things that get assigned as fraud are where the person clearly and intentionally attempts to defraud the people of the state of Wisconsin,” Handrick said. “Only the worst of the worst get referred to district attorneys for prosecution.”

There are two major problems with this statement.

First, the waiting week has absolutely nothing to do with alleged fraud investigations. The waiting week originally existed as a mechanism for delaying payment of unemployment benefits because of administrative difficulties in processing unemployment claims. Since the 1980s, however, that delay has no longer been needed, and now a waiting week’s only purpose is to reduce the unemployment benefits that are paid out. See Avoiding Waiting Weeks, “Unemployment Insurance Policy Advocate’s Toolkit” at 56-7.

This claim about waiting weeks is even more surprising in light of the Department’s obvious delays in investigating claim-filing mistakes. Indeed, the Department has gone out of its way to delay investigations and efforts into claim-filing mistakes so as to make the amounts at issue larger when the Department finally gets around to examining alleged mistakes. Furthermore, while other states have instituted practices that actually match claim-filing information with employer’s withholding tax reporting, Wisconsin has refused to implement such an obvious mechanism for catching claim-filing mistakes quickly. See my discussion of Massachusetts and New Mexico in Findings of the unemployment audit (17 Dec. 2014). The Commission as well has observed that the Department’s concealment efforts do NOT prevent improper payments from occurring in the first place and has noted that the Department’s concealment investigations often lead to exceptionally long and unwarranted delays in benefit payments.

Second, Mr. Handrick is ignoring the hundreds of cases in which the Department has alleged fraud for UNintentional claim-filing mistakes. There is a reason, after all, for why the Department wanted the Commission eliminated in the last budget cycle. See LIRC’s elimination (1 March 2017). In 2014, only 20% of the Department’s concealment charges that were appealed ended up being affirmed. This evidence indicates that only one out of every five of the Department’s concealment charges are actually based on intentional acts of claimants.

Note: recent cases that have come to my attention indicate that the Department’s appetite for alleging concealment has only increased over the years. See Thoreson v. Thor’s Wolverine Den LLC, UI Hearing Nos. 18401886MD and 18401885MD (22 Mar. 2019) (claimant who helped brother tend bar for no pay does not have to repay any unemployment benefits and certainly not the $25,000 in alleged concealment charged by the Department because claimant did no work for brother).

In other words, there is a gigantic gap between Handrick’s statements about rampant unemployment fraud and the reality of folks being confused and making accidental mistakes when attempting to navigate a hostile and opaque claim-filing system. No one should be taking Handrick’s statement’s at face value. Luckily, the new Department secretary, Caleb Frostman, indicates in the State Journal article that he wants to make the unemployment claim-filing process friendlier to claimants. Here’s hoping he and the Department get to work on this goal. And soon.