Employer UI taxes declining because more UI claims being denied

Wisconsin employers are having their unemployment tax rates slashed in 2017 because the fund from which unemployment benefits is reaching ever higher solvency metrics. The Walker administration is heralding this news here and here.

Understandably, there are two possible explanations for what is going on with the state’s unemployment fund. The state’s unemployment funds are positive because either job growth is booming or because fewer folks are claiming benefits despite NOT having jobs.

Is job growth booming in Wisconsin?

The July state jobs report reveals that job growth in Wisconsin continues to be anemic. This report indicates that, initially, in July 2016 5,000 private-sector jobs were added to Wisconsin payrolls. But, June 2016 numbers for private-sector job growth were revised downward, from 10,900 to 5,600. This loss of 5,300 jobs from the June report means that the initial number for July does not even get the state back to what was first reported for June 2016.

Neither does the quarterly data offer any better news. From March 2015 to March 2016, the quarterly data indicates that the state added 37,432 jobs during that time frame. But, this number is a few thousand less than what was reported for the March 2015 to March 2015 time frame in the July 2015 jobs report: 39,652 private-sector jobs.

So, without adding new jobs to the state’s economy, the decline in unemployment claims must be coming from fewer folks claiming unemployment benefits. In two bullet points, the July 2016 jobs report actually acknowledges this development.

• Year 2016 initial UI claims are running at their lowest level since 1989.
• Continuing unemployment claims in Wisconsin are running the lowest in at least the past 30 years.

But, the question remains: if jobs are not being created, why are claims now so low?

Why are unemployment claims so low?

Actual claims data is available from ETA 207, Non-monetary Determinations Activities Report. See DOLETA data downloads generally for UI data. The 207 data series has all determinations issued by a state compiled on a quarterly basis going back several decades until the most recently completed quarter, June 2016.

Here are some charts from that data for Wisconsin starting in the first quarter of 2007 through the second quarter of 2016.

This chart shows that most initial determinations issued by the Department lead to the denial of unemployment benefits. But, starting in the first quarter of 2014, the denial rate for initial determination jumped markedly. Prior to 2014, 59.90% of all initial determinations denied benefits to claimants. Since the start of 2014, 77.45% of all initial determinations issued by the Department have been to deny unemployment benefits. In other words, currently only one of four initial determinations being issued by the Department allows unemployment benefits, and three out of four initial determinations deny unemployment benefits in some way.

Keep in mind that these numbers are based on the initial determinations issued by the Department in regards to a new unemployment claim. In most states, these determinations would consist almost entirely of separation determinations — whether claimants are disqualified because their discharge was their fault in some way or they lacked good cause for quitting their jobs. In Wisconsin, these separation decisions are only a part of what the Department decides. And, increasingly separation decisions are becoming a smaller and smaller part of what the Department does in disqualifying claimants.

Here, initial determination concerning separation issues (i.e., quits and discharges) were around 60% of all initial determinations until 2009, when they declined and hovered around 50% of all initial determinations until the first quarter of 2014. At that point, the percentage of separation initial determinations being issued by the Department plummeted to 40% of all initial determinations. In the last two quarters of 2015, the number of separation initial determinations fell again to under 30% of all initial determinations. So at present, less than 30% of the initial determinations being issued by the Department concern separation issues related to a discharge or a quit. And, since most of these other determinations (and probably all of them given the analysis below) are denying unemployment benefits, many of these probably include some kind of concealment allegation, given the Department’s push to allege concealment against claimants.

In regards to denying claimants unemployment benefits, the Department consistently denied about 26% of all claimants who were discharged from their jobs until the first quarter of 2014.

From the first quarter of 2014 until the latest, however, the number of discharge cases being denied jumped to 38.47% of all discharge determinations. This increase nearly doubled the number of denials from before 2014 — a stunning and remarkable jump in the number of claims being denied.

The magnitude of this jump is seen when it is compared the number of quit denials over this same time frame.

Here, a slight increase in denials occurs in the first quarter of 2014. But, this increase is part of a general increase in denial rates that appears to have started in the second half of 2010. So, while denial rates for those quitting their jobs are high and gradually increasing, there is no sudden or striking shift in denial rates in quit cases at any one point in time.

Now, consider that in the last two years only about 30% of all initial determinations concern separation issues and that only 1 out of 4 initial determinations is allowing unemployment benefits at all. In this light, it appears that the only initial determinations right now allowing benefits are the discharge and quit separation determinations that are NOT denying benefits. Everything else the Department is doing is to deny unemployment benefits to claimants.

What these numbers reveal is that most folks applying for unemployment benefits are being denied those benefits, that essentially the only folks qualifying for unemployment benefits are those laid off from their jobs by their employers, and that numerous denials of unemployment benefits have nothing to do with separation issues. These non-separation initial determinations most likely are part of the Department’s program integrity efforts and most likely lead to charges of unemployment concealment, especially under the Department’s new strict liability standard for concealment.

So, unemployment claims and benefits are at record lows in the state because the state is making it difficult to impossible for claimants to receive benefits and charging the few that collect unemployment benefits with unemployment concealment. Essentially, employers are paying unemployment taxes for a benefit almost no one is using. Pretty soon, folks will start calling for eliminating the unemployment system entirely, as who wants to pay a tax that does nothing.

UPDATE (14 Sept. 2016): Fixed links so that a click on a chart brings up a full-sized version.

Substantial fault equals negligence

In just two weeks time (a record turnaround), the Labor and Industry Review Commission issued a decision in the substantial fault case I just posted about a few days ago.

The decision deserves careful reading. There is no surprise here that the Commission found no misconduct. In failing to secure a wheelchair passenger, the Commission explained, the “employee did not willfully disregard this responsibility; it was an act of negligence” and that this “negligence was not of a severity to willful disregard of the employer’s interests.”

But, the Commission did find that this negligence constituted substantial fault. The Commission maintained in this decision: (1) that the reasonableness of the employer’s requirements is established as articulated (that is, on its face) and (2) that the employee has to demonstrate that the action at issue was beyond his or her reasonable control. For the Commission, the employee failed to satisfy this requirement. “The evidence does not show that the employee’s failure was a minor infraction, that the error was merely an inadvertence, of that she lacked sufficient skill, ability or equipment to perform her responsibility.”

There are two problems here with the Commission’s reasoning. First, the Commission is placing the burden of proof on claimants to demonstrate they satisfy one of the three caveats to avoid a finding of substantial fault rather than having employers first show that the action at issue truly is something the employee should be expected to have reasonable control over. Second, and more troubling, the Commission is holding here that a negligent act disqualifies someone from unemployment benefits. As a result, this decision could possibly threaten the tax credits employers currently qualify for.

There are a few but very important federal requirements that state unemployment systems must satisfy in order for the employers in those states to qualify for tax credits. See 6 U.S.C. § 3302 (federal tax credits for employer’s contributions to state unemployment funds). One of these requirements is that:

(10) compensation shall not be denied to any individual by reason of cancellation of wage credits or total reduction of his benefit rights for any cause other than discharge for misconduct connected with his work, . . .

6 U.S.C. § 3304(a).

If the Secretary of Labor finds that a state is not meeting this requirement, then that lack of compliance means the tax credit goes away. So, the Commission, by holding that substantial fault is in actuality substantially less stringent than the misconduct standard, may have effectively ended a vital tax savings for employers. For a measure originally intended to reduce the unemployment benefits being paid out, the new substantial fault standard may now cost employers much more through higher taxes.