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.

UI benefits chart

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.

Union sector comparison

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.

Initial claims and fraud cases by year

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.

over-payments assessed by year

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.

over-payments collected by year

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.