I wrote earlier this week about a potential crisis involving unemployment benefits. The post demonstrated the need for the federal government to inject money into state unemployment trust funds whose coffers are close to empty because of the terrible state of the economy.
If further evidence was needed,today's Washington Post brings it with news that the unemployment rate jumped to 5.5% in May, a .5% increase over April. According to the story:
The jobless rate was 5.5 percent in May, the Labor Department said, up from 5 percent in April. That is the largest climb in a single month since 1986. Employers also slashed 49,000 jobs from their payrolls, the fifth straight month of losses....
The spike in joblessness was so large as to suggest something more fundamental is going on. In addition to young people, the jobless rate rose among almost every other group -- men, women, blacks and whites. The rate was unchanged among Latinos.
All signs point to the situation continuing to trend downward:
"Today's events are a combination of really nasty news for American consumers," said Andrew Tilton, a senior economist at Goldman Sachs."This is very startling," said John Silvia, chief economist of Wachovia Corp. "This is not going to be a quick situation where, we passed the [stimulus bill], now the economy is back to normal. We have a subpar economy."
"This spike in unemployment is entirely consistent with a large spate of other indicators having to do with the job market and the economy," said Jared Bernstein, a senior economist at the Economic Policy Institute..."It's crystal clear that the economy is not generating the job and income growth people need to maintain their living standards," said Bernstein.
As the stateline.org article reminds us:
More than a dozen states would be hard-pressed to provide unemployment benefits if the economy tailspins into a full-blown recession and more workers get pink slips.
Well that is exactly what has happened, and there is an alarming link between those states with the lowest funds in their unemployment insurance reserves and those with the highest unemployment rates.
The article describes the recommended level as follows:
One way economists determine whether a state trust fund is solvent is if it has enough money to make unemployment insurance benefit payments for at least one year without collecting any additional revenue.
The graphic that accompanies the stateline story shows which states are clearly solvent and which states are not solvent. And CNN Money released the most recent unemployment figures only a few weeks ago.
The four states in deep trouble rank 51st (Michigan)*, 42nd (Ohio), 36th (Missouri), and tied for 25th (New York) in the state by state levels of unemployment. The situation is just as gloomy for those states on the precipice of not being solvent and thus unable to handle a rise in unemployment. Of the 14 states that would have difficulty providing unemployment benefits if more workers lose their jobs, nine already rank in the bottom twenty states for unemployment rates as of May 14th; California (49th), South Carolina (45th), Kentucky (42nd), Tennessee, Illinois and North Carolina (all tied for 38th), Pennsylvania and New Jersey (tied for 33rd) and Minnesota (31st).
The stateline.org survey is a bit outdated since I quoted it earlier this week, because the dramatic increase in the number of employees who receive pink slips is no longer hypothetical, it is a reality. There is also no indication that the states will soon be in a better position to replenish their unemployment insurance reserves. The states are trending south, and 8 states could join the current 18 if their statewide unemployment rates move higher. If this happens it would mean that more than half of the states would have unemployment reserves below the recommended levels.
The federal government needs to step in and help the states not only because people need to know their unemployment benefits are safe, but also because states need to be able to practice smart fiscal policy. The nature of the unemployment program ensures that people will be able to receive their benefits, but borrowing vast sums of money and having to pay it back with interest is not a smart fiscal practice, and that is the only thing the states will be able to do if their trust fund reserves run dry. Who is the culprit behind this? Not surprisingly it is the Bush Administration. By threatening to veto legislation that would have give states the funds they need, President Bush has forced the states into another potentially crippling corner.
After the 7 year economic debacle of the Bush Administration, I guess I should expect nothing less
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