February 8, 2010

State Exceptions to Unemployment

Justin Katz

Owing to some legislation put forward by union-friendly state Senator John Tassoni (D, Smithfield, North Smithfield), I've been poking around state law related to unemployment insurance. Tassoni's bill would remove the word "private" from the following paragraph related to the state's workshare program:

"Eligible employer" means any private employer who has had contributions credited to his or her account and benefits have been chargeable to this account, and who is not delinquent in the payment of contributions or reimbursements, as required by chapters 42 – 44 of this title.

The obvious question is why public employers wouldn't be eligible for this program in the first place, and I can't say that my digging has led me to an answer. It has, however, unearthed a peculiar exemption. Government employers don't have to make regular contributions to the unemployment trust fund and can instead reimburse the fund for benefits paid to laid-off employees. Why should that be allowed?

My understanding is that employer payments into the fund are invested (assuming a positive balance) and are not reimbursable upon the closing of the business. When a particular employer lays off workers, its payment rate goes up (in the same way that auto insurance goes up after an accident or ticket), and when the fund is low, employers have to pay more in order to build it back up. Public-sector employers that make pay-as-you-go reimbursements to cover executed benefits do not contribute to the body of money that earns investment returns, and since they don't make regular payments, they would not pay more no matter how many employees they lay off or how low the fund might be.

This doesn't appear to be relevant to Tassoni's bill, however, because it would still only apply to an employer that has "contributions credited to his or her account." The new question is therefore what proportion of public employers make contributions, and the previous question about the reason for their initial exclusion from the workshare program remains.

Of course, the issue of more general concern is why the state's largest employer — i.e., the state and its subsidiaries — wouldn't have to participate in a program that is ostensibly set up to spread employment risk.