Status of Unemployment Insurance Reserves on June 30, 1948
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decline in the accumulation of re• Status of Unemployment Insurance serves is attributable solely to lower Reserves on June 30, 1948 tax rates, since withdrawals for bene• fits and other purposes were about the same and taxable pay rolls had in• By Nathan Ginsberg * creased considerably. The increase in funds available for Peak levels of employment continued through the first benefits during the first half of 1948 6 months of 1948. At the same time, however, consumer did hot occur in all States. Reserves demand for various types of soft goods declined, and in seven jurisdictions—Alaska, Cali• production schedules were harassed by shortages of fuel and materials and unusually bad weather conditions. fornia, Connecticut, the District of Despite these factors, however, benefit disbursements Columbia, Massachusetts, New York, dropped 5 percent below the amount expended during the and Rhode Island—actually declined. first half of 1947, and reserves in State accounts in the In four of them, however—Alaska, unemployment trust fund reached a new all-time peak of California, the District of Columbia, $7.4 billion, even though tax rates for the fiscal year 1947- and New York—reserves had increased 48 dropped to a new low—1.2 percent. during the 12 months. All seven States would have increased their re• FROM THE BEGINNING of the program percent and about 8 years of collec• serves during January-June 1948 if through June 30, 1948, $12.3 billion tions at the average tax rate of 1.2 employers had been taxed at the had been collected to finance benefit percent for the 12-month period standard rate of 2.7 percent. As a costs under the 51 State unemploy• ended June 30, 1948. matter of fact, a tax rate of less than ment insurance programs. Of this 2.7 percent would have been sufficient Accumulation of Funds amount, an estimated $10.8 billion to arrest the decline in every instance. was raised through employer taxes The history of the unemployment and $644 million through employee insurance program in the United Financing the Program contributions; the balance of $870 States is characterized by an almost The Social Security Act provides million represents interest earned by continuous growth in the size of re• that benefits under the State unem• the State accounts in the trust fund. serves. The accumulation of funds ployment insurance programs be By the end of June, only Alabama and was accelerated during the war years, financed through an employer pay• New Jersey continued to levy a tax when benefit expenditures were negli• roll tax. The standard rate was, in on employees to finance unemploy• gible. Although benefits during the effect, set at 2.7 percent, but for the ment insurance. In California and reconversion reached the highest dol• first 2 years of the program, 1936 and Rhode Island, employee contributions lar amount in the history of the pro• 1937, employers were taxed at 0.9 and were completely eliminated from un• gram, the impact was not nearly so 1.8 percent, respectively. The Federal employment insurance and diverted heavy as had generally been antici• act also permits States to grant re• to temporary disability insurance. pated, and the excess of benefits over ductions in tax rates through experi• In New Jersey, three-fourths of the collections resulted only in a very ence rating. By June 30, 1948, ex• 1-percent employee tax was diverted slight drain upon accumulated re• perience rating had become effective to the State disability insurance pro• serves. in all States but Mississippi, where gram, beginning June 1, with pay• an experience-rating law had been ments scheduled to start on January The $7.4 billion available for bene• enacted but did not become effective 1, 1949. fits on June 30 was $90 million greater than the amount on December 31, until July. For the 12 months ended Expenditures from unemployment 1947. During the first half of 1948, June 30, 1948, employer tax rates for insurance reserves since the begin• $444.3 million was collected in pay• the country as a whole averaged 1.2 ning of the program have totaled $4.9 roll taxes and $74.7 million was cred• percent, the lowest in the history of billion, barely 40 percent of all reve• ited to the reserves as interest. Total the program. nues. In addition to expenditures for revenue for the period, therefore, to• To supplement the revenue derived unemployment benefits, funds aggre• taled $519 million. Benefit expendi• from employer contributions, nine gating $39.2 million were withdrawn tures under the State programs, on States have at one time or another by California, New Jersey, and Rhode the other hand, aggregated only $405 levied a tax on employees. By June Island to help finance their tempo• million, or $114 million less than the 30, 1948, only Alabama and New Jer• rary disability insurance programs. total revenue. In addition to the nor• sey still continued to levy an employee The $7.4 billion available at the end mal drains, New Jersey withdrew $10 tax for unemployment insurance. In of June for payment of unemploy• million and Rhode Island $14 million Alabama the employee tax rate, which ment insurance benefits was equiva• for their temporary disability insur• is determined by the State experience- lent to more than 3 1/2 years of collec• ance programs. The $90 million in• rating formula, averaged 0.27 percent tions at the standard tax rate of 2.7 crease in the size of the reserve dur• during the 12 months ended June 30, ing January-June 1948 was only 1948. New Jersey taxed its covered * Bureau of Employment Security, Un• slightly more than half the increase employees at a flat rate of 1 percent employment Insurance Service, Program during the same period in 1947. The Division. until June 1948, when the rate for TABLE 1.—Benefit experience in the United Idaho, and New Mexico, where they rate in the country. California was States since the beginning of the unem• averaged 1.9 percent, and Louisiana the only other State where benefits ployment insurance program and Washington were next with 1.8 exceeded 2 percent of taxable wages. percent. The average rates ranged Expenditure rates ranged from 1.5 to Benefit ex• Benefits as from 1.5 to 1.9 in 17 States, from 1.9 percent in four States, from 1.0 to percent of Calendar period penditures 1.4 percent in seven States, from 0.5 (in thou• taxable 1.0 to 1.4 percent in 19, from 0.5 to wages dur• to 0.9 percent in 23 States; they were sands) ing year 0.9 percent in 11, and were below 0.5 percent in the remaining two. Con• less than 0.5 percent in 15 States. Total $4,893,192 0.9 necticut and the District of Columbia Texas and Wisconsin had the lowest benefit-wage ratio—0.2 percent. 1938 393,785 2.2 had the lowest average rates—0.3 and 1939 429,298 1.6 Since benefits first became payable, 1940 518,700 1.7 0.4 percent, respectively. 1941 344,320 .9 less than half the amount collected 1942 344,084 .7 Benefit Expenditures 1943 79,643 .1 in pay-roll taxes through June 1948 1944 62,385 .1 Benefit disbursements during the 12 was paid out in benefits. In fact, no 1945 445,866 .8 1946 1,094,850 1.7 months ended June 30, 1948, aggre• State expended more than 70 cents 1947 775,146 1.1 for each dollar collected during the January-June 1948 405,115 (1) gated $752.5 million, 10 percent below the $833.7 million expended during period, and only nine States paid out 1 The corresponding ratio for the 12 months ended the preceding 12 months. During more than 50 cents per dollar col• June 30, 1948, was 1.0 percent. January-June 1948, $405.1 million lected. was expended as compared with $427.7 The benefit-collection ratio for the unemployment insurance was reduced million during the same period of 1947. 12 months ended June 30, 1948, was to 0.25 percent and the remainder of In general, benefit costs continued to considerably higher—75 cents for the employee tax was diverted to the recede from the postwar peak reached each dollar collected—than that for temporary disability insurance pro• in 1946, when benefits were equivalent the entire period since benefits be• gram. in amount to 1.7 percent of taxable came payable. In five States—Cali• A 2.7-percent tax rate throughout pay rolls. The benefit expenditure fornia, Connecticut, the District of the years would have yielded revenues rate (benefits as percent of taxable Columbia, Massachusetts, and Rhode far in excess of the amounts needed wages) during the 12 months was 1.0 Island—benefits actually exceeded to meet benefit costs, not only under percent as compared with 1.1 percent collections. The benefit-collection ra• the benefit formulas in effect at the during the calendar year 1947. tio in Connecticut was highest—$1.63 beginning of the program but also expended for each dollar collected; Benefit experience for the country under the more liberal provisions sub• the District of Columbia was second, as a whole since 1938 is shown in table sequently enacted. Even discounting with $1.42. In two of the five States— 1. While the dollar amounts ex• the experience of the war years, when California and the District of Colum• pended during the postwar years were the demand for manpower kept bene• bia—the reserves increased during the considerably higher than those before fit expenditures at a very low level, 12 months despite the unfavorable the war, the actual level of benefit ex• large reserves would still have accu• benefit-collection ratio, because the penditures, as reflected in the ratios mulated with a 2.7-percent tax rate in interest earned by the State accounts of benefits to taxable wages, had been effect.