California’s Vicious Unemployment Cycle

As recently posted on the CAPS homepage, California has the United States’ second highest unemployment rate. According to seasonally adjusted figures released by the Bureau of Labor Statistics, California’s 11.7 unemployment rate is slightly lower than Nevada’s 13.4 percent. [Despite Gains, California Has Second Highest Jobless Rate in U.S., Los Angeles Times, November 22, 2011]

In another way of looking at the same bleak picture, 22 percent, more than one in five working age Californians, cannot find a job. The problem is so acute that it was the subject of a CBS 60 Minutes piece last November entitled 99 Weeks: When Unemployment Benefits Run Out. See it here.

Now California employers who should be incentivized to hire will have to pay higher costs for unemployment insurance. According to a recent release from the California Employment Development Department, businesses will soon have to pay an additional $21 per worker in federal tax to compensate for the government loans taken out to extend benefits to 99 weeks. Many states are considering one time fees of between $12 and $60 to help defray interest costs on federal loans. California and other states owe Washington D.C. nearly $38 billion; California borrowed its $303.3 million interest payment from a disability insurance fund.

These hikes are the latest in a series of unemployment tax increases as states look to replenish their unemployment trust funds devastated by the Great Recession.

Doug Holmes, president of UWC Strategic Services on Unemployment & Workers' Compensation, a business trade association, said that in 2010 employers paid 27.8 percent more in state jobless taxes than during the preceding year.

Obviously, adding new layers of taxes on employers every time they hire someone is counterproductive to reducing the unemployment rate. Employers are understandably discouraged from hiring. The reality is, however, that California conditions are so dire that unemployment benefits have gone from a temporary stop-gap measure to a longer term subsidy.  [Employers Hit by Unemployment Tax Hikes, by Tami Luhby, CNNMoney, September 29, 2011]

Since employers are more likely than ever to keep payroll and related costs down, passing the Legal Workforce Act is essential to assure that whatever jobs may eventually open up will be given to American citizens or legally authorized workers.