Tag: unemployment insurance

$10.3 Billion in Unemployment Insurance Improper Payments

The Washington Times noted this week that the 2012 improper payment rate for unemployment insurance benefits was 11.4 percent ($10.3 billion out of $90.2 billion), according to U.S. Department of Labor data. The good news is that the figure is down from 12 percent in 2011. The bad news is that it’s still a pathetic waste of money. 

The waste, fraud, and high administrative costs associated with the program are just some of the reasons why it should be scrapped. A Cato essay on the failures of the unemployment insurance system explains: 

When policymakers dream of ways to provide subsidies and safety nets to groups in society, they rarely take into account the large bureaucratic costs that are inevitably involved. The UI system is a complex and costly system for governments and businesses to administer. 

State governments must raise taxes from almost 8 million businesses, with tax bills specifically calculated for each firm’s experience rating. At the same time, the states dole out individually calculated benefits to millions of workers and monitor whether each person making a claim is currently eligible. Businesses and states need to adjudicate the many disputed claims for benefits, and states need to police UI tax evasion as businesses try to manipulate the system to get a lower tax rate. 

Federal and state UI administration cost taxpayers $5.9 billion in 2010. Despite this large cost, there is widespread concern among experts that the UI system is “in long-term decline” from an administrative perspective. UI computer systems are apparently far outdated in many states, and administrators say that they need more money to do their jobs competently. 

Downsizing the Department of Labor

The Department of Labor has been added to Cato’s Downsizing Government website. Proposed spending cuts are $143 billion.

The following essays examine the department’s activities:

  • Failures of Unemployment Insurance. The UI system is costly to taxpayers and creates numerous economic distortions. Federal involvement should be ended and the states left free to design their own systems.
  • Employment and Training Programs. Federal programs for unemployed workers have never worked very well, are relatively little used, and are unneeded in today’s economy because private markets provide many alternatives.
  • Reforming Labor Union Laws. Federal union laws that mandate exclusive representation, union security, and prevailing wages are costly to the economy and restrict individual freedom. They should be repealed.
  • Trade Adjustment Assistance. This program provides benefits for certain workers put out of their jobs by foreign trade, but it has no sound basis in economics.

There’s a timeline that details key events in the Department of Labor’s growth, a reading room for suggested background studies, and supporting charts and figures.