Bacon's Rebellion

Democracy Thrives in Sunlight

Virginia Unemployment Fund Gains In Good Times

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by

Steve Haner
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2018 labor force participation rates. Source: VEC. Click for larger view.

Laissez les bon temps roulez. Virginia’s strong employment climate is adding a financial spare tire to Virginia’s unemployment trust fund, now above 83 percent solvency by one actuarial measure and exceeding a federal recommended minimum balance on another measure.

The annual unemployment fund status update for a legislative oversight commission Wednesday lasted about 30 minutes, with the chairman, Del. Lee Ware, R-Powhatan, noting it was far shorter and less dramatic than some previous meetings in tight times, adding “it’s a good drama not to have.” The presentation is here.

The projected $1.45 billion fund balance for next December 31 will be another record, said Virginia Employment Commissioner Ellen Marie Hess. The figures used are not adjusted for inflation, however, and the state has been at higher solvency levels in previous periods of prosperity. The funds are just sitting there earning interest and awaiting the next recession, which history deems inevitable. 

The previous bottom for the fund came in 2010, and Virginia needed to borrow federal funds in 2010 and 2011 in order to pay unemployment benefits. The fund has been climbing back since 2012, and Hess projected an 86% solvency level and almost $1.6 billion balance for 2020. Will this unexpectedly long expansion reach through 2020?

The federal Department of Labor does its own analysis, the most recent report published in February 2019.  The 2018 version sparked a Bacon’s Rebellion report characterizing the Virginia situation as a hidden deficit, with the state at 92% of the minimum solvency level. The 2019 report (here) puts Virginia at 103 percent of that goal a year later, but still shows several other states in better shape. North Carolina’s trust fund holds $3.8 billion.

The fund is built with taxes on employers, using a formula that considers if the company has done layoffs that created claims. The average tax at its peak in 2012 was $236 per employee, with that dropping to $100 in 2018 and $90 this year. The tax for most employers is one-tenth of one percent on the first $8,000 in wages, or $80 per worker.

The agenda for the meeting included a discussion on “actions by other states addressing localities with low labor force participation rates.” That turned out to be one page of fairly generic bullet points on encouraging more employment by and for the disabled and encouraging more employment by and for older workers or caregivers dealing with a family member. Disability is the top reason men leave the workforce and caring for a family member is the number one reason women depart.  Hess’s slides on the labor force participation issues are here.

Virginia has a strong labor force participation rate, above the national and regional average for both the broad measure and the more focused “prime age” measure. The broad measure looks at everybody 16 years and older not in an institution, and includes people looking for work and those laid off but expecting to be recalled. The prime age category narrows to workers 25 through 54.

But Virginia’s good overall numbers include wide local variations. In 2017 the overall labor force participation rate was 77.3% in Arlington, but 35.3% in Dickenson County. Looking at the prime age workers, Arlington was at 86.6% and Dickenson at 56.7%. The official unemployment rates were 2% in Arlington and 5% in Dickenson, but more than 40% at prime age were not working or looking for work in that rural county.

Looking at the map that accompanied this presentation (used above), there are disparities in several regions, and if you want to drill deeper more data can be found at the VEC’s Labor Market Information website. It is the same story which has bedeviled Virginia politicians and economic developers for decades, with the state’s economic prosperity far from evenly distributed.

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5 responses to “Virginia Unemployment Fund Gains In Good Times”

  1. James A. Bacon Avatar
    James A. Bacon

    It’s good to see that Virginia’s unemployment fund has a record balance. Lawmakers have to strike a delicate balance between (1) ensuring the fiscal solvency of the fund in hard times, and (b) keeping employer payments to a minimum in order to stimulate employment. I err to the side of fiscal conservatism — better to have too much in the till than too little. But the balance seems about right now. Hopefully, the good times will roll a little longer and Virginia’s unemployment will get a little fatter. What lawmakers need to do now is avoid the temptation to cut the unemployment tax. Steady as she goes.

  2. LarrytheG Avatar
    LarrytheG

    One of the improvements in BR as of late is a doubled barrel – first we have a “morning person” posting so when we get up, we often have a new blog post then second, it’s almost always a non-partisan “meaty” tome about some important aspect of government that many are either unaware of or uninterested in.

    So here in BR, we talk about government in many ways, including how incompetent/bad/not good it can be as well as how when it takes money from workers and employers – it “hurts” the economy which would put that money to better use than the govt would.

    If this were a more Conservative leaning blog without Haner, I’m pretty sure it would advocate for less and less government and taxes and more free market.

    So when I read this – I see it as yet another very legitimate aspect of government that is not only responsible but fiscally responsible and it ensures that workers have some level of safety net if they lose their job and/or cannot work. It is limited in terms of how much and how long – the tradeoff between that and how much to “take” from the employer/worker to fund it.

    So in my usual contrary way – I’ll ask – is this something that Virginia government should “impose” on employers/workers and it should be abolished and let workers be responsible for their own affairs and let the free market use that money in a more productive way?

    How about it “free market” folks? What say you?

    oh, and thank you, Steve, again!

  3. Steve Haner Avatar
    Steve Haner

    Like many of the elements of the social “safety net”, this is something of a compromise but understand it is very popular with the business community. Nobody is happy about layoffs, or closing a plant, but this takes some (only a bit) of the pain away from the employee and the guilt away from the employer. Employees fired for cause get no benefits.

    I have no info on what the debate was at the time (not sure which Roosevelt gets credit for this one), but I’ve never heard anybody argue against it. On this one, the feds “impose” it. You are setting up your usual straw man, Larry, inventing positions for conservatives. Workers compensation is also a very popular system with employers, because the benefits are limited and predictable and to collect benefits you waive any lawsuit over the accident. That’s another area where Virginia has a system, often less generous than in other states, and adding benefits might be tempting to a new General Assembly.

  4. LarrytheG Avatar
    LarrytheG

    No strawman Steve. Even Weldon-Cooper says that there is an “opportunity cost” to the govt taking money that could go into the free market economy.

    I’m asking a pretty basic question about whether or not the “opportunity cost” argument applies here if you are a Conservative or Libertarian who eschews the govt asserting itself in things that should be left to individuals to be responsible for and the free market economy to benefit from.

    Yes, I’m pushing the point a bit BECAUSE we keep hearing that govt taxation “hurts” the free market economy – every little thing whether it’s a tax or a regulation or unemployment insurance is “diverting” money to govt from the free market who would put that money to a more productive use.

    Are you defending unemployment insurance as a proper role of government or not? ;-). We could quite easily make each worker buy their own unemployment insurance, right?

  5. Steve Haner Avatar
    Steve Haner

    I suspect it would be hard to develop a private product for unemployment benefits. Workers compensation coverage is available through private providers, and of course the medical benefits are from docs and hospitals. I could see a self-funded, self-insured approach to UI. The real problem is that when the workers really need the product is when the business truly fails and goes belly up. Who pays then? In this case, I suspect Mr. Smith’s invisible hand has brought the correct response to the issue. In effect this is an insurance plan, and fully funded by employers, just pooled and managed by a government entity – a distinction without a difference.

    You can assume all conservatives oppose all labor regulations or safety nets if you want to, Larry, but it simply is not true. THAT is what is a straw man.

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