Policy Documents

Reforming Ohio’s Unemployment Fund

Matthew Glans –
November 25, 2008

During a time of economic uncertainty, the prospect of unemployment is on the minds of many workers.

Ohio’s unemployment fund is nearing insolvency due to the growing number of unemployed citizens entering the system. With its unemployment rate reaching 7.2 percent and pay-outs of around $35 million a week depleting the unemployment fund to a projected $28 million by the end of the year, Ohio’s unemployment insurance program is in dire need of reform.

Unemployment Fund Likely Broke by End of Year: State Expects to Need $550 Million Loan

Ohio Unemployment Funds Running Out

Ohio Running Low on Unemployment Money

Ohio’s unemployment fund has been greatly strained by the current economic crisis. According to state officials, the state’s minimum safe balance for the unemployment fund is $2.5 billion; the fund is currently operating with a balance of $325 million. In September, there were more than 29,000 new jobless claims. Officials anticipate that number to continue to grow in the upcoming months.

Gov. Ted Strickland is currently seeking aid from the federal government and Labor Department to pull the unemployment fund back into solvency. But tax increases and federal bailouts do little to address the systemic deficiencies in the unemployment system; they merely allow the existing problems to survive and continue to grow. Real reform—reform that fundamentally re-examines the state’s role in providing unemployment benefits—must get underway.

Ohio legislators should keep in mind these three points regarding the needed modernization of their failing unemployment insurance fund:

Resist the urge to raise unemployment taxes
While state officials believe the tax base for unemployment taxes has expanded and could withstand an increase, raising taxes does not guarantee the program will improve. Raising the unemployment tax would do little to improve the system, but such a move may drive businesses out of the state.

Move away from a state-based system and towards privatization
Privatization through individual unemployment accounts (IUAs) shifts control of and responsibility for unemployment coverage from the employer and the state government to the employer and the employee. This allows for greater individual choice and flexibility at less cost to the state’s taxpayers.

Do not penalize part-time and temporary workers
Ohio is the only state in the nation where a minimum-wage worker employed 30 hours a week does not qualify for unemployment insurance. These workers frequently receive no unemployment benefits despite their tax contribution to the system, and workers who never need to use the unemployment safety net pay into a system for benefits they will never receive. A private IUA follows a worker and guarantees the benefits are not lost.

A Heartland Research & Commentary on unemployment insurance is available at http://www.heartland.org/policybot/results.html?articleid=23753. It examines the changing role of unemployment insurance and the different approaches available to employers and employees through privatization.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartland Institute’s Web site at http://www.heartland.org and PolicyBot, Heartland’s free online research database.