In states like Hawaii, Kentucky, Massachusetts and Oklahoma, the savings would be less than 50%, the data show.
That’s not all. Complicating the equation is the fact that, because jobless benefits usually only cover a portion of an out-of-work state employee’s lost earnings and don’t include health benefits, displaced workers often end up having to sign up for food stamps or Medicaid. So the immediate savings is borne as a cost to the state somewhere else.
Then there are the fiscal consequences that arise when income- and sales-tax revenues plummet just as social-welfare spending surges, says Shelby Kerns, the executive director of the National Association of State Budget Officers.
“States employ about 20 million workers and they spend money too,” she said. “When you lay off state workers, you shift costs on both ends because of lost income and sales tax receipts that they don’t pay.”
Pavosevich points out that America’s unemployment system was designed to be countercyclical — meaning employers would bear the costs of unemployment insurance in good times. But that’s only true for what’s known as contributory employers, those who pay into the system as they go. Most businesses fall in this category. That’s not the case for reimbursable employers, which primarily consist of cities, public agencies and nonprofits. They choose to pay back any unemployment benefits that their laid-off workers receive as they are incurred.
But because the decline in economic activity has been so sharp and the job losses so widespread, local governments and nonprofits may simply not have the money to pay back the states, adding to the stress on their unemployment funds that are already nearing insolvency.
“It’s a large bill that will come due to state and local governments and nonprofits in the next quarter following layoffs,” Pavosevich said. “State governments are going to have to finance that in some way. I think most states will go broke.”
The impact goes well beyond mere dollars and cents. Steep reductions in the public-sector workforce are coming at a time when many Americans need their local governments’ help the most.
Dozens of communities from Dayton, Ohio, to Houston and Monterey, California, have announced they’ll be forced to lay off or furlough workers, and scores more have reduced or eliminated key public services, with more to come, according to data compiled by the U.S. Conference of Mayors. Education, sanitation, safety and health could all be at risk, leaving the public-safety net in tatters. What’s more, nonprofits, who often shoulder the burden of assisting the neediest, are themselves struggling to make ends meet, says David L. Thompson of the National Council of Nonprofits.
“If nonprofits had the money, they wouldn’t lay people off in the first place,” Thompson said.