A growing mass of people in California, where the housing bubble soared seemingly to the sky and then plunged rapidly to earth, are out of work and seeking employment due to the deepening downturn. According to the state Employment Development Department, there were 1.4 million unemployed Californians in this year’s third quarter, an increase of 406,800 people—40 percent—compared to the same period in 2007.
Meanwhile, the search for signs that the job market will improve soon is a grim task. On that note, California’s unemployment insurance system is struggling to meet the expanding ranks of the jobless through a program that gets its funds from an employer-paid tax.
According to Loree Levy, spokesperson for the state Employment Development Department, filings for unemployment insurance rose 78 percent between 2007’s third quarter and third quarter 2008.
As California’s home bubble and in turn set off a wave of job losses, the unemployment fund declined by 55 percent during the past year. EDD forecasts a $2 billion-plus deficit next year, and double that figure by 2010.
Based on past income, eligible California workers can receive unemployment insurance ranging from $40 to $450 every week for 26 weeks. If this period ends and workers are still jobless and eligible, they can file for federal extensions for up to 33 weeks in “high unemployment states” such as California.
As more people in the state lose their jobs, less people actually qualify for benefits. According to Levy, 45 percent of the 1.1 million Californians out of work in the third quarter of 2002 received unemployment insurance. In the third quarter of 2008, 35 percent of the 1.4 million unemployed received benefits.
The decline of jobless workers who receive unemployment insurance in California mirrors a national trend, said Joel Blau, an author and professor of social welfare at the State University of New York, Stony Brook. In 1975, 75 percent of unemployed American workers received unemployment insurance, according to him.
There is more than one reason for this trend. Let us consider two of them.
According to the California EDD, “Self-employment does not usually qualify for unemployment insurance benefits coverage.” It is worth noting that the self-employed are part of the federal government’s monthly jobs survey of households, one of two measures the state uses to determine its rate of unemployment.
Then there is the job category of independent contractors. Employers are not required to cover the costs of the payroll tax for unemployment insurance for independent contractors, according to the California Department of Industrial Relations.
Looking to President-elect Obama, it is unclear what policy measures he will implement to address the fiscal crisis of the states, of which unemployment insurance is one piece. Recently, about 400 respected economists, including Nobel Laureate George Akerlof at UC Berkeley and Michael Perelman at CSU Chico, signed a letter urging Congress to stimulate state budgets by “extending unemployment insurance and increasing benefits for low and moderate income households who are likely to spend quickly”.
In the meantime, California Gov. Arnold Schwarzenegger has proposed increasing the employer-paid tax for unemployment insurance. The employers who remain in business during the current downturn are sure to resist that policy through the state and local chapters of the chambers of commerce and the like.
The governor, who recently described the state’s growing budget deficit as a “financial Armageddon,” also seeks to decrease unemployment benefits from their present amount. Jobless workers, less politically organized than businesses generally, will be hard-pressed to resist that proposal, though such an effort is possible.