and Updates on Current Issues
More Jobs for Massachusetts
would create 12,000 new jobs by adopting a measure that would reduce
unemployment insurance contributions. This is the finding of the Beacon
Hill Institute at Suffolk University (BHI).
about Massachusetts' ability to compete for business, as dramatized
by Raytheon's threatened departure from the state, have led Governor
Weld and Lt. Governor Cellucci to propose a number of measures aimed
at increasing the state's competitiveness. One such measure, House No.
4881, would reduce employer contributions to the unemployment insurance
its dynamic econometric state tax-analysis model, BHI examined the proposal
for its effects on the Massachusetts economy. One finding of this analysis
is that, because the unemployment insurance tax exerts a significant
negative effect on the ability of Massachusetts employers to create
jobs, reduction of the tax would exert a substantial job-creating effect.
By reducing worker insurance against earnings losses, it would ensure
that there would be more jobs for Massachusetts workers to fill.
Insurance: A Costly Proposition for Massachusetts Business
Massachusetts employers face the second highest unemployment insurance
cost per employee in the nation as the result of an exceptionally generous
unemployment insurance program. Under current Massachusetts state law:
limit for receiving maximum benefits is 30 weeks -- the most generous
in the nation and 15 percent higher than the 26 weeks at or below which
almost all other states limit benefits.
The prior work requirement is 15 weeks of
employment. Only ten other states have the same requirement, while 28
others require at least 20 weeks of prior work.
Workers with dependents receive extra benefits
under a supplemental payment scheme that is by far the most generous
in the country. Only 12 other states offer dependent benefits.
Legislation Reduces the Cost of Doing Business in Massachusetts
The proposed legislation attempts to align the Massachusetts program
more closely with that offered by other states. It includes a 26-week
limit on the maximum length of benefits, raises the prior work requirement
to 20 weeks and restructures the supplemental-payment scheme for dependents.
It provides Massachusetts businesses with an estimated net saving of
$90 million per year and reduces insurance cost per employee by approximately
Costs to Business Result in More Jobs
Massachusetts faces an increasingly competitive economic environment
in which businesses have greater mobility than ever and are more sensitive
than ever to interstate differences in the costs of production. House
No. 4881 aims to make the state more competitive by reducing the cost
of creating jobs.
data generated by the Massachusetts economy between 1970 and 1992, BHI
has estimated the impact of the proposed legislation on job creation.
Its analysis shows:
The unemployment insurance tax rate, measured by
computing unemployment insurance contributions as a percentage of total
payroll, significantly and negatively affects the employment level in
proposed reform would reduce the unemployment-insurance tax rate by
8.53 percent and would, in the process, generate approximately 12,000
new jobs for the state.
the BHI Model Works
The BHI model is a dynamic, market-clearing model designed specifically
to show how changes in tax law affect the behavior of tax-paying economic
"agents" (employers and workers). The model assumes that prices
eventually adjust in such a way as to push markets toward "equilibrium."
the equilibrium level of Massachusetts employment, the model estimates
the behavioral response of workers and employers to changes in various
"exogenous" variables, including tax rates, that are determined
outside the model. The exogenous variables that drive the BHI model
the "labor endowment" (working-age
population) of the state economy E;
state after-tax nonlabor income Yn;
federal income tax rate tf;
state income tax rate ts;
stock employed by Massachusetts firms K;
the U.S. unemployment rate u and
the state unemployment insurance tax rate v.
of the estimation of employment L, with t-values in parentheses and
* indicating statistical significance at the 5% level, show:
-11.596 + 2.486lnE - 0.102lnYn + 0.003tf - 0.061ts - 0.0028lnK - 0.0414v
- 0.009u (-7.954) (10.673)* (-2.664)* (1.208) (-5.334)* (-0.051) (-1.997)*
results in a negative sign on v, as expected, implying that, as the
unemployment insurance tax rate is reduced, employment increases. The
estimated parameter is statistically significant (significant at the
5% level). The results indicate that a one-percentage-point decrease
in the unemployment insurance tax rate would increase employment by
Many More Jobs
We apply this estimation to forecast the increase in the number of jobs
that would result from the implementation of the proposal. The Massachusetts
Department of Employment and Training has projected that the proposed
reform would generate an annual net savings to employers of $90 million.
The saving represents a reduction of the unemployment insurance tax
rate from the 1994 rate of 1.1303% to 1.0339% -- a decrease of 0.0964
percentage point. This would increase the employment level by 0.4% (=
4.14% * 0.0964). Since the current level of employment is 3,031,000
(the average of the first quarter of 1995), we predict that the proposal
will create 12,124 new jobs.
Baek, PhD, resident scholar, Beacon Hill Institute and visiting assistant
professor of economics, Suffolk University, conducted the econometric
work summarized above.
11-Jul-2007 11:41 AM
-Jan-2007 11:51 AM