Unemployment insurance reform would create jobs

from NewsLink, Vol. 3 No. 3, Spring 1999

The Cellucci-Swift proposed reform of the unemployment insurance (UI) tax rate would result in the creation of 11,358 new jobs in 2000 for Massachusetts, with additional employment gains through the year 2003. In addition there would be an increase in the state's capital stock and tax revenue, and a slight growth in the wage rate during this period. The Beacon Hill Institute has estimated the economic effects of these proposals by using STAMP, the Institute's State Tax Analysis Modeling Program.

The UI rate reform aims to reverse UI contribution increases in the next four years that would apply under the current law and reduce the average cost of unemployment insurance from 2000 to 2003. According to the Department of Employment and Training, the reform will trim the average cost per employee to around $270 in years 2000-2002, which is a 15% reduction below the 1999 level and 25% below the level that would otherwise pertain in the absence of the reform. Under the proposal, Massachusetts businesses will save $566 million for the next three years. By reducing the cost of hiring workers the state becomes more competitive – attracting business and bringing about an expansion in employment, payrolls and capital stock.

Using an econometric model developed specifically for the Massachusetts economy, the Beacon Hill Institute has examined how the proposed reforms of the unemployment insurance rate will affect employment, wages and capital stock growth. Details will soon be available on the institute's web site at www.beaconhill.org.

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