UNEMPLOYMENT-INSURANCE POLICY IN NEW-ENGLAND - BACKGROUND AND ISSUES

Almost two-thirds of the states, and all the New England states except New Hampshire, have exhausted their unemployment insurance trust fund and borrowed from the federal government at least once during the pas t 35 years. Under such circumstances, states are required by law to ra ise unemployment insurance taxes in order to replenish their trust fun ds and to pay off their debts to the federal government. Since higher unemployment insurance taxes increase employer costs, replenishment fo rces states into a trade-off between economic competitiveness and trus t fund adequacy. In recent years, intensifying competitive pressures h ave caused many policy-makers to question prevailing standards of adeq uacy and the speed at which they should be attained. Consequently, sev eral states, including some still in the process of rebuilding reserve s depleted by the last recession, are contemplating tax reductions. Th is article provides background information and analysis intended to cl arify issues underlying the unemployment insurance policies of New Eng land in general and a tax reduction under consideration in Massachuset ts in particular. The author's main point is that alternative unemploy ment insurance policies should not be judged solely by the yardsticks of economic competitiveness and trust fund adequacy. Allocative neutra lity and economic stabilization are also relevant concerns.