Alaska Should Reject a State UI Bonus

Studies find that Alaskans can earn the equivalent of nearly $33 per hour just by staying home.  The following analysis by FGA about Alaska’s unemployment Insurance (UI) payments reveals a costly program, both in terms of money being spent as well as the social phenomena of people choosing to not work because they are receiving more money from UI than from holding a job.  To continue distributing money in this manner will only worsen the situation, which is why Alaska should reject a state UI bonus.

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1. Government Benefits Are Already Creating a Dependency Crisis in Alaska

Currently, the average single-parent family with two children in Alaska could earn $3,657 each month in cash or cash-equivalent government benefits—equal to more than $43,000 per year. After factoring in non-cash welfare programs like Medicaid benefits, these Alaskans could earn up to $5,711per month, or more than $68,000per year. That is the equivalent of receiving nearly $33per hour, just by staying home.

2.  Additional Unemployment Benefits Discourage a Return to Work

The overwhelming consensus is that unemployment bonuses discourage a return to work, with even the current $300 weekly bonus paying low-wage Alaska workers, on average, 11 percent more than they would be earning while working. In fact, the non-partisan Congressional Budget Office (CBO) conclusively determined that the previous congressional UI bonus created a situation where five in every six unemployed claimants would receive more by remaining unemployed than they would by returning to work, reducing total employment. Various studies over the last two decades have repeatedly shown that collecting UI reduces job search intensity. Pre-COVID studies on this matter include Ingram and Eardley (2019), Canon and Liu (2014), Moffit (2014), Filges et al (2013), Farber and Valetta (2013), Schmeider et al (2012), Krueger and Mueller (2008), and Lalive et al (2004).

3.  Alaska Has a Generous Unemployment Insurance Program

According to data from the U.S. Department of Labor’s Employment and Training Administration (ETA), when compared to the national average, Alaska has a higher taxable wage base as well as greater program duration and dependency. Alaska is also one of just 13 states that already has a dependent benefit provision, further underscoring the generosity of Alaska’s UI system. More unemployed Alaskans are receiving unemployment insurance than any peer western state. Unsurprisingly, continuing unemployment claims in Alaska are still 70 percent higher than they were prior to the pandemic.

4.  Alaska Cannot Afford an Additional State-Level Benefit

Since COVID-19 began, Alaska’s UI trust fund balance has declined by more than 40 percent. Meanwhile, the ETA indicates that Alaska has the third-highest average employer tax per covered employee, and the fifth-highest average UI tax rate as a percent of total wages. At a time when employers are struggling and Alaska’s UI trust fund balance is still in delicate shape, Alaska cannot afford a new state-level benefit.

Bottom Line: Alaska should reject calls to create a new state-level UI benefit that will cost businesses, strain the state’s UI trust fund, increase dependency, and discourage a return to work.