This program, which has no  expiration date, provides up to 13 additional weeks of benefits to workers  who have exhausted state unemployment insurance benefits during  periods of high unemployment. 1). depending on the extent to which their state UI programs comply with  federal criteria. More Likely to Have Federal Trust Fund Loans

States that reduced their benefit durations were more likely to have  received a federal trust fund loan since 2010 (see app. This requirement  made states that directly reduced UI benefit amounts ineligible for federal  UI emergency funds, thereby limiting the range of options available to  states to reduce benefit costs.suggested that “no other effort to reduce benefits [beyond reducing  duration] would be acceptable.”
As one state official said, this rule  Also, although the duration reductions will continue regardless of the  availability of federal benefits, in 4 of the 7 states where we interviewed  UI officials, officials said the availability of federal benefits may have  played a role in the decision to reduce the maximum duration of state- funded benefits. Reduction in Maximum Duration of UI Benefits Lowered Total Benefits for Some Individuals

		Reduced Durations Decreased Total Benefits for Some Individuals

In the duration reduction states, those UI claimants who would have been  eligible to receive benefits beyond the new maximum receive less in total  benefits in the absence of federal UI programs. When federal UI benefits were in effect (most recently generally from  2009 until the end of 2013), those individuals who were eligible to  receive UI benefits for the maximum total state and federal duration would  have received substantially less benefits following reduction, since  duration in each federal benefit program depends, in part, on the duration  of state benefits. For example, claimants could  receive up to 67 weeks of federal benefits when the maximum state  benefit duration was 26 weeks. The net cost to the federal government due to the reduction in state  benefit durations is difficult to measure because the amount and duration  of federal program benefits depend on both a claimant’s state benefits   For example, we found that before  and how long he or she is eligible.duration reduction, a claimant who received benefits for 75 weeks—26  weeks of state benefits and 49 weeks of federal benefits—would receive  fewer total weeks of benefits after reduction in state duration to 20 weeks,  but more weeks of federal benefits. Missouri reduced its maximum duration  from 26 weeks to 20 weeks effective April 2011. Our analysis of these 2 states shows that there could be a net cost shift to  the federal government, perhaps unintended, as a result of state duration  reductions. However,  DOL has not assessed the extent to which state duration reductions,  adopted by states in the wake of the recent recession, affected costs to  the federal government. Research Suggests That Reductions in Benefit Duration May Lessen UI’s Positive Effects on the Economy

The relevant economic literature on UI that we reviewed, including  analysis by the Congressional Budget Office (CBO), considers the  benefits to be a source of economic stabilization, by increasing aggregate  demand through a “multiplier effect” during downturns. The maximum duration of state benefits has not varied  substantially since the 1960s, according to CRS. DOL does not have information about the costs shifted to  the federal government and about the changes in total durations resulting  from the states’ actions. Recommendation for Executive Action

To inform the design of any future federal UI programs, the Secretary of  Labor should examine the implications of state reductions in maximum UI  benefit duration on federal UI costs, for example, by modeling the net  effect of paying federal benefits earlier to more beneficiaries, albeit for a  possibly shorter period of time, and develop recommendations for the  program, if appropriate. Specifically, DOL noted that additional study would be  useful, and indicated it will begin to assess an approach for determining  the implications of reductions in maximum duration on federal costs. Specifically, we  reviewed relevant federal laws and regulations and state laws, and  confirmed information regarding state laws with relevant state officials; interviewed federal unemployment insurance (UI) program officials  and state UI officials in 7 states that reduced duration and 4 states  that did not reduce duration, and in 4 of the 7 states that reduced  duration, we also interviewed other stakeholders with an interest in UI  duration, such as employer groups and advocates; conducted a cluster analysis using data from the Department of  Labor’s (DOL) Office of Unemployment Insurance, the Bureau of  Labor Statistics (BLS), and other sources; analyzed data on a range of variables using data from DOL and BLS;  calculated survival rates (the probability that a claimant will continue  receiving benefits after a given week) based on data provided to us; conducted an economic literature review on key implications of UI  benefits for individuals; and conducted an economic literature review that focused primarily on the  stimulative effects of UI, and identified reasonable conclusions about  the likely economic effects of duration reduction. This allowed us to identify a  group of benefit reduction states (Arkansas, Florida, Georgia, Missouri,  North Carolina, and South Carolina) that were similar on the  characteristics we analyzed, as well as benefit reduction states (Illinois,  Kansas, and Michigan) that were not similar to this group.
Why GAO Did This Study

As part of the nation's UI system, overseen by DOL, states provide benefits to eligible unemployed workers, with additional weeks of benefits sometimes provided by the federal government in times of economic stress. Since the 1960s, states have had maximum UI benefit durations of 26 weeks or longer. However, since 2011, nine states have reduced their maximum benefit durations: Arkansas, Florida, Georgia, Illinois, Kansas, Michigan, Missouri, North Carolina, and South Carolina. GAO was asked to review the states' reductions.
GAO examined (1) the circumstances in which states reduced the maximum duration of UI benefits, (2) the implications of these reductions for individuals, (3) the effects on federal UI costs, and (4) their broader economic effects. GAO reviewed relevant federal and state laws; visited Georgia and Michigan, which had different approaches to reducing durations; analyzed UI program data from 2006 (before the recession) to 2014; and reviewed relevant economic research.

What GAO Found

The unemployment insurance (UI) system, a federal and state partnership that provides benefits to eligible workers who have lost their jobs, was under financial pressures during the recent recession and recovery. Since 2011, nine states reduced the maximum length of time (duration) individuals could receive state benefits. These states reduced duration from 26 weeks to as few as 12 weeks, with 20 weeks being the most common new maximum. Compared to states that did not reduce duration, those that did generally had higher unemployment rates and weaker UI trust fund balances and were more likely to have federal loans as their UI reserves became depleted. Officials in five of the nine states said that replenishing their trust fund balance was a key rationale for reducing benefit duration. GAO found that most of the nine states, like other states, also increased employer taxes for their UI program and made other benefit reductions such as by changing UI eligibility rules.
Reductions in state benefit durations resulted in some individuals receiving substantially less in total UI benefits. During the period from 2009 through 2013, individuals who exhausted their state benefits could receive additional weeks of benefits from the federal government. The duration of federal benefits was based on the duration of state benefits; shorter maximum state benefit periods resulted in shorter maximum federal benefit periods. As a result, some individuals received substantially less in total UI benefits because the durations of both their state and federal benefits were reduced. For example, in 2013, an individual in a state that had shortened its maximum benefit duration to 20 weeks could have received up to 52.4 additional weeks of federal benefits, for a total of 72.4 weeks. However, had the state maximum duration remained at 26 weeks, that individual could have received up to 67 weeks of federal benefits, for a total of 93 weeks. In contrast, individuals eligible for UI benefits for relatively short periods of time were unaffected by the reduced durations.
The effects of these reductions on federal UI program costs are unclear. Although GAO's prior work on past recessions found it can be useful for federal agencies to assess the unintended consequences of state policy responses, the Department of Labor (DOL) has not assessed the extent of any cost shift to the federal government. The net impact on federal UI costs would depend on how reductions in the duration of state benefits affect the number of people receiving federal benefits and for how long. On the one hand, federal costs are increased to the extent that state duration reductions shift individuals to federal benefits earlier. On the other hand, federal costs are decreased to the extent that fewer weeks of federal UI benefits are available. However, because DOL has not analyzed state data on individuals' weekly benefits, it remains unclear whether the federal government incurred a net cost due to the states' duration reductions.
Relevant research suggests that reductions in benefit duration may reduce the positive effects of UI on the economy. The economic literature that GAO reviewed, including analysis by the Congressional Budget Office, generally indicates positive macroeconomic effects from the UI program, based on the likelihood that benefits are spent, thus providing a stimulus to the economy.

What GAO Recommends

GAO recommends that the Secretary of Labor examine the implications of state duration reductions for federal UI program costs and develop recommendations, if warranted. DOL agreed with GAO's recommendation and indicated it will begin to assess an approach for studying the implications of reductions in maximum duration on federal costs.