Letter to Schwarzenegger on Unemployment Insurance
January 15, 2009, 10:01 am
A letter I am drafting currently. If you don’t know how unemployment taxes work, see here.

Governor Schwarzenegger:

As a business operating in California as well as twelve other states, I have the ability to compare the regulatory and business climate across states. And while I could discuss many issues with the state of California regulatory affairs, I will focus on just one in this letter: administration of the state unemployment insurance program.

All the states have an unemployment insurance program with roughly similar rules. The fund will pay workers some percentage of their past earnings if they are terminated for reasons other than with cause from their last employer and are actively seeking new employment. Employers are typically charged an insurance rate as a percentage of wages that is based on past unemployment claims by ex-employees of that company.

Before I provide my observations on the problems in the California system, let me provide some data that helps indicate that California is indeed unique. Here are our unemployment insurance rates by state (we have roughly the same business profile in each state, though if anything our business is less seasonal in California so one might expect, all things being equal, that our rates in California would be lower than average)

New Mexico: 0.03%

Texas: 1.06%

Florida: 1.02%

Arizona: 3.30 %

Michigan: 1.5%

Colorado: 0.9%

Wisconsin: 0.25%

Minnesota: 0.40%

California: 6.2% + 1.1% disability adder

You can see that our rates in California are double that of any other state, and more than 6 times our average. Further, the California rate could actually be higher by our experience, as 6.2% is the cap. By the way, we did a study a while back as to why our Arizona rates were so high. It turned out most of the claims were from people who had recently moved from California, and grew up under the California system.

In interacting with the California state unemployment system for a number of years, our company has observed two issues that raise costs:

It is virtually impossible to convince unemployment office workers that an employee was fired for cause. It is very clear they see their mission as making everyone eligible, and thus even a guilty plea of outright theft has not been enough to have the state unemployment office agree that a firing was “for cause.â€