In the period of 2009 to 2013 the Washington State Employment Security Department will have increased our unemployment insurance rate from 3.7% to over 7%. 'Here is our tax rate history displayed on the top of our last statement.
Those of you that have fought this battle know that these insurance rates should reflect our experience rating. This essentially means that companies that have more people on unemployment pay higher rates. There are many problems with this system, but here are the two that I think are the biggest.
- Insurance should spread risk over the pool. The idea that the State of Washington should make money on each unemployment insurance premium -- is counter to the idea of insurance. The government regulates the insurance industry to protect consumers from insurance companies that want to make a profit on every policy holder. The government should apply that measure to itself.
- The structure of the system raises costs to businesses during an economic recovery. We do not have access to the data that drives our experience rating. In fact, we believe that our experience rating has improved at the same time that our rates have doubled. The more corrosive thing is that if the current system was properly implemented, it would dampen every recovery by increasing tax rates that apply directly to hiring -- right when the economy needs employers to hire the most badly -- during a recovery. We now have to pay over $2,000 per employee per year to have employees in Washington State. And that money does not go to employees -- it goes to the Employment Security Department.
Some communities in our state depend very heavily on state assistance to exist and a good deal of that assistance is delivered by the Employment Security Department. Those communities need jobs. Unfortunately, the more a community depends on government assistance, the less that community will be able to attract new employers. The simple reason is that no employer can compete with unemployment benefits that exceed its ability to pay wages. We have closed facilities in small Washington communities for this very reason. No rational person would choose to work for a living if the state will pay them more to not work. I am sure I don't have to carry this scenario out to the extreme to make the sustainability point.
Every time we hire for new positions, we advertise in all of our locations and hire the best people we can find. This dramatic increase in the cost of operating in the State of Washington is going to push us to hire more in other locations. The net result will be that the cost of unemployment insurance will have to be borne by fewer and fewer employees. One must wonder where the tipping point is - 10%?
I hope someone starts working to turn this around.