Alternative Measures of State UI Systems

Upjohn Institute Staff Working Paper 00-62

Christopher J. O'Leary
Robert Tannenwald
Wei-Jang Huang
Pei Zhu

e-mail: oleary@we.upjohninst.org

January 2000

NOTE: A revised version of this paper titled "New Ways of Evaluating State Unemployment Insurance" was published in New England Economic Review, March/April 1999: 15-40.
Abstract
Comparisons among state unemployment insurance (UI) systems can be misleading. Frequently quoted indicators of benefit generosity, tax cost, and adherence to the experience-rating principle are influenced by the relative economic conditions of states. Such comparisons thereby obscure underlying structural differences in state UI systems. A business considering alternative states in which to locate a production facility should be cautious when interpreting UI information in an economic developer's marketing pitch. This paper offers alternative indicators based on how representative firms, with a well specified unemployment experience, would fare in different states.

The authors use a micro-simulation approach to model the experiences of representative workers and firms to compare 28 states and contrast the results with those obtained from more conventional indicators. In closing, the authors consider whether a business location decision would be influenced differently by the alternative measures of state UI systems.

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