Would Broadening the UI Tax Base Help Low-Income Workers?

Abstract

Unemployment insurance (UI) tax bases vary significantly in the United States, from a low of $7,000 annually in California to a high of $52,700 in Washington. Previous research has provided surprisingly little guidance regarding the consequences of this variation for either workers or employers. We use 37 years of data for all 50 states and Washington, DC, to estimate the impact of the UI tax base on part-time work. We find that the low tax base that exists in many states (and the necessarily higher tax rates that accompany them) lowers labor demand for part-time and other low-earning workers.