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The state accounts for about 20% of the nation’s jobless claims, far in excess of its 11% share of the labor force population. That partly reflects the state’s higher unemployment and accompanying increases in layoffs and jobless claims in the tech industry and other sectors, but also its comparatively easier eligibility rules and low re-employment rate. Payroll taxes paid by employers are rising not only to cover payouts to unemployed workers but also a state surcharge and a gradually increasing federal surtax to help pay off the principal on the debt.
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When COVID struck in March 2020, U.S. unemployment jumped to 14.8% a month later and brought unprecedented jobless claims, forcing California and many other states to borrow from the federal government to keep paying benefits. Almost all the other states have since repaid those loans, some with pandemic relief money they also got from Washington. Businesses also pay a state unemployment insurance tax, also on the first $7,000 of wages, based on their layoff history, plus a surcharge when there’s a shortfall in the jobless benefits fund. “California had options and it chose the spending option instead of the responsible option,” said Matt Weidinger, a senior fellow at the American Enterprise Institute who has written widely on the unemployment insurance program.
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Under such budget constraints, California officials had little choice but to pull back on plans to spend $1 billion to reduce the principal on the unemployment insurance loan. Despite the immediate hiring doldrums, the state’s budget woes — including costs for unemployment claims — and stubbornly high inflation, experts think California will not fall into a recession or lead the country into a downturn. California’s jobless rate remained steady at 5.3% last month, even as unemployment for the nation ticked down to 3.8% in March.
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He is a native of Seoul, Korea, and graduated from the University of Chicago. “Raising the taxable wage base has got to be part of the solution,” Traub said. To engage alumnae in active and meaningful ways in the life of the university and to provide opportunities for learning, leadership, and mentorship. By providing your information, you agree to our Terms of Use and our Privacy Policy. We use vendors that may also process your information to help provide our services. This site is protected by reCAPTCHA Enterprise and the Google Privacy Policy and Terms of Service apply.
And it was one of only two states, the other being Nevada, with a March jobless rate above 5%, said the Bureau of Labor Statistics. Sacramento collects unemployment insurance taxes on the first $7,000 of wages per employee per year. Traub noted that most other states have a significantly higher taxable wage limit — New York at $12,500; New Mexico at $31,700; and Washington state, the highest, at $68,500. But over the last 12 months, the high-paying sector is down 30,600 jobs in L.A.
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In March, the state added 28,300 net new jobs — about 9% of the nation’s total, shy of its 11.5% share of the U.S. labor force. In February, California lost 6,600 jobs while the U.S. added 270,000. About 90% of homeowners, in fact, are carrying home loans with rates below 5%, said Joseph Brusuelas, chief economist at the accounting firm RSM US. Traub, of the National Employment Law Project, said employers have to pay more to make the math work and ensure the unemployment trust system is sustainable over the long haul.
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He said higher employer payroll taxes will ultimately spill over to employees in the form of less wages. California’s massive budget deficit, coupled with the state’s relatively high level of joblessness, has become a major barrier to reducing the billions of dollars of debt it has incurred to pay unemployment benefits. Currently California employers pay a federal unemployment insurance tax of 1.2% on the first $7,000 of wages per employee, but that will rise incrementally every year so long as California is in debt, to more than 3.5% after 10 years. And analysts estimate that it may take at least that long to pay off the debt. Data also show that jobless workers in California stay on unemployment significantly longer than the national average, which adds to the total payout amount. And California workers claim unemployment benefits in disproportionately high numbers.
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Today only New York and California, plus the Virgin Islands, still owe money for unemployment insurance loans. California’s greater reliance on sectors such as real estate that are highly sensitive to interest rates for financing and investing has hampered the state. For one thing, the broader U.S. economy is continuing to expand nicely.
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They argue that it will only add to the state’s already higher business costs that have pushed some California companies to relocate to Texas, Nevada and other states. But major sectors of the economy, including information, business and professional services, and manufacturing, have lost jobs over the last year. In March, job growth in California continued to be led by gains in health services and private education. Over the last year, that combined sector has accounted for more than 80% of the state’s added jobs totaling 217,700. That’s followed by growth in government, construction, and leisure and hospitality. For the second month in a row, California posted the highest unemployment rate in the country, according to new data for March.
“California is going to muddle through until we begin to see those rates eased,” Brusuelas said. So even though more consumers in California are having trouble with credit card debt, data show mortgage delinquencies remain very low. “In general, housing often functions as a trigger or force multiplier in a recession in California,” said G.U. Don Lee writes economic stories out of Washington, D.C. Since joining the Los Angeles Times in 1992, he has served as the Shanghai bureau chief and in various editing and reporting roles in California.
The nation’s gross domestic product, or total economic output, likely expanded by a robust 3% in the first quarter, according to analysts’ forecasts. In California that year, 47% of recipients took the full maximum 26 weeks of jobless benefits. In 2022, California workers stayed on unemployment aid for an average of 18.1 weeks, compared with 14.5 weeks nationally, according to a study by the Department of Labor’s former lead actuary, Robert Pavosevich.
To keep the safety-net program operating at a time when the taxes paid by employers and earmarked for jobless benefits are insufficient, Sacramento has been borrowing billions of dollars from the federal government. The debt now stands at about $21 billion and growing, an increasing burden for state deficit fighters and for the businesses that pay into the jobless insurance program. But by far the main policy change that’s needed is to help jobless workers move into new jobs more rapidly. California’s Employment Development Department, which oversees the state’s unemployment insurance program, has said that it would rely on increased federal taxes on employers to pay down the debt.
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