| While National GDP Dropped 33%, Arizona’s Inadequate Unemployment Insurance will be a Drag on State GDP
Phoenix — National real gross domestic product (GDP) decreased at an annual rate of 33% in the second quarter due to the COVID-19 pandemic; state GDP figures will be released in the coming weeks.
Arizona’s economy will also bear the added hit of up to $2 billion in lost economic activity because the underemployed are excluded from the state’s woeful unemployment insurance (UI) system, according to research by the Grand Canyon Institute.
The state’s underemployed were not eligible for state unemployment or pandemic unemployment assistance, missing out on up to $230 million in support. As a result, they were also ineligible for the CARES Act $600 weekly unemployment supplement that expired in July which would have leveraged up to an additional $900 million in federal dollars.
Between 40,000 to 110,000 underemployed people have had their hours drop by nearly half, from about 38 hours to 21 hours per week, due to the pandemic leaving them ineligible for unemployment assistance due to Gov. Ducey and state lawmakers’ failure to fix the state’s inadequate UI system.
This lost economic activity resulting from Arizona’s current unemployment system will reduce tax revenues up to $60 million for the state and up to $70 million for local governments.
Unemployment assistance is viewed as one of the most effective policies for supporting the unemployed and underemployed while providing stimulus to the economy. It is estimated that each dollar of UI benefits generates $1.70 in new economic activity in the first year.
GCI’s recommendations for reforming Arizona’s UI system include:
- Increasing the benefit cap to $490 per week, and fixing it to half the average weekly wage.
- Increasing the earnings allowance to 1/4 the weekly benefit amount.
- Decreasing the eligibility threshold to $2,400 in the highest earnings quarter and $3,600 over the four calendar quarter base period.
- Paying for these relatively inexpensive reforms by increasing the taxable wage base that funds the state’s UI trust fund to generate an additional $100 per covered worker per year.