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.

Fact check:

• Each state runs its own unemployment system and determines its own benefits; these are not set by the U.S. Congress.
• Under Arizona’s current political leadership, the state has maintained the second lowest unemployment benefit cap in the country, the lowest earnings allowance, and the highest earnings eligibility threshold.
• Congress is considering an unemployment supplement that would complement state-funded unemployment assistance.

Gov. Ducey: “We’re not in a position during a pandemic to be borrowing money.” 

Fact check:

• When a state’s UI trust fund balance drops to zero it borrows money from the federal unemployment system in order to continue providing assistance to the unemployed.
• Thirty-five states borrowed from the federal government during the Great Recession to meet their UI obligations.
• Arizona could also use funds from the CARES Act or the state’s Rainy Day Fund to shore up Arizona’s UI Trust Fund.

Gov. Ducey: “We’ve worked very hard to make sure that Arizonans have the resources that are necessary, and that people are not losing the place where they live.” 

Fact check:

• Presumably, Gov. Ducey was referring to a state moratorium on evictions, housing financial assistance, and support for food banks. These supports complement unemployment assistance but are not alternatives to a well-run UI system.
• Unemployment payments allow people to meet their housing needs, purchase groceries, pay for transportation and cover other bills; money that then enters and recirculates in the economy.

Gov. Ducey: “First and foremost my concern is about our displaced workers in the state of Arizona and whether it’s the supplemental check or some kind of extension of unemployment insurance benefits that can incent work.” 

Fact check:

• Arizona has the harshest penalty for returning to work in America, reducing assistance as soon as a person earns $30 in a week. The norm is an earnings allowance equal to 1/4 a person’s weekly unemployment assistance.
• If Gov. Ducey is concerned about unemployment insurance benefits ‘that can incent work’ he should follow the lead of Georgia’s Gov. Kemp. He provided an incentive to work by raising his state’s earnings allowance to $300 per week.

Gov. Ducey: When responding to the question if businesses should be required to contribute more to the state’s UI Trust Fund to support an increased weekly benefit:

“In many ways it’s a hypothetical question because unemployment wasn’t really an issue before the pandemic. Our unemployment rolls in late February were 17,000 people.”  

Fact check:

• This is not a hypothetical question. Whether 17,000 or several hundred thousand people are receiving unemployment assistance in Arizona, the fact remains that $240 is a catastrophically low level of weekly assistance for someone who has lost their job through no fault of their own.
• The issue Arizona faces now is that its leaders have chosen to keep UI taxes as low as is legally permissable. As a result, the state’s UI Trust Fund is underfunded and a loan will be required from the federal government to meet its obligations to the Arizonans who have lost their jobs due to the pandemic.
• The norm across the United States is to cap benefits at half the average weekly wage, which in Arizona would be $490 per week, more than double the current cap.

Read GCI’s presentation of research findings.

See the Grand Canyon Institute’s previous research on Arizona’s unemployment system and the COVID-19 pandemic at its online Research Library.

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