Failure to address Arizona’s inadequate Unemployment Insurance System has cost the state $1 to 2 billion in lost economic activity

August 5, 2020

Policy Brief

August 5, 2020

(update of July 22, 2020 brief)[1]

  Slide show or view the press conference presentation portion with slide show from July 22 version.

Failure to address Arizona’s inadequate Unemployment Insurance System has cost the state up to $2 billion in lost economic activity

Dave Wells, Ph.D., Research Director

Max Goshert, MA, Associate Director


Key Findings

  • Due to the state’s low unemployment benefit cap and low earnings allowance, 40,000 to 110,000 Arizonans each week did not receive the federal supplement they would have received in all other southwestern states.
  • These workers have seen their hours drop by nearly half from about 38 to 21 hours per week.
  • $80 million to $230 million in added state unemployment or Pandemic Unemployment Assistance payments would have leveraged an additional $490 to $900 million in federal supplemental dollars.
  • Using a fiscal multiplier of 1.7, Arizona’s economy lost between $1 billion and $1.9 billion in economic activity since April as a result of the state’s UI system.
  • This has cost the state between $30 million and $60 million in tax revenue and local governments $35 million to $70 million in tax revenue.


As Congress debates a federal replacement for the $600 unemployment supplement, Governor Ducey insists that “Arizona is doing its part.”[2] Yet, there are more than 40,000 Arizonans each week who are falling through the gaps of Arizona’s inadequate unemployment system as their hours have been cut by half making then ineligible  unemployment assistance.  It’s up to Arizona to fix this—not Congress.

Arizona’s unemployment benefit is capped at $240 per week, about half the cap of most states. Arizona also provides little flexibility for people when their earnings are reduced.  This combination of a low benefit cap and low to no earned income allowance[3] has led to the complete loss of benefits for 40,000 to 110,000 Arizonans each week, which would not be the case if they lived in any other state in the southwest. Working Arizonans who have either returned to work at reduced hours or remain employed but had their hours cut, but who earn more from work than their state unemployment benefit, do not qualify for any state unemployment or pandemic unemployment insurance.[4] Consequently, they also have not received the more meaningful $600 federal weekly supplement that expired on July 25.

These working Arizonans have typically seen their weekly hours dramatically reduced from 38 hours to 21 hours and have been forced to get by on barely half of their former  income.

As unemployment soared due to the COVID-19 pandemic, the Grand Canyon Institute (GCI) put forward two options to Governor Ducey and Arizona lawmakers to fix this problem.

  1. Texas formula—Adopt unemployment parameters similar to Texas:
  • Benefits capped at half of the average weekly wage of covered workers, which for Arizona would mean raising the cap to $490 per week from $240. In Texas, the cap is $521.
  • Increase the income disregard fixed to ¼ of a person’s weekly benefit amount, e.g. a person could earn $100 if her weekly benefit amount was $400 before benefits are reduced. This is typical of most other states. Arizona’s current income disregard is zero for anyone earning as much as their potential benefit amount  and only $30 for those with earnings less than their potential weekly benefit amount, (e.g., a person earning $100, loses $70 in benefits).


  1. Georgia formula—Increase the income disregard to $300 before benefits are reduced. Georgia’s Governor Kemp did this in response to the COVID-19 pandemic.

Unfortunately, Arizona’s lawmakers chose to adjourn in May rather than deal with the shortcomings of the state’s unemployment insurance (UI) system and Gov. Ducey has failed to call a special session to deal with these issues.

As a result, 40,000 to 110,000 Arizonans have been denied all benefits—both state and federal. On average, 90 percent of these denied unemployment benefits in Arizona would have been funded with federal dollars (the remainder of benefits are paid from Arizona’s UI Trust Fund). The assistance denied translates into $1 to $2 billion in lost economic activity in Arizona.

Meet Ashley

Ashley earned $17.50 an hour working five days a week. When COVID struck, her hours were reduced to three days, leading to a 40% drop in pay. She received no unemployment assistance from Arizona’s UI system because she still earned $420 a week.

Ashley’s usual pay is $700 per week.
Ashley’s hours are reduced, resulting in her only making $420 per week. 


Ashley’s usual pay enabled her to be eligible for $240 per week in unemployment benefits. 
Because $420 is greater than $240, she does not receive any unemployment benefits from the state.
Since she does not receive unemployment benefits from the state, Ashley was not eligible for the $600 per week unemployment supplement from the CARES Act.


Table 1—Ashley’s Unemployment Compensation Under the Three Formulas

  Arizona Current Formula Arizona (Texas formula) Arizona (Georgia formula)
(1) Ashley’s usual weekly pay ($17.50 x 40 hours) $700 $700 $700
(2) Ashley’s reduced pay ($17.50 x 24) $420 $420 $420
(3) Unemployment weekly benefit amount (half usual pay up to cap) $240 $350 $240
(4) Amount of earnings allowed before benefits reduced $0 ($30 only applies if earnings < benefits) $88 (1/4 Weekly Benefit Amount) $300 (fixed)
Calculated benefit (3) – ((2) – (4)) $240-($420-$0) =<$0 $350-($420-$88) =$18 $240-($420-$300) =$120
Received under CARES Act $0 $18 + $600 = $618 $120 + $600 = $720


[1] In the July 22nd release Current Population Survey participants with missing usual wage were accidentally included in the Texas formulation—that error has been corrected in this revision which slightly lowered Texas formula estimates and increased avg. lost weekly benefits. GCI has in this revision added information on avg. lost earnings for those cut out of the Ariozna UI system and lost tax revenue due to failure to reform the system.

[2] Gov. Ducey press conference July 30, 2020.

[3] Technically called an Income Disregard is akin to an earnings allowance. It represents the amount of money a person can earn before having their unemployment assistance reduced. This is relevant for people who return to work at a reduced number of hours than their prior employment or for those who have had their hours reduced to the point that they qualify for unemployment assistance.

[4] Technically Arizona has a $30 income disregard, where the first $30 of earnings does not diminish your benefits.  However, anytime your earnings equals or exceeds your benefit amount, for example if your benefit amount is $240 and you are earning $240 or higher—then by statute you are defined as not unemployed and the income disregard does not apply. See A.R.S. 23-621 (A)..