Eighteen states have critically underfunded unemployment insurance plans. This issue has yet to come to a head, but it soon will.



Please consider Unemployment Insurance Buckles After Years of Underfunding.



[Eighteen via latest updates] states have simply run out of money to pay benefits and been forced to borrow from Washington a total of more than $8 billion. That number is almost certain to grow as more states reach the brink. If they are not able to pay that amount back before 2011, which most will not be able to do, they face paying hundreds of millions of dollars in interest.



Meanwhile, many workers are struggling to get by on what the system pays them. Where you live can make all the difference -- workers in the most generous states get twice the average benefits of workers in the stingiest ones. The percentage of unemployed workers who even receive benefits varies greatly by state.



Unemployment insurance is also intended to be automatic stimulus during a recession, keeping people spending and businesses open.



"The idea is you accumulate reserves and then you can support spending when the economy goes south," said Gary Burtless [3], an economist at the Brookings Institution.



But many states have failed to do that, and they're now paying the price. Indiana, which ran out of reserves last year, just raised its unemployment taxes by 35 percent, right in the middle of a deep recession when businesses can least afford it.



Many have been maintaining close to zero reserves [4] for years, well before the economy headed south. California, for example, got into trouble by raising benefits without increasing taxes. Other states, like Michigan, lowered taxes to unsustainable levels and watched their reserves dwindle.



Now, these states will be forced to raise taxes or cut benefits in the middle of a recession -- just when those changes will do the most economic damage.



On average, workers who rely on unemployment insurance get about half as much as they earned while they were working. In some states it is much less, and it may get lower as policymakers struggle to keep their unemployment insurance systems afloat.



There are also wide variations in the percentage of unemployed workers who collect benefits. Nationwide, only about 30 percent of workers who lose their job ever see an unemployment check, but in some states it is as high as 80 percent. Some of the variation is due to differences in who is allowed to collect benefits, some is because many workers -- particularly in states where unemployment insurance is considered a welfare program -- never apply.

Is Your State Flat Broke?

States are free to choose the level of funding for their systems. Over time, many states yielded to political pressure to increase benefits and lower taxes, allowing their reserves to dwindle. Now, 17 states have run out of money altogether, forcing them to borrow money and increase taxes at the worst possible time: in the middle of a deep recession.

Who Is To Blame?

34 Percent of Workers Have One Week or Less of Savings

Over a one week period beginning July 6 and running through July 13, more than 16,000 visitors to Monster.com participated in the Monster Meter Poll question “If you were laid off without severance, how long would your savings cover your living expenses?”



One Week or Less: 34%



2-4 Weeks: 16%



1-2 Months: 16%



3-5 Months: 14%



6 Months or Longer: 20%

Creating three broad groups, 50% have less than a month of savings, while only 20% have 6 months or more. The remaining 30% are in between. Although the Monster Poll is not scientific, I cannot help thinking it is reasonably accurate.

Role of the Fed and Congress