Washington’s record-setting increase in average wage means big hike in unemployment benefits

Yesterday we wrote that the state’s 10.1% bump in average annual wage would translate to increases in unemployment benefits, Paid Family and Medical Leave benefits, and workers’ compensation benefits. Today, we have a little more information on just what the effect of the wage bump will be. 

The Seattle Times reports

The benefit increase stems from a state policy that ties jobless benefits to the state’s average wage, which thanks to a grim statistical quirk increased during the pandemic even as tens of thousands of workers lost their jobs.

As a result, the minimum weekly unemployment benefit will increase by $94, to $295, for workers who file their first jobless claim on or after July 4. (Workers already receiving benefits will continue to receive benefits at the current level.) That’s the biggest increase since the ESD began tracking such data, during the Great Recession, said Paul Turek, ESD’s state economist.

The maximum weekly benefit for new claims also will increase — by $85, to $929.

Coupled with the $300 federal pandemic benefit, the state’s total weekly benefits will range from $595 to $1,229. That federal benefit ends in September.

That’s a big increase, coming at a time when many businesses face challenges finding workers to fill job openings. ST reporter Paul Roberts writes,

The benefit increase will likely add to criticism that high jobless benefits are fueling a labor shortage by encouraging unemployed workers to stay home instead of seeking work. But the higher benefits coincide with a resumption of the requirement, suspended since last year, that workers search for jobs while collecting benefits.

Roberts points out another factor fueling the benefit increase.

Earlier this year, state lawmakers raised the percentage used to calculate the minimum weekly benefit, from 15% of a worker’s average earnings to 20%, for claims filed after June 30. The higher rate kicks in during the first full week of July, which starts July 4.

The increased payout could pose problems.

State officials aren’t sure what the benefit increase means for the state’s finances — or the prospects for employers, who pay for most jobless benefits via taxes — in part because it’s not clear how many Washingtonians will file for benefits after July 4.

If the state economy continues to improve and fewer workers file claims, the benefit increase “shouldn’t matter much” to the state finances, Turek said. [Note; we’d call that a best case scenario.]

“But obviously, if for some reason the economy were to stumble and a lot more people have to go on [unemployment], it could become a major issue,” Turek added.

More in the story. Also, Washington Research Council senior analyst Emily Makings has additional insights on the effects of the annual average wage hike.

Unemployment insurance (UI) taxes and benefits, paid family and medical leave benefits, and workers’ compensation benefits are all calculated based on the state average wage.

So, the UI taxable wage base in CY 2022 will increase to $62,500 (it is currently $56,500). This means that employers will pay UI taxes on the first $62,500 paid to an employee. Washington’s taxable wage base is already the highest in the country. The next highest is Hawaii’s $47,400.

Additionally, for new UI claims opened beginning July 4, the minimum weekly benefit will increase to $295 and the maximum weekly benefit will increase to $929.

ESD didn’t announce the maximum weekly benefit for paid family and medical leave, but based on the statute, it will increase on Jan. 1 from $1,206 to $1,328.

Averages, as we all learned in stat class, are tricky things. The Spokesman-Review reports,

The $76,741 figure represents the entire state of Washington. Spokane County has typically lagged behind the state average wage, said Patrick Jones, an economist and executive director of the Institute of Public Policy & Analysis at Eastern Washington University.

For example, the average wage in Washington in 2019 was $69,615. In Spokane County, it was $50,234. The department’s numbers indicate the largest wage increases occurred in information and retail, industries largely clustered in Western Washington.

“That’s Google. That’s Facebook. That’s Microsoft,” Jones said of the information category. Amazon falls under retail.

And,

Jones drew a clear distinction between average wage and “wages,” however. Just because the average amount increased, that doesn’t mean pay went up for everyone.

“It’s just the mathematics of creating an average,” he said.

Right.