Michigan’s Increase In Unemployment Insurance

Earlier this week Governor Whitmer signed a bill increasing Michigan’s Unemployment Insurance for the first time in over 20 years.  It isn’t often that I agree with something our Governor and the Democrat run legislature does, but this is one of them. Michigan’s unemployment benefits have been eroded greatly by inflation and currently are lower than that of a full time minimum wage job.

Michigan Unemployment Historic Overview

In 2002 Michigan’s maximum unemployment benefit was set at $362, which at the time was 58% of the average weekly wage in the state. From 2002 to 2011 Michiganders filing for unemployment benefits could receive those benefits for 26 weeks.   In 2011 to combat the depleted trust fund from the great recession (which ran from 2001 to 2011 in Michigan) Governor Rick Snyder signed a bill to limit benefits to 20 weeks.  At the time Michigan’s unemployment rate was at 13.7% and the trust fund sat at negative $3.3 Billion.

From 2011 to 2024, excluding the extended federal benefits during Covid, the maximum amount of money someone could receive from Unemployment benefits was $362 X 20 weeks, for $7,240 total.

Going further back in time, in 1985 unemployment benefits had a maximum of $197 for 26 weeks. inflation adjusted that would be $589 in 2024. The inflation adjusted unemployment benefits in Michigan in 2024 were the lowest in at least 40 years.

Inflation:

Inflation is the most regressive tax. The price increases affect the lower class first and hardest, while pay raises are slow to reach it.  This has especially been true for the last 20 years.  We, especially in Michigan, but also nation wide, had an enormous over supply of labor due to a mixture of shipping our jobs overseas and older American’s who were hurt by this and by the great recession not being able to retire.  This caused downward pressure on wages and increased unemployment.

Using CPI data, $362 in 2002 is the equivalent of $645 today.  The current Michigan average weekly income is $1,266. 58% of this, which would be what unemployment insurance was set at in 2002, is $734. In 2002 a 2 bedroom apartment in Benton Harbor, MI was around $450 a month, today it is around $900 a month.

The argument against increasing unemployment benefits is the same one used against increasing the minimum wage. It’s also the same one that SHOULD be used against Social Security COLAs.  Social Security increases every single year with inflation and no one bats an eye, but these people are all of a sudden ardent fiscal conservatives when talking about Unemployment Insurance and the minimum wage.  They ignore the existence of inflation, at least in these 2 instances.  It is not actually increasing benefits to adjust to inflation, it is preventing benefits from being lowered due to inflation. In this case it is only adjusting for the lowering that has already occurred.

If we never increased unemployment benefits to combat their erosion due to inflation, then they would become like the Social Security burial benefit.  This benefit, paid upon death, is for $255. It as not been changed since 1954.  In 1954 this would be the equivalent of $3,000 today. $255 today barely makes a dent in final expenses, while in 1954 it likely could cover at least half of a modest funeral.

With this legislation the increase in 2025 is still only 69% of what the inflation adjusted benefit was in 2002, in 2026 it is only 82%, and in 2027 it is only 95%. By the end of 2027 inflation will have probably made it closer to 85% of the 2002 value, then index for inflation going forward.  Although this bill greatly increases benefits, it is still less generous than Michigan’s unemployment system was in 2002.

What This Bill Does:

• Increase benefit duration from 20 weeks to 26 weeks
• Increase weekly max from $362 to $446 in 2025
• Increase weekly max from $446 to $530 in 2026
• Increase weekly max from $530 to $614 in 2027
• Increase weekly max according to CPI inflation starting in 2028.  This last part is really important. This allows unemployment insurance to continue to increase without further action, and without it being a battle over weather unemployed people deserve to be protected from inflation to some degree.
• Increases the depended credit from $6 per dependent per week to $12.66 in 2025, $19.33 in 2026, and $26 in 2027.  This is on top of the weekly maximum discussed above.

You can read the text of this bill here

At no point in the bill does it mention retroactively adjusting current claims. If someone claimed benefits starting on December 31st of 2024, I believe they would still be capped at $362 a week and 20 weeks.  This legislation is only for claims started in 2025 or later.

In general I am in support of this bill.  I am more concerned about the weekly maximum increasing than the number of weeks increasing.  I think 20 weeks is a reasonable amount of time to be able to find suitable work.  I do not think $362 is a reasonable amount of income to keep catastrophe at bay.  If I had to choose, I would certainly take a higher weekly max rate than a longer duration.

Affordability:

Currently only 34% of claimants reach the 20 week limit. It is estimated that using the same average week to week decrease in claimants that the total cost average per claimant would increase by 9.8% due to the expansion of benefits.

In 2024 $763 million has been paid out in benefits, while $1.2 Billion has been collected.  The estimated costs for future years with this expansion based on current unemployment levels are:

• 2025: $940 Million
• 2026: $1.1 Billion
• 2027 $1.3 Billion

The Trust fund is currently at $2.8 Billion. The trust fund peaked at $4.7 Billion right before COVID hit. Michigan had some of the most draconian work restrictions placed by the Governor and the unemployment trust fund depleted to $513 Million in March of 2021, at which point it began rebounding.

If we assume that unemployment rates stay the same and that the taxable base stays the same, then the trust fund would run a $100 million deficit starting in 2027 (By which time the trust fund would have grown by an additional $300 million).  The $3.1 Billion trust fund would then take 30 years to deplete.

If Michigan sees lower unemployment and an increased wage base, which should be the goal, then the trust fund will continue to build up.  Currently there is not a need to think we can’t support the system at the current revenue rates. Michigan has a very robust Unemployment Trust Fund.

People worried about the trust fund depleting if we have another economic crisis should be more focused on not creating another economic crisis.  $4 Billion was depleted from the Michigan trust fund because the Governor decided to shut down the entire state and make it illegal to engage in business activity.  This was purely a “man made” (or should I say Woman made?) recession.  More people received benefits and fewer employers paid in benefits on a large scale.

Compared to Indiana, Michigan had a deeper and longer unemployment from the State’s actions during Covid.

• April 2020: 22.4% Michigan, 16.8% Indiana
• June 2020:14.6% Michigan, 10.3% Indiana
• Aug 2020: 9.7% Michigan, 7.2% Indiana
• October 2020: 6.9% Michigan,  5.6% Indiana
• December 2020: 7.0% Michigan, 5.0% Indiana

Every state hit their respective historic maximum of unemployment in April of 2020. Other states with strong lockdown actions during Covid still had a lower unemployment rate. New York hit 16.7%, California hit 16.1%, Kentucky hit 16.8%.  By contrast, less draconian states like Texas hit 12.8%, Georgia was 12.4%, Arkansas 10.1%, Wyoming was 8.7%, and Florida hit 13.4%. Michigan in April of 2020 had the highest unemployment rate recorded.

If Michigan experiences economic growth and a reduction in unemployment rate, then the trust fund will continue to build while we are able to not make losing your job an immediate crisis for those who end up in that position. We need to be focused on creating job opportunities in Michigan so that fewer people need to receive unemployment benefits.

Michigan Unemployment Stats:

The average weekly benefit is $347.  Although the maximum is increasing under this legislation, the benefit formula itself is not changed, in order to earn a higher benefit workers must have earned more money in the 6 quarters leading up to their claim being filed to qualify for these increased benefits. The weekly benefit amount is generally calculated as 4.1% of the highest quarter in their 4 quarter benefit year.  This effectively sets the weekly benefit amount at roughly half of a weeks pay from their highest earning quarter, then subject to the maximum provision.

The average weekly duration is currently 10.9 weeks.

There are currently 206,000 claimants receiving benefits.

This data and more can be found at the State’s Unemployment Dashboard

Michigan is currently on an increasing trend in unemployment. Michigan unemployment was at 3.3% in November of 2023 and in November of 2024 is at 4.8%.

How The System Works:

Years ago I took a deep dive into how the system works, essentially, employers are taxed on wages their employees earn. This tax rate is variable and is largely based on their history of layoffs and employees usage of the unemployment system.  In addition to the tax rate they pay, former employers often pay a large chunk, if not all of the cost of their ex-employees claim.

People who file for unemployment benefits are generally required to search for employment. They must document their search and submit at least 1 job contact per week to the Unemployment Agency.  There are some exceptions to the job search requirement, such as if the worker has a return to work date from their employer in <120 days.

A common sense change that could appease some people who are against the increase in benefits would be to increase the job contact requirement per week from 1.  Requiring 1 contact per day, or 5 per week would be reasonable.

Each state is different.  States have highly variable requirements for work searches, eligibility, benefit calculations, and maximum benefits.  Some states don’t require submitting the actual job contacts made, however they do require a log be kept in case of an audit.

Compared To Other States:

Nearby states vary substantially:

• Ohio: $583/week but large increase with dependents. $707 with 1 or 2 dependents and $787 for 3 or more.
• Indiana: $390/week
• Illinois: $593/week, $808 with dependent child.
• Pennsylvania: $605/week, plus $5 for 1 depended, and $3 for each additional.
• Wisconsin: $370/week

States with the highest benefits:

Washington state has a max benefit of $1,079 per week for 26 weeks and Massachusetts has a weekly maximum benefit of $1,033 for 26 to 30 weeks. Massachusetts increases benefit weeks to 30 when the state unemployment rate is over 5.1%. Mass. has a dependency allowance of $25 per week per child.

The highest possible unemployment benefit in the country then is Massachusetts with a maximum of $30,990.

States with the lowest benefits:

Mississippi has a max benefit of just $235 per week for 26 weeks and Alabama has a max benefit of $275 per week for 14 to 20 weeks. Alabama’s duration of benefits is based on the unemployment rate. If it is 6.5% of below the max is 14 weeks, it then increases one week for every 0.5% increase in unemployment rate, hitting 20 weeks at 9.5% unemployment.

There are 11 states that have a standard unemployment insurance benefit period of under 26 weeks, with 3 states; Florida, North Carolina, and Kentucky being as low as 12 weeks.  Many of these states do increase their amount of weeks of eligibility when unemployment rates are higher. Florida has a max weekly benefit of $275, North Carolina is at $350, and Kentucky is at $665.

The lowest possible unemployment benefit in the country then is Florida with a maximum of $275 per week X 12 weeks for a maximum of $3,300.

This massive difference in possibilities makes things interesting for people who work in multiple states.  Currently to make a claim in a state you must have worked in that state.  When I worked as a travelling nuclear contractor one of my employers was out of Connecticut, so I was able to file my claim in Connecticut instead of Michigan.  At the time a claim in CT paid around $700 a week for 26 weeks compared to the $362 per week for 20 weeks in Michigan.  This was roughly $18,200 for a max benefit vs $7,240.

Living On Unemployment:

With the current unemployment insurance amount of $362 per week, unemployment insurance is less than Michigan’s minimum wage of $10.33 per hour, which would be $413 per week working full time.

Monthly:

Revenue: 4 weeks at $362 = $1,448

• 12% Federal Income Tax: -$173
• 4.05% State Income Tax: -$58
• Rent: -$900
• Electric – $120
• Gas -$100
• Water/Sewer/Trash – $75

At this point the main bills are current, but we haven’t ate yet or covered any miscellaneous expenses and only have $22 left for the month. This is also using a rental price for a 2 bedroom apartment in one of the lowest cost areas of the state. The Average 2 bedroom apartment in Michigan is $1,383 per month, which would eat virtually all of the unemployment cost.

This increase makes a significant difference for people who find themselves living off of unemployment. I do think that something that should be changed is that when someone is approved for unemployment benefits they are automatically approved for food stamp benefits.  Michigan removed the asset test for food stamps in 2023, so this should be able to be done. The state knows their income information, which should then be able to directly calculate food stamp benefit amounts.

What do you think about unemployment insurance in general and about this recent increase in Michigan?