Letter to Schwarzenegger on Unemployment Insurance

A letter I am drafting currently.  If you don't know how unemployment taxes work, see here.

Governor Schwarzenegger:

As a business operating in California as well as twelve other states, I have the ability to compare the regulatory and business climate across states.  And while I could discuss many issues with the state of California regulatory affairs, I will focus on just one in this letter:  administration of the state unemployment insurance program.

All the states have an unemployment insurance program with roughly similar rules.  The fund will pay workers some percentage of their past earnings if they are terminated for reasons other than with cause from their last employer and are actively seeking new employment.  Employers are typically charged an insurance rate as a percentage of wages that is based on past unemployment claims by ex-employees of that company.

Before I provide my observations on the problems in the California system, let me provide some data that helps indicate that California is indeed unique.  Here are our unemployment insurance rates by state  (we have roughly the same business profile in each state, though if anything our business is less seasonal in California so one might expect, all things being equal, that our rates in California would be lower than average)

New Mexico:  0.03%

Texas:  1.06%

Florida:  1.02%

Arizona:  3.30 %

Michigan:  1.5%

Colorado:  0.9%

Wisconsin:  0.25%

Minnesota: 0.40%

California:  6.2% + 1.1% disability adder

You can see that our rates in California are double that of any other state, and more than 6 times our average.  Further, the California rate could actually be higher by our experience, as 6.2% is the cap.  By the way, we did a study a while back as to why our Arizona rates were so high.  It turned out most of the claims were from people who had recently moved from California, and grew up under the California system.

In interacting with the California state unemployment system for a number of years, our company has observed two issues that raise costs:

  1. It is virtually impossible to convince unemployment office workers that an employee was fired for cause.  It is very clear they see their mission as making everyone eligible, and thus even a guilty plea of outright theft has not been enough to have the state unemployment office agree that a firing was "for cause."
  2. The state unemployment office does absolutely nothing to ensure that a worker collecting unemployment is actively seeking work, as is required by legislation.  We run a seasonal business, and our workers have told me the unemployment office tells them that it is perfectly fine to work 6 months and take the other 6 months off on unemployment.  I have had employees vacationing in Mexico for 6 months still collecting unemployment.  When I reported this fact to the state unemployment office and said that these workers obviously could not be actively seeking work in California, I was told by the workers comp. customer service staff that if I made such a claim, and did not succeed in proving it, I was subject to fines and even incarceration for making a false charge.  Of course, I dropped it.

No matter what the text of the legislation says or what you are told by the managers of the system, the front-line employees who make the decisions that drive costs see it as their job to ensure maximum payout to any individual, regardless of whether they are honestly looking for work or not.  I have, just as a test, asked trusted employees to call the unemployment office to ask about benefits.  They were told that they didn't really have to be looking for work, that no one would check, and that all they had to do was call in and say they were looking for work and they would get paid.  Your unemployment office was practically begging them to take as much money as they could.


  1. m:

    That's a great letter. The only feedback I have is that you might have a better chance that it gets read by making it more concise. I say that only because I think this letter needs to be read by a ton of people in CA.

  2. danny toone:

    I totally agree with what you are writing, but I'm 100% positive this will fall on deaf ears. California has been losing businesses consistently for over two decades, and not even once has the California Legislature attempted to address this problem.

  3. A Stoner:

    I have to disagree with you on how they think. They maybe think that way for low wage workers, but they certainly do have contempt for anyone making close to $100,000 a year on unemployment.

  4. Mike:

    Another problem is that the more cases the unemployment office has, the more employment for them. If they denied more people, the less work they'd have. More lay offs.

  5. Meredith Wright:

    Part of the problem in CA is the entertainment business. Run over to any state unemployment office the day after a film ends production or a TV show goes on hiatus, and the lines of applicants go around the block. When I worked in commercial production and went thru a dry patch, I filed and showed up religiously to prove to the clerks that I was ACTIVELY looking for work (since I am from NY where they make you feel guilty for being on unemployment) and not a single clerk ever looked at my paperwork. Everything was just stamped and accepted and I got my checks.

  6. Andy:

    "I was told by the workers comp. customer service staff that if I made such a claim, and did not succeed in proving it, I was subject to fines and even incarceration for making a false charge."

    Lawyers in the Ninth Circuit should be held to the same standards.

  7. Rick Sharp:

    Sad and hopeless, I love California but I think it is beyond the tipping point. Their are too many problems and with the addition of AB32 and the cap and trade BS plus the uncontrolled spending the end is nigh.

  8. biologist:

    The unemployment tax system in the USA is completely absurd. Not only are seasonal businesses punished, but this kind of "experience accounts" also pushes any weak companies (those that had lots of layoffs) over the edge and therefore exacerbates unemployment! Strangely enough, governor Schwarzenegger comes from a place where government actually works - why doesn't he just copy the Austrian or German systems? The German system, for example, has tough controls of availability of the unemployed: the person has to show up regularly in the office and go to interviews the official has for him, penalty time-out for being fired for cause, for not taking an offered job etc. The system is organized as a mandatory insurance with a uniform universal rate of currently 3%. This pays not only for dole, but also for the office's efforts to get interviews for people and to do retraining.

    Just ask Arnold to look up "Arbeitslosenversicherung" in the German language Wikipedia...

  9. Allen:

    My experience with unemployment is that it would probably be expensive to try to enforce that everyone is actively looking for work. That said it shouldn't be that difficult to at least start an investigation if there is reason to believe a person may not be. I always keep track of where I've sent resumes, whom I've spoken with and when I have and notes about the conversation. It's for myself so I can keep track of what we had discussed (hourly rate, salary, benefits, the company they were representing, et al). It just also happens to be a good set of records in case the unemployment office asks for some more proof. Surely that's the least people can do in exchange for the benefit. After all, what else are you going to do with that time on your hands?

  10. Allen:

    FYI - When submitting comments they are saved but for the end user it's still giving a 404 page not found error.

  11. Mark:

    The unemployment system is very bad. In my homestate, Minnesota, it is also very difficult to "win" an unemployment hearing when you are firing an employee for cause. Because of the nature of my small business, we have employees that essentially disappear for weeks or months, with the only notice from them ever arriving is the unemployment application weeks later.

    WIth that said, unemployment is nothing compared to the breakdown of the worker's compensation system. In my state, the employer is assumed to be guilty and the system is completely in control of the employee.

    That is, if an employee is injured they are in complete control of the situation. They get to choose which doctor they go to. They get to choose which treatment they want. The only thing that the employer gets to do is pay the bills, which the medical community seeing a third party payer runs up with unfettered glee. I have aches and pains too, but I am not going to go spend $25,000 on "physical therapy".

    The entire system is bastardized. I am not denying that sometimes employees are injured on the job, that the medical care for such injuries are the responsibility of the employer, and that they are entitled to just compensation for the period of time they miss work because of the injury.

    But, it is a "WORKERS" compensation program. THe entire objective of such care should be to get the employee BACK TO WORK. The employer should be in control of the treatment and allowed to choose the care appropriately. IF there is some objection then there should be an arbitration system that does not involve lawyers that can settle any disputes over proper treatment and outcomes.

    Our state, and I am assuming many others, needs to address these problems because they may in the end completely swallow all private employers.

  12. Fred from Canuckistan . . .:

    It would make a great "Guest Column" in a major California newspaper or a letter to the Editor of all the major MSM California rags.

  13. trumwill:

    This is an interesting contrast to my experience with unemployment compensation in the south. I was let go without cause - it was right there on the paperwork I was given - but the paperwork sent to the unemployment commission said that there was cause. I had a week to get things straight with the workforce commission, which doesn't sound like a problem except that I spent the first five and a half days trying to get ahold of a live person. Then when I did I found out that I would have to make a trip down there with said paperwork. That was an all-day affair because of the line, which ironically meant I had to postpone a job interview. It didn't happen to me, but there are employers in the area that are notorious for lowballing overqualified employees (trying to get experienced IT people to work entry-level phone support) and threatening to call the workforce commission if you turn them down (and a simple call to the commission means that benefits are suspended until you can actually get a hold of someone to tell them why you turned the job down). It all worked out for me in the end, but it sure felt to me like everything was stacked in favor of the employer.

    I now live in the liberal Pacific Northwest and expect to be unemployed at some point relatively soon and am hoping not to have to deal with those headaches.

  14. sf:

    Great, great letter, well thought out.

    I agree with you that no government at any level gives a damn about business. As far as bureaucrats are concerned, businessmen exist to pay and pay myriad taxes and fees. And as your scouting run at the unemployment agency found, if you make any waves they can ruin your business by burying you in paper and even more demands.

    One suggestion: Just below the list of state rates you write, "You can see that our rates in California are double that of any other state, and more than 6 times our average." I think you may have left out an adjective before the last word, like "regional" or something similar.

    Man, I'd send this to every paper in CA, and just see if any picked it up. Do it by email and it's certainly not an expensive effort. (If you've got a kid, pay him $20 an hour to find the email addys of the letters pages of the top 50 papers, and then deduct it on your biz taxes.)

  15. Master of Obvious:

    I am also a California employer.

    I suggest that you modify one of your claims: You claim that the unemployment office does not ensure that the worker is actively seeking work.

    The truth is: Most of my former workers collect unemployment payments while at the same time working for cash under the table at outside establishments. This double dip is profoundly unfair to those who are gainfully employed and live by the rules. You are an accomplice to the criminal enterprise and tax fraud because there is no mechanism to prevent this.

    Go for it. Crickets chirping in response. Society is broken.

  16. Ralph Short:

    Outstanding effort as this is just one of the many issues that are reducing this nation to a 3rd world country. Not only that but it is also dividing us into separate nations.

    The bottom line for me is I want nothing to do with, nor have anything worthwhile in common with, people who encourage slackers to take advantage of the productive.

    Fortunately, I live in South Carolina and am glad I left Pa.

  17. JohnF:

    This is a silly letter because you are continuing to do business in CA. It would be a good letter if it explained why you were leaving the state, or refused to enter it. But your letter basically says, "Hey, Arnie, I'm an idiot!"

  18. Raven:

    I read that an bureaucrat in Germany denied a woman unemployement insurance because she refused to take a job in a (legal in Germany) brothal. There was a bit of outrage.

  19. markm:

    Raven: That was mis-reported. An unemployment worker sent a letter up the chain to say that the regulation needed changed to exclude such "jobs" as brothels, but no one enforced the regulation. Modern Germans don't just follow orders when they're ridiculous, they get them changed. (Even back in WWII, when questioning Hitler's orders would get one shot, generals often ignored unrealistic orders and falsified their reports to cover themselves.)

  20. markm:

    Biologist: It might be a cultural difference. Unless they're hiring from the very bottom of the barrel, most American employers don't want to hire anyone without the gumption to go out and get job interviews themselves. Nearly forty years ago when I was looking for my first summer job, I did go on an interview arranged by the State of Michigan's Job Service. (This is co-located with the unemployment clerks, although it's a separate agency.) That employer was obviously just going through the motions to please someone; I eventually found a job by hearing from a friend that a restaurant needed dishwashers and getting there before they'd even placed an ad in the newspaper. The next two times I dealt with them were in 1987 and 1990; the Job Service theoretically maintained a job list and would arrange interviews for those who couldn't manage to call the employers themselves, but their attitude clearly said, "We don't really expect anyone to get hired for anything." Not to mention that I'm an engineer and they had no idea how to find job leads for any skills higher than welding. Last year, I was looking for work again; it has improved to the extent that they have a good on-line database from which I got several good leads and three interviews within a few weeks - and in my engineering specialty. I did use their office once, to fax a resume to an employer that wouldn't take resumes by e-mail. A reasonable job offer eventually came from one of those interviews, but I had already found a better job through friends.

    As for checking up on whether one is looking for work: In Michigan in 1990, to receive unemployment I had to file forms listing at least three job-hunting contacts per week. I don't know how often they checked up on someone, but at least there was something to check. Last year, I just called an automated phone service, typed in my ID number, and typed 1 for yes or 2 for no to questions such as, "Were you available for and actively seeking employment?", and "Did you turn down any job offer?" No evidence of actual job-hunting required, and so investigating whether one really did look for work would put the investigator in the impossible position of proving a negative.

    Of course, there are times when checking on people's job-hunting is pretty pointless. There are more people actively looking for work because they want to than there are jobs. Thank you, Jennifer Granholme and the other socialists in Lansing, and the UAW...

  21. Insurance B:

    U.K provides different type of insurance policies like business Insurance, unemployment insurance, home insurance, health insurance, life insurance, car insurance.

  22. John Dewey:

    JohnF: "This is a silly letter because you are continuing to do business in CA. ... your letter basically says, “Hey, Arnie, I’m an idiot!”

    First, are you aware of the nature of Warren meyer's business? He contracts with public parks to manage campgrounds. It's not as if he can relocate the campgrounds to another state.

    Just because the regulations and taxes of one state place it at a disadvantage relative to other states does not mean it is impossible to earn a profit in that state. Why is Warren "an idiot" if he continues to earn a profit - even while operating in a business-unfriendly environment?

    A strike against a tax - a refusal to do business in a state - is one option for an employer. But it is not the only option, and it really shouldn't be the first choice of any intelligent businessman.

    Is that how you run your business, JohnF? by burning your bridges through issuing ultimatums to those with whom you do business? or do you have a business to run at all?

  23. JohnF:

    John Dewey:

    Actually, you make a great point: that CA is a genius! Sucking as much as it can from a business, but not so much that it will leave! The Coyote is free to stay in CA, or not, as he chooses. But what is the point of his letter? To dissuade CA from doing what it is doing? CA's answer is just, "Hah. I can get away with it--look at you." So what exactly is the point of the advice to CA?

  24. John Dewey:

    JohnF: "So what exactly is the point of the advice to CA"

    Incredible as it may seem, elected officials do listen to their constituents. The chance that an elected official will listen to your argument .... as well as the chaance that an elected official will act on your argument ... is about zero if you never make him aware of your argument.

    If Warren is fortunate enough to have his letter published in a CA newspaper, then he greatly increases the chances that 50 other CA citizens will let their elected official know that the state unemployment system is not working as designed.

    Please remember that Governor Schwarzenegger, a Republican, is not likely to favor an unemployment system that promotes unemployment.

  25. Bill Beeman:

    Well, it is possible to win in California on a firing for cause...I did it once in 1997...but the cost of doing so (repeated hearings, tons of documentation, etc.) nearly were the same as paying the hit on the experience rating.

    The rip off that really made my blood boil was having a key employee leave in the middle of a project to take another job. He quit that job a short time later, and our rating took the hit (he hadn't been employed with the new company long enough to count.

    On the other hand, the actual financial damage caused by the thoroughly corrupt workers compensation system is probably greater for most California employers. Even after some reform efforts the system is being gamed daily, and still undercompensates the seriously injured, while paying excessive benefits to those who know how to work the system.

  26. jobseeker:

    When it rains it pours. I've heard that the latest idea circulating in Sacramento is to require firms to start withholding taxes on contract workers. That should cost the state even more jobs and businesses.

  27. Business advisor:

    CA is the most expensive place in America to do business. I wonderful place to visit but not to do business, unless you're making movies.

  28. Unemployment office worker:

    It is hard to disqualify someone who is fired. The employer has to prove that the final incident leading to discharge was willful misconduct. As someone mentioned above, that can require quite a bit of documentation. Truth be told, I would imagine that 90% of people who are fired are found eligible. In contrast, 90% of people who quit are disqualified.

    At least until the administrative law judges get the case on appeal. Then pretty much everyone is eligible, quit or termination. One reason why the Unemployment insurance fund is going bankrupt in California is because the Administrative Law Judges seem to believe that they are social workers.

    As for looking for work, remember, some claimants are not required to look for work. If it is a seasonal employee with a definite rtw date or in some cases, a union employee, efforts to seek work are not required.

    In cases where efforts to seek work are required, the it is considered to be a reasonable search for suitable work if the claimant looks in their local newspaper for employment or online. There is also the Caljobs registration requirement.

    It would be impossible for EDD to verify seek work efforts. As it is, the workload right now is a nightmare, especially in the adjudication centers. They are running about a month behind and this is with 11 hour days M-Sat. Did I mention that the EDD offices will also now be closed 2 days a month for furlough beginning in Feb?

  29. Lee Vogel:

    How do I even get my UI? Filed - had phone interview scheduled for 2/19/09 - no call. Can't reach a human on the phone - "lines busy". Left messages on email - three days running. Any ideas?

  30. Working Man:

    It's costly to do business in California. Nobody disputes that. But the opportunities are better in California than almost anywhere.

    California's workforce is skilled, educated, and motivated. Let's keep it that way.

    Don't ignore one of the main functions of UI, Medicare, and Social Security. Such programs stabilize the economy, and prevent recessions from becoming 1930's disasters. The recessions of 1980-81 or 1973-74 could have spiraled into depressions without programs like UI. What would that have done for business?

    Another benefit of UI is workforce retention. UI stabilizes the workforce, and keeps a pool of qualified workers available for the next upturn (I pray we have one).

    As to forcing UI recipients to look for work, while I was on benefit, I was required to submit written work search histories in person, several times. This was a slight inconvenience, as I've always kept track of my job searches.

    I was also been required to show proof of citizenship.

    UI is hardly a bonanza. Benefits range from $40.00 to $450.00 a week. How far does that go in California?

    I disagree with the premise that government is anti-business. Somebody has to stand up for workers. With the decline of unions, and the devastating effect of globalization on real wages, government is the best hope for working Americans. According to the Bureau of Labor Statistics, real wages are lower than thirty years ago, for four out of five Americans. In terms of what workers' pay will buy, a considerable majority has been on the loosing end for decades. Again, what does this do for business?

    Speaking of dedicated employees, the workers at the EDD, the agency that administers UI, are professional and courteous. I'm thankful for government employees such as they.