Jay Goltz discusses how some state-level unemployment insurance systems actually deter firms from hiring new employees:
The unemployment insurance tax may be the most confusing and misunderstood tax there is. It is run by the states, and the rules can vary as much as the weather from one state to another.
Here’s how it works in Illinois. The important point for business owners to know is that when the state pays out claims to a company’s former employees, that company’s unemployment tax rate goes up. For each business, the state calculates how many dollars have been paid in compensation over the previous three years and adds on about 48 percent through various calculations. The result is that in Illinois, you end up paying for incremental compensation claims at a rate of $1.48 for every dollar that a former employee collects.
If you lay off or fire someone without “cause,” that person is eligible for unemployment compensation. “Cause” means that the employee violated a company policy, like coming in late or threatening a co-worker. “Cause” does not include doing a bad job, being very slow, or having a bad attitude.
I’d always assumed that the Canadian system (which is run by the federal government) was more generous than the various state-level systems in the US, but there appears to be more variation state-to-state so that may not be true. Certainly the Illinois system’s top payment of $531 per week is well above the Canadian EI top payment ($457 before taxes, according to the servicecanada.gc.ca website). If the Illinois amount is after tax, that’s significantly more than a Canadian claimant would get.
