Everyone pays for unemployment insurance, not just businesses

Tax paperwork

Source: Flikr Creative Commons

The Minnesota House and Senate passed, and Governor Dayton signed, a 26-week extension of unemployment benefits for Iron Range miners and a reduction in unemployment insurance payments for businesses.  I heard a story about it this morning on MPR and thought I heard something incorrectly.  I went to the transcript and I wasn’t wrong.  Here is what brought me up short:

“Mike Hickey, state director of the National Federation of Independent Business, applauded the relief. He said businesses will likely reinvest the savings in new hires or new equipment. And with the unemployment account balance so high, he said there was little risk of it running dry if the economy turns south.

“They need to give some back to people who fund 100 percent of this,” Hickey said. “Employees do not contribute to unemployment. You only get it. You don’t contribute toward it.”

Amazing. Hickey starts by claiming that businesses may use part of the savings to hire more workers.  This means that some of the resources to pay the tax originally came from workers through reduced employment and wages.  But then comes “employees don’t contribute to unemployment [insurance]?”

This is nonsense.  Economists make this point in every introductory economics class: all parties to an economic transaction pay part of any tax.  That is, the government may collect the revenue from only one side but the resources come from everyone involved as a buyer or seller of the product and as a buyer and seller of the resources used to produce the product.

In this case, government collects revenue from business and puts that money in the unemployment insurance fund.   In only this sense does the business “fund 100 percent.”  However, businesses obtain those resources through a combination of reduced profits, higher prices charged to consumers, and lower wages paid to workers.  Companies, customers, and employees all share the burden.

I know that it is lobbyists’ jobs to advocate for their positions. But this quote makes me wonder, are they ignorant of the economics or simply being deliberately obtuse? Neither is an attractive possibility, and we need to keep both in mind when we listen to policy debates in St. Paul and Washington.