Reforming Unemployment Insurance in New Mexico

The Washington-based Tax Foundation has an excellent new report on unemployment insurance. It explains the history of unemployment insurance, the problems that have arisen over the years, and includes many charts and graphs with specific comparisons among the states. It also includes some ideas for restoring/reforming state unemployment systems.

With all of the discussion in New Mexico on the need to reform unemployment insurance, this would seem to be an important paper for legislators to take a look at.

Rob Nikolewski over at Capitol Report has a great summary of the paper and some potential reform ideas for New Mexico’s elected leaders.  The South American nation of Chile has already implemented something called “individual unemployment accounts.”

Here’s how they do it in Santiago:

  • Workers pay 0.6 of their wages into individual accounts, and employers pay a further 1.6 percent of the worker’s wages into the account.
  • Employers pay a 0.8 percent payroll tax into a “solidarity fund” that pays benefits to new or low-wage workers when their accounts are exhausted.
  • Accounts are conservatively invested in a variety of securities by managing funds that also operate the workers’ retirement funds.
  • After a worker’s account has accumulated sufficient funds to pay five months’ worth of benefits, no further contributions occur.
  • The worker’s individual account pays out when the worker becomes unemployed or retires. Unemployed individuals can withdraw 30 to 50 percent of their previous wages each week for up to five months