Since 1935, the federal government has funded states to administer their UI programs. Because states have broad discretion in determining how to raise revenue, eligibility criteria and benefit levels, there is significant variability in system performance across them.
UI has recently dominated headlines due to widespread dysfunction during the pandemic, particularly in states like California and New York that have struggled with improper payments and escalating program debt. The situation has fueled a perception that these state programs are overly generous, contributing to fraud, fiscal insolvency and delayed job recovery. However, Minnesota, along with some of its Midwestern and Northwestern neighbors, has demonstrated that it is possible to offer generous support to unemployed workers while maintaining strong program integrity.
A healthy unemployment insurance system should cover roughly half of unemployed workers — those who are in eligible occupations and were involuntarily separated — with benefits replacing about 50 percent of their previous wages. Minnesota’s program meets these benchmarks more closely than California’s or New York’s, with 59 percent of unemployed workers temporarily receiving benefits that this year, on average, have replaced 44 percent of their former wages. Yet despite its relatively high level of support, Minnesota has managed to sidestep the fiscal and administrative pitfalls that have plagued too many other states. Between July 2020 and 2023, Minnesota maintained one of the nation’s lowest rates of improper payments and fraud.
Minnesota’s success in accuracy didn’t come at the expense of timeliness during the pandemic. Throughout that period, the state consistently delivered at least 80 percent of first payments to claimants within 21 days of eligibility. California and New York lagged behindby as much as 50 percentage points. This defies the common narrative that fraud protection inevitably slows down the process. If there is confidence that benefits are being distributed to the right people, approval can happen faster.
One key to Minnesota’s success is its program’s solid fiscal foundation, which enables the state to run a generous, accessible and efficient program. Regular UI benefits are funded by employer-side payroll taxes, with each state setting its own rates and taxable wage bases. Broad taxable wage bases provide stability and allow states to keep contribution rates relatively low compared to states with more narrow bases. Back in 1983, Minnesota proactively indexed its taxable wage base, preventing the inflation-driven erosion that has impacted most states. Other states in the region, including Idaho, Iowa, Montana, Nevada, North Dakota, Utah and Wyoming, made similar reforms during the same period. This more balanced approach allows these states to offer higher average weekly benefits than California and New York, which rely on higher rates to make up for their narrow wage bases.
The pandemic underscored the importance of maintaining fiscal discipline — or the consequences of failing. By the end of 2023, California and New York accounted for 99 percent of the remaining $27 billion in federal loan debt, which has severely limited their ability to expand their programs. While Minnesota also borrowed from the federal government, it was prudent about using available resources to pay off its remaining debt in 2022. This strategy enabled Minnesota to offer robust unemployment insurance benefits and recover more quickly from the unprecedented economic strain caused by the pandemic.
Calls for comprehensive reform — whether to combat poverty or reduce widespread fraud — are common, but Minnesota’s approach offers a practical road map for policymakers in other states. Generous and accessible UI programs don’t have to be synonymous with insolvency or integrity issues, provided states prioritize sound governance and responsible stewardship. Minnesota’s longstanding commitment to protecting its UI program’s fiscal and administrative foundations should not be overlooked by states aiming to establish unemployment systems that safeguard workers and their families.
Will Raderman is an employment policy analyst for the Niskanen Center. Joshua McCabe is Niskanen’s director of social policy.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
