© Copyright 2002 by the Wyoming Department of Employment, Research & Planning
Comparison of Unemployment Insurance Cost for Wyoming and Its Neighboring States
by: Sherry Wen, Senior Economist
Unemployment Insurance (UI) is one of the
government-related costs that a business should take into consideration when
choosing a location among different states. By law, employers are required to
pay UI tax for their employees. However, this cost varies significantly from
state to state.1 This article compares the average
UI costs2 of employers in Wyoming, six neighboring
states, and the U.S.
There are different ways to look at the average UI cost. The total wage UI tax rate, which is the annual UI tax revenue divided by the annual total UI covered wages, indicates how much UI tax employers pay for each dollar in wages they pay their employees. In general, Wyoming employers paid 64 cents in UI taxes for each $100 in wages paid in 2001. This is higher than the U.S. average (50 cents) and the third highest among the seven states under consideration (see Figure 1). Idaho had the highest UI cost at 80 cents per $100 in wages. Colorado, Nebraska, South Dakota, and Utah had a cost of only 20 cents.
To examine UI cost at a more detailed level, we should introduce two UI terms first. One is the taxable wage UI tax rate, which is calculated by dividing the annual UI tax revenue by the annual total UI covered taxable wages. The other is taxable wage base. In Wyoming, according to the current UI law,3 taxable wage base is defined as 55 percent of the previous year's state average annual wage. Any employee’s wages in excess of the taxable wage base are not subject to UI taxes. Taxable wage base is defined differently from state to state and may change from year to year. As a result, neither of these two terms should be used independently in comparing UI costs across the states. A lower tax rate does not necessarily lead to a smaller UI tax payment for the employers if the state has a large taxable wage base.
During the ten years from 1992 to 2001, Wyoming's taxable wage UI tax rate decreased 40.9 percent in total (from 2.2% to 1.3%), while its taxable wage base increased 29.3 percent (from $10,900 to $14,100) (see Figure 2). The relatively large decreases in the UI tax rate enabled Wyoming employers to pay less UI tax over the years in spite of the continued increases in the taxable wage base. For example, if an employee's annual wage was at least $14,100 in both 1992 and 2001, the UI tax would be $239 ($10,900 times 2.2%) in 1992 and $183 ($14,100 times 1.3%) in 2001. The break-even point for the taxable wage base would be $18,385. In other words, if the 2001 taxable wage base increased beyond $18,385, Wyoming employers would have to pay more UI tax in 2001 than in 1992, even under the lowest tax rate (1.3%) in the state's history.
How did Wyoming's UI cost compare with that of some of its neighbors in 2001 (see Figure 3). Using a single employee with an annual wage of at least $25,700 in 2001 as an example, the UI cost for this employee was $308 in Idaho, $200 in Montana, $183 in Wyoming, $86 in Utah, $80 in Colorado, $56 in Nebraska, and $42 in South Dakota.
Whether an employer has primarily low wage or high wage jobs also makes a difference in UI costs among the states. Some states may be more competitive for high wage positions but less competitive for lower wage positions or vise-versa. For example (see the Table), Nebraska was the second least expensive state for positions paying $25,700 or more annually in 2001, but it was the fourth most expensive state for lower paying jobs. Utah was just the opposite, costing much more for higher wage positions and much less for lower wage positions compared to other neighboring states. Again, South Dakota was the most competitive state in terms of UI cost for both high and low wage positions.
In summary, Wyoming's UI tax rate decreased 40.9 percent in total from 1992 to 2001. Compared with neighboring states, Wyoming’s UI cost is still higher than some. However, the 30 percent across the board UI tax rate cut in 20024 may improve Wyoming’s standing if the corresponding taxable wage base does not increase proportionally.
1U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Program Letter No. 48-01, September 4, 2001, < http://ows.doleta.gov/lpbin20/lpext.dll/UIPL/up%20fy%202k1/up%2048-01> (September 18, 2001).
2For detailed information on individual Unemployment Insurance tax calculation, please refer to Sherry Wen's "Calculation of the State Unemployment Insurance (UI) Tax Rate for Wyoming," Wyoming Labor Force Trends, March 2001, pp. 6-9.
3Wyoming Employment Security Law 27-3-102(xviii)(A).
4In 2002, all Wyoming employers will receive a 30 percent reduction in their Unemployment Insurance tax rate (Wyoming Employment Security Law
27-3-503(b)). However, none of the new employers should be assigned a rate of less than one percent (1%) (Wyoming Employment Security Law 27-3-503(f)).
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