Personal Reemployment Accounts:Simulations for Planning Implementation

Christopher J. O’Leary and Randall W. EbertsW.E. Upjohn Institute for Employment Research

300 South Westnedge AvenueKalamazoo, MI 49007

269-343-5541oleary@upjohn.org, eberts@upjohn.org

www.upjohn.org

1. Introduction

Back to Work Incentive Act of 2003 (HR 444) $3.6 billion nationwide budget for 2 years Budget allocations based on share of unemployment Federal to state ($85.3 million to Georgia) State to Service Delivery Regions (SDR) Assume service use patterns in Georgia under WIA Zero, one, and two-week duration impacts imputed

2. Simulated PRAs for Georgia under HR 444

Top WPRS profiled (neither union hiring hall, nor standby) Eligible for at least 20 weeks of UI benefits PRA uniform offer of up to $3,000 Can purchase intensive, supportive and training services Cash bonus (60%) for reemployment within 13 weeks Cash bonus (40%) after 6 months continuous reemployment No second bonus if services purchased after first bonus UI exhaustees may draw weekly support payments from PRA Top 30% of profiling distribution 5 quarters of WIA: 46,855

3. Services Chosen

Table 4. Service Participation Rates for Top 30 Percent of Profiling Scores

First 13 weeks After 13 weeks

Description Participants Rate Participants Rate

Service CoordinationCustomer Service PlanIn-Depth AssessmentCounselingExpanded WorkshopRef to Support ServicesTraining

28314,836

6315,610

94983

2,289

0.00600.31660.00180.33320.00200.02100.0489

833,674

243,920

96311

1,122

0.00180.07840.00070.08370.00200.00660.0239

Total Intensive/Training 17,777 0.3794 5,221 0.1114

4. Prices for Services

Table 5. Prices for Intensive, Supportive, and Training Services

Georgia UI Claims7/1/2000 to 9/30/2001

Total Services

Cost Factors

Services Prices

Intensive Services

Service coordinationCustomer service plan

In-depth assessmentCounseling

Expanded workshop

1,05136,597

22739,661

1,074

1.01.02.02.02.0

$356$356$712$712$712

Supportive Services 3,623 3.0 $1,068

Training Services 7,024 4.0 $1,424

Note: Customer service plan is the numeraire (cost factor = 1).

5. PRA Participant Groups

Employed Period 1 –UI less than 13 weeks

Employed Period 2 – (Quarterly earnings 1, 2000, 1 )

Yes = 1(0.366)

No = 0(0.634)

Yes = 1(0.402)

E11(0.267)

E10(0.135)

No = 0(0.598)

E01(0.099)

E00(0.499)

6. Characteristics of PRA Participant Groups

UI and Demographic Summary by Bonus Qualification Groupfor the Top 30 Percent of the Profiling Distribution

GroupProportion of

sampleUI weeks

drawn Mean WBA Age > 45Lower income

E11E10E01E00

0.2670.1350.0990.499

5.75.219.223.1

266257265263

0.3240.4030.3260.434

0.1690.2250.1590.186

Total 1.000 15.6 263 0.390 0.184

7. Statewide Simulation Results

GroupProportionof sample

Bonus Costs Services SpendingExtended

compensationSpending for group

First period

Second period

First period

Second period

E11S00E11S10E11S01E11S11

0.1600.1030.0010.002

180011181800

970

1200745

00

01137

01383

00

1113629

0000

3000300029132982

E11S00E11S10E11S01E11S11

0.0850.0470.0020.002

1800110918001017

0000

01151

01305

00

1036668

0000

1800226128362990

E11S00E11S10E11S01E11S11

0.0580.0270.0020.011

0000

0000

01181

01168

00

13241060

998472643249

998165219682476

E11S00E11S10E11S01E11S11

0.2960.1120.0170.074

0000

0000

01180

01195

00

13231062

243813961515

606

2438257628382862

Total 1.000 618 269 444 121 1023 2475

7. Statewide Simulation Results—Continued

Table 11. Average cost per PRA offer and total number of potential PRA offers over two years given the Georgia PRA budget

PRA Scenario Average Cost Number of Offers

Bonus, services, exhaustee pay 1-Week Impact 2-Week Impact

$2,475$2,515$2,551

34,47333,92433,446

Bonus and purchase services 1-Week Impact 2-Week Impact

$1,452$1,491$1,528

58,76057,22355,838

Bonus only with free services 1-Week Impact 2-Week Impact

$1,040$1,086$1,131

82,03878,56475,438

8. Within State Budget Allocation Alternatives

SDR Region

Share of Georgia Budget

Percent differenceUnemployed UI claimants

123456789101112

Northern GeorgiaNorthern GeorgiaAtlantaNorthern GeorgiaNorthern GeorgiaBalance of GeorgiaBalance of GeorgiaBalance of GeorgiaBalance of GeorgiaBalance of GeorgiaCoastal GeorgiaCoastal Georgia

0.0840.0420.3790.0600.0470.0500.0650.0510.0490.0590.0590.054

0.1110.0510.3440.0660.0500.0500.0630.0540.0450.0530.0610.051

30.819.6-9.211.17.0-0.1-2.96.6-8.7-9.94.5-5.9

9. Summary of Results With Georgia grant of $85.32 million, if every PRA recipient spent the

entire $3,000 grant, then: 28,440 offers over two years

With bonuses, purchases of services, and extended UI type payments assuming a 100% acceptance of PRA offers, then: $3,000 offered to top 30%, 34,473 offers over two years with no response

One and two week duration responses would permit 33,924 and 33,446 offers Excluding payment of remaining PRA funds to UI benefit exhaustees

70% more offers could be made (58,760) Under a pure bonus PRA (free services and no exhaustee payments)

138% more offers could be made (82,038) Sensitivity of results to prices for services (Appendix spreadsheet)

Doubling prices reduces offers possible by only 20% Halving prices increases offers possible by about 20%

10. Extensions Could customers pay for their preferred bundle of services under PRA?

With bonuses less than 1% have a budget shortfall Without bonuses (services only) about 0.5% have a budget shortfall

Setting the bonus as 10 times the WBA with a minimum of $1,500 Permitted more bonus offers May have smaller distortions for low wage workers

Allocations for PRAs within states to SDR A uniform WPRS score cutoff cannot be applied state-wide Unemployment rate and insured unemployment shares differ

Entry and Displacement Effects Should be reduced by targeting offers using WPRS

Wage effects of early reemployment No effects in bonus experiments requiring 4 months reemployment An increased risk given immediate payment of 60% upon reemployment