Budget '25: Workforce Development Analysis

The Wisconsin Department of Workforce Development's (DWD) purpose is to build and strengthen Wisconsin's workforce by equipping workers with the skills and resources necessary to meet Wisconsin's current and future economic needs. Its primary responsibilities include administering "employment and training" programs, the "unemployment insurance" program, "worker's compensation", "vocational rehabilitation", and ensuring "equal rights" protections for workers.

In the current 2024-25 budget, the DWD receives a total of $791 million from all funding sources (All Funds). Of this $791 million, almost 60% comes from the federal government, while 15% comes from general purpose revenue (GPR).

In the governor's proposed budget, he has requested that the DWD receive one of the largest increases in GPR funding of any of the state's departments. Compared to the last budget, his request would increase GPR funding by $216 million, and is $204 million more than what the DWD requested.

If approved, the Governor would allocate most of this money to a new Workforce Innovation Grant to the tune of $144 million. The remainder would go toward creating or expanding other, similar grant programs (p.10-15).

Additionally, the Governor has proposed bringing back Prevailing Wage laws, repealing Right to Work, and raising the minimum wage. More than likely the legislature will ignore these policy proposals, but they do indicate the Governor's and DWD's policy objectives for the next biennium.

Most of the DWD's budget is allocated toward administering three major subprograms: Employment Assistance and Unemployment Insurance, Federal Program Aids and Operations, and Workforce Investment Assistance (p.86-89).

In a typical biennial budget, these three subprograms receive 58% of the DWD's funds. But even though funds are allocated to three separate subprograms, in reality, most of the DWD's funds go toward Workforce Investment and Assistance, and Employment Assistance and Unemployment Insurance. This is because the funds received from the federal government (PRF) are put into the DWD's general fund (p.44-45), and then reallocated to these subprograms.

Once funds have been allocated to the DWD's subprograms, they are then dispersed in the form of Aid, Local Assistance, or State Operations. State Operations are the department's overhead, or cost of administering assistance, while Aid and Local Assistance are the sources of direct assistance to Wisconsin's workforce (p.7).

The direct assistance received by Wisconsin's workforce consists of grants, training, apprenticeship programs, job searching, and worker's compensation sourced directly from the DWD's funds. The DWD also distributes funds to those who file for unemployment benefits, but these funds do not come from the DWD's account (more on this later).

In fact, most of the DWD's expenditures aren't actually spent on delivering direct assistance to Wisconsinites. Instead, most of the DWD's expenses consist of administrative costs like employee wages and benefits, supplies, debt servicing, and office overhead.

Based on the chart above, between FY20 and FY24, on average, 66.5% of the DWD's expenses went toward administrative costs, not assistance. That means State Operations (the cost of administering aid) dwarf the expenses incurred by delivering Aid and Local Assistance.

The main reason for this is because Wisconsin participates in the federal government's Unemployment Insurance program. In 1932, Wisconsin became the first state in the union to create an unemployment insurance system (p. 1). But by 1935, the federal government had passed the Social Security Act, which also created a federal unemployment insurance system. In order to encourage states to adopt the program, the FUTA Act of 1939 promised to reimburse States for all Administrative Costs, half of all Extended Benefits, and even offered a tax credit to employers for the amount paid into an unemployment fund equal to up to 90% of the federal unemployment tax (see also: DWD Funding Disclosure).

Because of the federal promise to reimburse Wisconsin's administrative costs, on average, roughly 61% of Wisconsin's State Operations are funded with federal money.

The bulk of the DWD's State Operations expenses are therefore due to the administration of the Unemployment Insurance program created by the federal government.

In brief, the Unemployment Insurance program is funded by both a state and federal payroll tax––the SUTA and the FUTA. This tax revenue is then put into a trust fund called the Unemployment Reserve Fund and paid out to qualifying claimants. Claimants can receive weekly benefits for 26-39 weeks, and are entitled to receive at least $54/week up to a maximum of $370/week (p.5).

Looking at the chart below, since 2006 Wisconsin's Unemployment Reserve Fund has paid out $13.7 billion, or an average of $761 million per year.

In some years, Benefits Paid are greater than Contributions Collected, resulting in a decrease in the Net Reserve Balance––the total amount of money in the unemployment fund. Sometimes, the Reserve balance is even negative, and Benefits Paid have to be borrowed from the federal government and repaid with interest.

When comparing the UI benefits to the DWD's budget, benefits paid to the unemployed have been about equal to the department's All Funds in recent years. In other words, the cost to administer the UI program is the same as the program's benefit to the public.

It is the policy of the state to address the burden of unemployment: "In good times and in bad times unemployment is a heavy social cost, directly affecting many thousands of wage earners" (Wis. Stat. §108.01(1)). To reduce this burden, the DWD is established to deliver "services to meet Wisconsin's diverse workforce needs," and to advocate for the "protection and economic advancement of all Wisconsin workers, employers, and job seekers" (DWD Mission Statement).

In the main, the DWD works toward its mission by delivering grants and unemployment insurance benefits to eligible members of the public. With respect to grants, the dollar value of DWD's grants are highly variable: DWD awarded $130 million worth of grants in 2022 but only $20 million in 2024. These grants are geared toward the development of Wisconsin's workforce, offering subsidized training for current or would-be employees in agricultural, manufacturing, technological, and other skilled professions. As noted earlier, direct aid and assistance are a small portion of the DWD's actual expenses. Most of their expenses are put toward administering these programs, the most significant of which is the unemployment insurance program.

With respect to unemployment insurance, the state's policy is that the "economic burdens resulting from unemployment should not only be shared more fairly, but should also be decreased and prevented as far as possible" (Wis. Stat. §108.01(2)). To achieve this, the state administers a UI program jointly with the federal government. Funds for the program are collected from employers, deposited in the account of the U.S. Treasury, and then disbursed to eligible claimants in the form of either checks or ReliaCard debit cards provided by U.S. Bank (p. 30-31).

The MacIver Institute believes that the DWD is unnecessary. The DWD's role in administering grants to employers and workers presupposes the department knows where, when and how much funding is required for any given profession or industry. But since the DWD operates outside the price system and is unresponsive to profit and loss signals, and since they are also too far removed from the local knowledge necessary to make such decisions, they are not in a position to properly judge who is deserving of grants. Additionally, the department's sizable administrative costs signal intense operational inefficiency. Employers and employees in general undoubtedly receive less in benefits from the DWD's grant programs than what it costs to deliver them. The only beneficiaries of these programs are those who are on the receiving end of this redistributionist scheme. But on net balance, the grant system results in less workforce investment than would otherwise occur, since the DWD's involvement crowds-out private sector investment.

As for the UI program, the MacIver Institute also believes this to be unnecessary––both statewide and federally. The constitutional authority for such programs eludes MacIver. Federally, such a program is prohibited by the tenth amendment (See the dissents of: Butler; McReynolds; Sutherland). On the state level, there is no indication that the Wisconsin constitution grants the legislature the authority to create an unemployment insurance program either. Importantly, the general welfare clause of the Preamble can grant no such authority as it is a 'recital' (See: Rob Natelson; Federalist #83). No other article or clause could otherwise reasonably be said to authorize such a program.

In economic terms, the UI program is fundamentally anti-free-market. The "burden" of unemployment is felt by all who contribute to the system regardless of their relation to the unemployed. This socialization contradicts the state's goal of sharing this burden "more fairly." The goal is contradicted yet again when the state chooses to distribute UI benefits only to certain "qualified" unemployed people, rather than all unemployed persons who nevertheless contribute to the program indirectly. Most importantly, the program requires participation on the part of employers who must reduce the wages of their employees in order to afford the UI taxes, and further dis-incentivizes the adoption of private sector unemployment insurance arrangements. Because participation in the program is mandatory, employers and employees cannot choose an alternative system that may better suit their needs. The program's nature as government-run further introduces all the problems typical of government-run programs: higher costs, reduced benefits, and less accountability on the part of the program's providers. Finally, the program is also a means to enrich particular private sector contractors, and therefore exudes cronyism. Specifically, Wisconsin has partnered exclusively with U.S. Bank (US Bancorp) who issues the reloadable ReliaCard debit cards used by UI claimants. U.S. Bank then earns a profit from the transaction fees charged at retail stores (p.30-31), and thus enjoys many of the privileges of a monopolist.

Governor Evers has proposed an increase in DWD's all funds budget of $251 million or 31%. The bulk of this increase is due to the governor's request to increase GPR spending for workforce development grants. This proposal will be the main point of deliberation on the part of the legislature.

Given that the DWD is a relatively small department, and that grant-giving and other forms of aid are a relatively small component of what the DWD does, the legislature will likely reject the governor's proposal to increase funding for grants. More than likely the legislature will resolve to increase the DWD's budget by 2-8%, in line with the increases approved in previous budgets.

DWD requested a $25.8 million increase in overall funding for the biennium, a 3.2% increase. $10 million of this increase was due to the department's request for new funding for Supplemental Benefits––an appropriation related to the department's Worker's Compensation Fund (p. 249). The remainder of the requested increase was more or less evenly distributed among all other programs.

Evers proposed a $251 million increase in overall funding for the biennium, or a 31% increase (p. 1). Most of this increase is due to a requested increase in GPR funding for workforce development grants, but the governor also made several policy recommendations, including: the return of prevailing wage laws for public works projects; repealing Right to Work laws; classifying requests for job applicants' criminal history as discrimination; and establishing a task force to ensure Wisconsinites earn a "living wage" (p. 15-16).