Politics

Why America’s unemployment system never gets fixed

Hey, remember the pandemic economy? How could you not, right? In early 2020, millions of people lost their jobs in the blink of an eye, through no fault of their own. In the United States, their subsequent attempts to get help from the government overwhelmed unemployment offices across the country, revealing the system to be fundamentally broken. The infrastructure was bad, the benefits insufficient, and the entire scheme next to impossible to navigate.

And then, something remarkable happened: The federal government stepped in to shore things up. It added extra dollars to state unemployment benefits to make sure people could get by and pay their bills. It expanded the pool of people who were eligible for benefits, so workers such as freelancers and contractors could access them, too. While far from perfect, the extra efforts to help the unemployed made a real difference in people’s lives and played a part in the country averting a deeper and longer recession.

It felt, for a while, like maybe there would be momentum to finally address the issues in America’s unemployment system. So many people had experienced first-hand just what a disaster it was on a massive scale, from outdated administrative systems to inadequate benefits. It seemed obvious that this hybrid state-federal program that had left so much discretion up to individual states just didn’t work.

And then … America’s UI setup didn’t really get fixed, because it never does.

“This is literally what always happens every time there is an economic downturn,” said Michele Evermore, the former deputy director of policy at the Office of Unemployment Insurance Modernization at the Department of Labor who is now a senior fellow at the Century Foundation, a progressive think tank. “At the very start of it, people are pretty sympathetic to people who suddenly became unemployed, so we temporarily add benefits and add temporary fixes, and then as the economic crisis rolls on, everybody gets sick of the unemployed people and starts blaming them. By the end of it, it’s all the unemployed people’s fault, they just don’t want to work, we’ve got to take away their unemployment benefits.”

As workers stare down the barrel of another potential recession — and the layoffs that would accompany it — the problems that dogged unemployment insurance before the pandemic, many of which have persisted for decades, remain. Most of the momentum to repair the system has dissipated.

Congress and the White House allocated $2 billion to the Department of Labor in 2021 to try to help states update their unemployment systems, combat fraud, and promote equitable access to benefits. But that funding and the accompanying efforts can only go so far, and they are aimed at administrative fixes, not policy fixes. The benefit amount a worker is entitled to, how long the benefits last, and the requirements to get them largely depend on which state that worker lives in. Many states are still digging themselves out from under the last crisis. Given the narrative that has taken hold around unemployment during this most recent economic recovery — that UI kept people out of the workforce, that too much government assistance contributed to inflation — it’s not clear what kind of appetite would exist in Congress to help workers if and when another recession hits.

“When the next crisis hits, we’re not at all ready for it, we’re worse off,” Evermore said.

State by state, not so great

The point of unemployment insurance is to replace income for people who have lost their jobs and keep them attached to the labor market. It’s meant to be a support for the broader economy in times of economic downturn, too, and keep consumer spending going. If I lose my job and can’t pay my rent, it is a problem for me and for my landlord and for the sandwich guy I no longer buy from down the street.

In the US, Wisconsin was the first state to put UI in place in 1932, and the federal program became law under the Social Security Act in 1935. It is a federal-state scheme that has never worked smoothly because each state does things its own way.

UI is financed through state and federal payroll taxes that are supposed to cover both administrative systems and the benefits themselves. Many states have kept those taxes quite low, leaving the system chronically underfunded and resulting in luck-of-the-draw situations for workers applying for UI, depending on where they live.

The average weekly benefit paid out in regular unemployment insurance nationwide was about $385 in the 12 months ending in September. But if you look at Mississippi, for example, the average benefit is in the low $200 range, while it’s now above $600 for Washington state.

These benefits do not move with inflation, either.

“Inflation is making it even harder for people to survive on these inadequate benefits,” said Rebecca Dixon, executive director of the National Employment Law Project (NELP). “Most benefits are not set to increase on any index, so there are a lot of states where they’ve just been stuck at the number that they’re at for a decade or more.”

Workers in many states are eligible to collect UI benefits for up to 26 weeks, but in some states, such as Florida, the maximum is about half of that. Different states also have all sorts of hoops workers have to jump through to certify they’re still unemployed and prove they’re looking for work. One week they’ll get benefits, the next week they’ll get denied.

Many UI offices are understaffed, are still dealing with pandemic-era backlogs, and are using outdated technologies to administer benefits. Or, they’ve updated their technologies and they’re intentionally designed to make the whole thing harder for workers to navigate, or the update was just bad.

Add it all up and it’s easy to see why so many unemployed people aren’t getting UI benefits at all. According to a recent analysis from the Century Foundation (TCF), about 27 percent of unemployed workers were getting state unemployment benefits in the year ending in August 2022. That’s worse than during the financial crisis in 2009, when 41 percent of the unemployed were collecting benefits. It’s much worse than in 2021, while many pandemic-era UI federal supports were still in place, which saw a 76 percent recipiency rate.

“It’s really the policy side that’s sticking out right now in that there are these huge holes in the safety net that got filled with a federal program, but when you took away these temporary federal programs, you just left these huge holes,” said Andrew Stettner in an interview while he was director of workforce policy and a senior fellow at TCF. In late November, after that interview, he took over Evermore’s old job at the Department of Labor.

After the pandemic, we tried to fix America’s unemployment system and then gave up

When the pandemic hit in the spring of 2020 and millions of people were laid off, America’s UI system was crushed. Millions of people were met with broken websites and endless call wait times as they tried desperately to access benefits to which they were entitled, and state offices were completely overwhelmed. Once people did get benefits, in many cases they weren’t adequate given the economic situation the country was facing.

So, the federal government stepped up in 2020 and through much of 2021. It added extra federal dollars to weekly benefits — first $600, then a lapse, then $300. It also extended the length of eligibility for benefits collection and expanded the pool of workers who could apply to include freelancers, gig workers, and the self-employed.

Those efforts certainly had their shortfalls; it’s estimated that billions of dollars in benefits were wrongly paid out and obtained by fraud. At the same time, they really helped people who needed them, and they demonstrated the need for a reformed system.

“There was such a crush that even some of the checks that were normally done were not done,” Stettner said. “I don’t think that would happen again because we’re never going to have that kind of crush again, god willing.”

The state-federal hybrid model across the country only made the overall system more vulnerable. “For hackers and people who are doing these waves of fraud, they’re looking at it like there’s 53 different opportunities for us to do this because there’s 53 different programs,” Dixon said. “It makes it harder to stop because it’s happening in multiple places.”

At the administrative level, there have been efforts to improve UI overall. The American Rescue Plan Act (ARPA) signed into law in 2021 provided $2 billion to the Department of Labor to put toward fraud detection, equity, and ensuring state UI programs worked better overall. The DOL dispatched what it dubbed “tiger teams” of experts six states at a time to work with their offices to improve their programs. They’ve thus far gone to 30 states, according to a DOL spokesperson. ARPA also put $260 million in equity grants to try to help with outreach to make sure everyone entitled to benefits has fair, equal access to them.

“In the beginning, it was like, make your website more disability accessible, of course, but by the second or third cohort, they were like, ‘Okay here’s how to redo your form, make it horizontal not vertical, this font not that.’ They were making very informed, specific recommendations,” Evermore said. “There are so many weird little bottlenecks that states never had time to address.”

Still, many of these initiatives are just scratching at the surface. “The big picture remains the same, which is that we’ve historically underinvested in the unemployment insurance programs,” Dixon said. “One infusion during the pandemic is not going to remedy years of disinvestment.”

Where the US would need an overhaul is on the policy end, many experts say. That could take a variety of forms. For example, the federal government could put in place a set of basic standards that states have to abide by that would set minimum benefit amounts and time frames, and it could overall push states to keep their systems updated. Or, it could put in place automatic stabilizers that would tie benefits to certain economic conditions, such as the unemployment rate. What that would look like is when the unemployment rate rises to X percent, an extra amount of dollars and/or weeks automatically kick in until the unemployment rate falls again. That way, workers aren’t dealing with the political will in Washington, DC, in the event of another recession.

The thing is, these types of changes would require action from Congress. There have been proposals from lawmakers on that front, including from Sens. Ron Wyden (D-OR) and Michael Bennet (D-CO), but they haven’t gained much traction.

“This is why unemployment hasn’t been fixed for decades. Whenever there’s an opportunity, there are more pressing things on the agenda that members want to get done,” one Democratic congressional aide, who asked for anonymity to speak freely about the matter, said in an interview. “If you gave those same members a choice of should we do climate or fix UI, should we do child care or fix unemployment, given that A or B choice, I don’t think anybody’s going to choose unemployment.”

Unemployment never feels like a problem until it is

Losing a job is an awful experience, financially and emotionally. In the current moment, the Federal Reserve is hiking interest rates in an effort to fight inflation, which could push the economy into a recession. It could put millions of people out of work, once again through no fault of their own. Part of what the Fed wants is for businesses to slow hiring, stop raising wages, and, ultimately, lay people off. If Fed Chair Jay Powell is the reason John in Minneapolis loses his job, does that mean John in Minneapolis, who also can’t access decent unemployment benefits while he looks for a new job, should also lose his home?

“You don’t want that Fed recession to have a lasting impact,” Stettner said. “The last time the Fed put the economy into a recession in the ’80s, there are entire communities that didn’t recover from that.”

Many experts, advocates, and policymakers worry that the opportunity to fix unemployment insurance has been squandered once again. On Capitol Hill and in many states, there doesn’t appear to be much appetite for addressing the system policy right now, when times are relatively good. It’s not clear what appetite there would be to put in place at least temporary supports if a recession hits, either. Pandemic unemployment insurance has taken some of the blame for bumping up inflation as part of government stimulus in the first place. There are also concerns about the potential for fraud and, more broadly, concerns that too-generous benefits keep people out of the workforce. (Evidence suggests more robust benefits during the pandemic did not keep people on the sidelines.)

“I’m actually worried that we won’t get any temporary improvement in unemployment insurance that we usually get,” Evermore said. “The political will is really, really bad.”

“There would be an appetite to do something more limited, maybe extend weeks or something like that, but I don’t see an appetite to do a boost like we did at the beginning of the pandemic, that’s for sure,” the Democratic aide said.

It’s a lesson the country has half-learned time and again and then forgotten. The last crisis — the pandemic-induced recession — is over, and the next crisis looms. Yet Congress has already moved onto other things, as has most of the public. “Unemployed worker” is a temporary status, and once people go back to work, they forget. “It doesn’t really have a constituency that you can rally to stand up for the program and support sustained advocacy to get changes,” Dixon said.

In the bad times, either personally or collectively, the shortcomings of the unemployment insurance system punch you in the face. It hurts in the moment, and it bruises. Then the pain subsides and the bruise fades, and life moves on, even though the risk of the next punch in the face remains.

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