Various economists predicted the Department of Labor would today announce that another 5-7 million Americans had filed initial claims for unemployment benefits in the week ending April 4. Sure enough, the count was a seasonally adjusted 6.6 million, compared with the previous week’s revised 6.87 million in new claims. Tally up the total for the three previous weeks, plus the 5.8 million who were unemployed before much of the economy was shut down to fight the novel coronavirus, and you get 22.5 million unemployed. The actual total is more since many out-of-work people aren’t eligible for benefits or don’t think they are so don’t apply if they lose their jobs.
The total amounts to an unemployment rate of around 14%. That is 4 points more than in the worst of the Great Recession, but far from the 32% unemployment that economist Miguel Faria-e-Castro at the St. Louis Federal Reserve Bank projected just over two weeks ago. That level of joblessness would mean about 47 million laid-off workers.
Used to dealing for the past five years with about 250,000 or fewer new claims each week, the staffs in state employment offices have been swamped as the applications rose into the millions early last month and have not let up since. That’s not the only problem. In a Brookings Institution brief, Annelies Goger, Tracy Hadden Loh, and Caroline George write:
One of the unique features of this crisis is that it is disproportionately impacting low-wage workers in the service sector more than previous recessions. This problem is being compounded by the fact that our unemployment system has been engineered to be less equipped to protect these workers. Many states were forced to borrow federal money to bail out their unemployment insurance (UI) trust funds in the wake of the Great Recession and responded by tightening eligibility requirements for UI, lowering benefit levels, and reducing benefit durations.
By the time COVID-19 broke out, UI funding and staffing levels were at an all-time low. State UI systems disproportionately excluded those who were new to the labor force, not consistently employed full time in the previous year, or whose incomes were too low to meet income thresholds. Essentially, UI systems tended to exclude exactly the types of workers this pandemic is affecting the most.
As a result of these changes in the wake of the Great Recession, unemployment insurance funding now covers fewer unemployed workers and puts people of color, part-time workers, low-wage workers, and younger workers behind.
The $2.2 trillion CARES Act temporarily fills some the gaps in state programs including expanding unemployment benefits to include furloughed people, gig workers, and freelancers. In addition, benefits have been increased by $600 per week for four months, and there are direct payments to families of $1,200 per adult and $500 per child for households on a sliding scale that zeros out for those with adjusted gross income of $99,000 or more.
These short-term Band-Aids offer modest help. But the system was broken before the deluge of coronavirus-fueled new claims and it needs a permanent fix. In its 2016 “Back to Work: United States” report, the OECD proposed detailed changes in the U.S. unemployment insurance system, which it found to be weak compared with European versions. That same year, the Center for American Progress proposed A “Plan to Improve Unemployment Protections in America.” The Upjohn Institute published its “Unemployment Insurance Reform: Fixing a Broken System” in 2018. And last month, Elizabeth Pancotti, an economic researcher at Tufts University and the National Bureau of Economics wrote “Unemployment Benefit Expansions: A Guide for Policy Responses in the Wake of COVID-19.”
The Brookings team came up with its own list of eight recommendations for fixing the system:
- Ensure that every category of worker has permanent access to wage insurance in the event of an involuntary reduction of hours or layoff on a permanent basis, regardless of whether they are a gig worker, tipped worker, part-time worker, etc.
- Expand and publicize shared work programs which help minimize layoffs by allowing employers to reduce hours in response to temporary decreases in demand and compensate workers for lost hours with benefits.
- Increase the share of jobless workers who UI covers by making eligibility processes more consistent across states, lowering or eliminating the income thresholds for eligibility, and ensuring that all states offer at least 26 weeks of benefits.
- Prioritize improvements to the UI system that make it more user-friendly. For example, we could create a secure, government-owned software as a service (SaaS) form builder that any state could use to collect applicant information and avoid having their systems crash at high volumes.
- Continue to expand Reemployment Services and Eligibility Assessments (RESEA) grants, which provide early-intervention job search assistance and career counseling to those who are likely to exhaust their benefits.
- Strengthen the conditionality and expand access to career navigation assistance and retraining to support transitions back into the labor force through expansions to the core programs available under the Workforce Innovation and Opportunity Act of 2015 and the American Job Centers. Compared to other OECD countries, the U.S. invests much less in active labor market programs to support workers’ transitions back to work.
- Shore up the solvency of state UI trust funds, make the funding mechanisms more responsive to the level of unemployment, and remove the maximum tax cap for employer experience ratings so that the system functions more effectively to discourage layoffs.
- Conduct a thorough assessment of how UI data systems can be modernized and updated in a cost-effective manner, how state and federal procurement can be reformed to expedite this process, and how these systems can be continuously improved while safeguarding privacy.
As you might imagine, there are some good, overlapping ideas in these proposals. But while they are mostly tweaks in the right direction, in the long run, adopting a more robust system like—yes, I’m going to say it—Denmark’s ought to be on the agenda. Just don’t call it Danish. Right now, of course, standing in the way of even the most modest changes, are Republican politicians who think small unemployment checks for a few weeks are an enticement to laziness and an affront to business. As with so much else, reforming—transforming—the unemployment system requires ousting from office enough of these GOP foes to make the remainder irrelevant.
