The double shock of the coronavirus and the crash in the price of oil have the potential to be the unexpected “black swan” that pushes the economy into a recession. But after enjoying a record-long economic recovery following the Great Recession, the nation’s first responder to economic distress—unemployment insurance (UI)—is still not ready for duty.
Workers immediately forced out of work due to the coronavirus will face an unemployment insurance program ill-equipped to respond to this immediate health crisis due to legal limitations and administrative failings. The legislation proposed by the House of Representatives, H.R. 6201, the Families First Coronavirus Act, is a critical first step to meeting those immediately impacted by the coronavirus while providing states the resources to shore up a system still reeling from insolvency, benefit cuts, and strained intake systems wrought by the Great Recession. It is critically important that these changes and more become enacted quickly by the Senate.
Coronavirus Bill Unemployment Provisions Explained
The House coronavirus package delivers $1 billion in grant aid to state agencies running unemployment insurance programs. States will be eligible for the full amount of the aid as long as they have taken specific steps for coronavirus such as waiving the waiting week for unemployment benefits, and the work search requirements for those “directly impacted by COVID–19 due to an illness in the workplace or direction from a public health official to isolate or quarantine workers.” Clearly, the spread of coronavirus, or even suspicion of the spread of coronavirus in public settings, could force people from their jobs. The House bill guarantees much-needed paid sick days to the 30 million Americans currently without them, as well as emergency paid family and medical leave for those impacted and those caring for them. This is a crucial first step.
But what about workers whose businesses are closed or who can’t work, but who themselves are not sick? These workers meet most but not all of the legal definitions of unemployment. By federal law, state unemployment benefit rules must require that workers be available for work and be actively searching for a job each week—which may be impossible during a quarantine, or when companies are not accepting applications. In addition, all but five states require a so-called waiting week, during which a newly eligible unemployed individual does not receive any unemployment payments. This state provision makes UI far less effective during, for example, a four-week spell of job loss caused by coronavirus outbreak, because 25 percent of the time would not be covered. By removing these provisions, the Families First Coronavirus Act would transform unemployment insurance into a legitimate form of assistance for workers. States such as California have already taken the actions recommended in the bill, and there’s no reason for other states not to follow suit with the knowledge that federal funds may soon be coming.
Moreover, the package would require states to use that money to improve access to benefits, including ensuring that employers notify laid off workers about benefits that they are eligible for, and ensuring multiple points of application (phone, internet, and in person). This provision is especially important, as states are driving a larger number of claimants to on-line systems, as opposed to phone claims, which are critically important for those with limited English proficiency and limited digital access. Many of the online applications are part of newly modernized systems that have been beset with technical glitches and high levels of errors caused by automated decision making. The extra money provided by the bill would go a long way to meeting the needs of states serving jobless workers, as state UI programs rely on federal grants for the administration of benefits, but these grants have cut back by 30 percent from 1999 to 2019. States have been forced to cut to the bone in terms of both personnel and infrastructure, which has among other things has forced cutbacks in phone-based services. The shortage will become even more acute if unemployment claims suddenly surge at the onset of a recession.
House leaders accurately have described H.R. 6201 as a first step toward mitigating the damage triggered by spread of the virus, and there’s much more that could be done:
- Benefits for virus-related separation: States should provide unemployment benefits to workers who are forced to quit their jobs in order to avoid exposure to the virus—a right guaranteed in less than half the states.
- Work-sharing benefits: Sharp reductions in demand in impacted industries could put pressure on companies to lay off workers. So-called work-sharing plans (in place in 28 states) allow companies to cut worker hours and compensate for lost wages through a partial unemployment check. In a typical work-sharing plan, an employer would put five workers on a four-day work week rather than laying off a single worker, for example. This could be utilized immediately for impacted sectors, such as among food service companies in airports that don’t need enough workers due to the sharp decrease in air travel, but may see business ramp back up. One way to increase take-up in these programs would be to include 100 percent payment of work-sharing benefits. This could incentivize employers to put their staff on shared work plans rather than laying them off and being subject to state unemployment benefit charges. Moreover, federal law could be changed to require states to operate an emergency shared work program, following federal regulations, even if they don’t have a state law in place. For its part, H.R. 6201 directs the Department of Labor to provide technical assistance to states to operate and expand state run programs.
- Early warning: On a related note, the Department of Labor should require all states to immediately put into place an early warning system to identify firms at risk and let them know about work-sharing and other business assistance services available to them. These services are already part of the economic dislocation section of the Workforce Innovation and Opportunity Act, but implementation has been uneven in the states.
- Reform Disaster Unemployment Assistance program (DUA): Congress passed federal disaster benefits to quickly address the needs of unemployed workers during natural disasters. DUA is especially important for self-employed workers, who don’t normally have a right to unemployment benefits. However, the current DUA law does not consider an epidemic a national disaster, and Congress or the Department of Labor should consider expanding the definition. Moreover, Congress should reverse a 1980s rule that requires workers collect any state unemployment benefits before they are able to receive federal DUA benefits. This would help workers from whom DUA benefits are more generous and could reach workers’ faster than regular state UI.
Even Bigger Problems Would Occur If There Is a Full-Blown Recession
The limitations of unemployment benefits would be even more severe if spread of the coronavirus contributes to an economic contagion and widespread layoffs associated with a recession. Famed economist Nouriel Roubini predicts that the slowdown started by coronavirus could lead a corporate debt crisis and a global recession by June. A recession would test a constrained system that is serving fewer jobless workers than ever before. The percentage of all jobless workers receiving an unemployment insurance payment has dropped from 43.7 percent in 2001 to just 27.8 percent in 2018. These problems are particularly acute for low-wage and women workers who have historically collected UI at the lowest rates.
A big problem is that far fewer jobless workers are even filing an application. Indeed, the share of jobless workers surveyed by the Census Bureau that filed a UI application dropped in half, from 51 percent in 2006 to just 23 percent in 2016 (see Figure 1). Part of the problem lies with the troubled computer modernization of UI web applications, that have proven to be difficult to navigate or use for those accustomed to filing by phone or in person, especially for non-English speaking immigrants of color.
The other part is a wave of benefit cuts that came after the Great Recession that have never been reversed. Ten states reduced their basic unemployment insurance package to fewer than twenty-six weeks, the historic standard of benefits since the 1930s. The benefits offered have gotten shorter even as workers are becoming unemployed longer. The last time the unemployment rate was this low (1969), just one in twenty workers were out of work for six months or more, compared to nearly one in five now. Moreover, fourteen states froze or reduced the amount of unemployment benefits.
The surge in UI claims during the Great Recession caused thirty-six states to become insolvent. While twenty-seven states have now reached the federal standards for trust fund solvency, solvency is still a lingering problem in the largest states, such as California, New York, and Pennsylvania, who would likely be forced to borrow from the federal government again if a prolonged recession hit.
Broader Fixes for a Recession
Because the UI system is so shaky, Congress needs to act earlier and more decisively than in previous recessions. To create an effective counter-cyclical unemployment insurance program, the federal government will have to set stronger standards for state programs in addition to fulfilling its traditional role of supporting the administration of UI programs.
- Federal standards for benefits: Greater attention needs to be paid to state benefits, which provide the initial support to laid off workers and the economy. A recessionary package should establish minimum benefit standards including twenty-six weeks of initial state benefits and unemployment benefits that pay up to two-thirds of the state’s average weekly wage (the amount recommended by multiple advisory commissions). Moreover, it should require states to make reforms targeting the low take-up rate among low-wage workers mandatory, rather than the optional incentives offered to the states under the recovery act. These include the alternative base period (which counts the most recent earnings on UI applications), equal eligibility for part-time workers (who are excluded from UI in about half of the states), and coverage of workers who are forced to quit due to compelling personal reasons, such as domestic violence or caring for a serious ill relative.
- Extended benefits: Over the past three recessions, Congress has relied on a series of temporary extensions of unemployment benefits, beyond the regular twenty-six weeks. These require votes in Congress to initiate and sustain, typically starting too late to deliver an economic punch. If Congress is serious about limiting the damage of recession, they should act now to extend unemployment benefits through the permanent federal extended benefits program. One promising approach, advocated for by the Hamilton project, would be to automatically trigger the payment of thirteen weeks of extended benefits once the unemployment rate goes up 0.5 percent as from its lowest point in the past year, provide additional benefits as the unemployment rate rises, and maintain some level of unemployment benefits until the rate goes back down to normal levels. With this reform, extended benefits could kick in sooner and provide stimulus that could help shorten a recession.
The spread of coronavirus is a dangerous threat to both the immediate health of Americans and the viability of the economic recovery. The Senate should follow the House’s lead in providing Americans with the assurance that unemployment benefits will be there when their livelihoods are interrupted by this fast-moving global health and economic crisis.