In response to the historic challenges that the nation’s unemployment insurance (UI) system faced in 2020 during the pandemic, the National Academy of Social Insurance (NASI) assembled a bipartisan task force of public and private sector experts—the Task Force on Unemployment Insurance—to examine how the program responded to the massive surge of unemployed workers and to discuss ways to build a more robust program. The author of this commentary served as the principal investigator for this work and is the primary author of the task force’s final report. The commentary below is a high-level summary of the contents of the final report.
Unemployment insurance (UI) is a critical protection for workers who lose their jobs and for the economy as a whole. In addition to providing countercyclical support during economic downturns, which is a critical function of the program, UI helps people who have lost work through no fault of their own maintain attachment to the workforce, prevents wage erosion, and helps jobless workers pay bills when forces outside of their control limit their income. UI is social insurance. Social insurance is meant to cover all eligible workers and to replace enough of their losses to provide a glide path to a good replacement for the job they lost.
The COVID-19 pandemic exposed major cracks in the UI system, including massive technology failures, a core administrative structure ill-equipped to pay benefits on time and to the right people, and a base set of laws and assumptions that varied widely state to state in benefit amount, duration, and access. A massive bipartisan federal response in March 2020 dramatically increased weeks of benefits and weekly benefit amounts and qualified far more workers, resulting in over 53 million workers receiving over $880 billion over the course of the pandemic. However, unsurprisingly, setting up three massive programs in the middle of a pandemic and an application surge that shattered previous records for new UI claims for weeks on end was bound to result in mistakes in running the program. Also, fraudsters who had been sitting on personal information gained through breaches years ago and largely outside of UI systems saw a new emergency program as an opportunity to pilfer public funds.
The report of the NASI Task Force on Unemployment Insurance is presented as a full package of options because, unlike in many other policy areas, developing a solution for UI will likely require a grand bargain. A handful of reforms that do not consider all the policy levers could stabilize benefits in one way but lead to possible reductions in other areas. For example, setting a floor on replacement rates without considering duration would mean that states looking for savings could further reduce weeks of benefits to achieve savings. The task force acknowledges that any package of policy reforms will cost money, and more so in states that have maintained less generous UI systems.
While the task force held differences of opinion in various areas of UI policy reform, there are areas of broad agreement. For example, there is consensus that the vast differences in basic operation, definitions, business practices, concepts, and technology in administering UI across states are not optimal, particularly in an economic downturn. If states had a more common operating framework, deploying emergency programs or sharing fraud solutions would have been easier when fraudsters were using similar attacks in multiple states.
The task force considered the following areas:
- Administrative and technology issues. Entering the pandemic at a fifty-year low in funding led to cascading failures. More opportunity for state-to-state and federal–state collaboration should have existed. Still, states would have needed better funding, more similarity among systems, and truly modern technology for them to succeed. UI policymakers should rethink how state administration works, particularly concerning technology.
- Reemployment and keeping people connected to work. One of the key roles that UI plays is keeping people connected to the workforce. UI could perform better to help people who have lost their jobs to secure an adequate replacement for their last job, which will require greater collaboration between UI and reemployment systems. If UI programs took advantage of better technology and more job replacement assistance, the relative generosity of benefits could be dialed up with less concern about potential disincentives to accept suitable work.
- Fraud identification and prevention. Going forward, how states detect and prevent fraud must be more robust and effective. Because the face of fraud in UI shifted so dramatically during the pandemic, the system needs a more unified front. This is a whole-of-government, whole-of-society problem that requires greater partnership across government and through public–private collaboration, and more study around effective fraud interdictions. Finally, fraud prevention cannot come at the expense of program access, so figuring out ways to minimize claimant pain and root out bad actors is critical.
- Duration of benefits for standard benefits and Extended Benefits. States have been reducing the duration of standard benefits, which has many knock-on effects, including limiting the number of weeks available if there is a major downturn and Extended Benefits kick in. Extended Benefits do not reliably serve the unemployed in economic downturns, as evidenced by the fact that Congress routinely has to step in and extend benefits in crises. Numerous studies and reports have recommended optimal duration and triggers for Extended Benefits to kick in. An in-depth literature review and study of proposals in this area would be a suitable future topic of study.
- Initial and continuing eligibility. States have complex and shifting rules about who qualifies for UI and what they must do to remain qualified. Employers often want to limit their tax liabilities by ensuring eligibility is restrictive. Workers are often discouraged from applying. Only about a quarter of laid-off workers tend to apply. No discussion of making a UI system effective makes sense without a rigorous conversation about eligibility, as is included in the task force report.
- Wage replacement levels. Both historic national bipartisan commissions recommended that UI replace 50 percent of prior income, up to a cap of two-thirds of the average weekly wage. With significant wage stagnation and evidence from the pandemic that claimants were still accepting work with significantly higher wage-replacement levels, many experts often recommend a greater percentage of wage replacement. Inflation erodes wage replacement in states that do not index their maximum wage replacement. While NASI task forces do not make policy recommendations, the ideal wage replacement amount is a lever for policymakers to consider.
- Financing. Any consideration given to establishing benefit floors must include how to pay for them. Current law requires that taxation be “experience rated,” so that when employers lay off workers eligible for UI, they pay more into the system to reflect the risk they are creating. This is intended to discourage layoffs and place the cost burden on responsible parties. However, there are flaws to this approach. People sometimes lose work when the employer is not at fault. Also, creating an incentive for a well-funded employer to challenge benefits for someone who just became jobless could create an unfair playing field. Alternatives to our current financing system are worth considering.
- Special Programs or Supplemental UI Programs. This section deals with programs such as Short Time Compensation (STC, also known as work sharing), a Job Seekers Allowance, Self Employment Assistance, and wage insurance that help workers who have lost work but are not in traditional layoff situations. Ultimately, the greatest degree of agreement was around making STC more attractive for employers who want to retain their workforce in lieu of layoffs.
The full report of the NASI task force is available for download here.
Tags: unemployment, unemployment benefits, unemployment rates
There’s a Growing Bipartisan Consensus to Fix Unemployment Insurance
In response to the historic challenges that the nation’s unemployment insurance (UI) system faced in 2020 during the pandemic, the National Academy of Social Insurance (NASI) assembled a bipartisan task force of public and private sector experts—the Task Force on Unemployment Insurance—to examine how the program responded to the massive surge of unemployed workers and to discuss ways to build a more robust program. The author of this commentary served as the principal investigator for this work and is the primary author of the task force’s final report. The commentary below is a high-level summary of the contents of the final report.
Unemployment insurance (UI) is a critical protection for workers who lose their jobs and for the economy as a whole. In addition to providing countercyclical support during economic downturns, which is a critical function of the program, UI helps people who have lost work through no fault of their own maintain attachment to the workforce, prevents wage erosion, and helps jobless workers pay bills when forces outside of their control limit their income. UI is social insurance. Social insurance is meant to cover all eligible workers and to replace enough of their losses to provide a glide path to a good replacement for the job they lost.
The COVID-19 pandemic exposed major cracks in the UI system, including massive technology failures, a core administrative structure ill-equipped to pay benefits on time and to the right people, and a base set of laws and assumptions that varied widely state to state in benefit amount, duration, and access. A massive bipartisan federal response in March 2020 dramatically increased weeks of benefits and weekly benefit amounts and qualified far more workers, resulting in over 53 million workers receiving over $880 billion over the course of the pandemic. However, unsurprisingly, setting up three massive programs in the middle of a pandemic and an application surge that shattered previous records for new UI claims for weeks on end was bound to result in mistakes in running the program. Also, fraudsters who had been sitting on personal information gained through breaches years ago and largely outside of UI systems saw a new emergency program as an opportunity to pilfer public funds.
The report of the NASI Task Force on Unemployment Insurance is presented as a full package of options because, unlike in many other policy areas, developing a solution for UI will likely require a grand bargain. A handful of reforms that do not consider all the policy levers could stabilize benefits in one way but lead to possible reductions in other areas. For example, setting a floor on replacement rates without considering duration would mean that states looking for savings could further reduce weeks of benefits to achieve savings. The task force acknowledges that any package of policy reforms will cost money, and more so in states that have maintained less generous UI systems.
While the task force held differences of opinion in various areas of UI policy reform, there are areas of broad agreement. For example, there is consensus that the vast differences in basic operation, definitions, business practices, concepts, and technology in administering UI across states are not optimal, particularly in an economic downturn. If states had a more common operating framework, deploying emergency programs or sharing fraud solutions would have been easier when fraudsters were using similar attacks in multiple states.
The task force considered the following areas:
The full report of the NASI task force is available for download here.
Tags: unemployment, unemployment benefits, unemployment rates