The unemployment insurance program is not prepared for the recession, experts say

Renewed fears of a US recession have weighed on unemployment.

However, the system that workers rely on to collect unemployment benefits is at risk of collapsing — as it did during the Covid-19 pandemic — if there is another recession, experts say. they say.

It’s “absolutely not ready” for the next recession, said Michele Evermore, a senior fellow at The Century Foundation, a progressive think tank, and a former policy assistant at the Office of the Executive Director. US Civil Service Commission.

“If anything, we’re almost in a worse position now,” he said.

Unemployment insurance provides temporary income support to laid-off workers, thereby helping to protect consumers and the broader American economy during a recession.

The outbreak exposed “major flaws” in the system, including “major technological failures” and a system structure “not equipped” to pay benefits quickly and accurately, according to a recent report issued by National Academy of Social Insurance.

There are also big differences between the states – which run the programs – in terms of factors such as benefits, duration and eligibility, according to the report, written by more than two dozen unemployment insurance experts.

“This outbreak has exposed long-standing problems in the UI program,” Andrew Stettner, director of the Department of Labor’s Office of UI Modernization, said during a recent webinar on the NASI report.

The US unemployment rate, at 4.3% in July, is still far from the pandemic peak and low by historical standards. But it slowly climbed higher last year, fueling rumors of a possible collapse.

Policymakers should address the system’s weaknesses in good times “so it can deliver in bad times,” Stettner said.

Unemployment was high in the early days of the epidemic.

The national unemployment rate approached 15% in April 2020, the highest since The Great Depression, which was the worst recession in the history of the developed world.

Claims for unemployment benefits rose to more than 6 million in early April 2020, up from about 200,000 a week before the pandemic.

Countries were not prepared to deal with the flood, experts said.

Meanwhile, state unemployment offices were tasked with implementing various new programs created by the CARES Act to improve the system. Those programs have increased weekly benefits, increased their time and provided assistance to a large group of workers, such as those in the gig economy.

Later, countries had to take more stringent measures to prevent fraud when it became clear that criminals, attracted by the many benefits, were stealing money.

The result of all this: the benefits were very delayed for thousands of people, putting severe financial pressure on many families. Some have found it almost impossible to get help from customer service representatives.

Years later, the countries have not fully recovered.

For example, the Department of Labor generally considers benefit payments to be timely if they are issued within 21 days of an unemployment claim. This year, about 80% of payments arrived on time, compared to about 90% in 2019, according to agency data.

It’s important to create the system you need “for the worst part of the business cycle,” Indivar Dutta-Gupta, a human resources expert and staff member at the Roosevelt Institute, said during a recent webinar.

The experts who wrote the report for the National Academy of Social Insurance described many areas that policy makers need to fix.

Management and technology were some of them. Countries entered the pandemic at 50-year lows, resulting in “significant inefficiencies,” the report said.

Today’s system is largely funded by a federal tax on employers, which amounts to $42 per year per employee. The federal government could choose to raise that tax rate, for example, the report said.

Raising such funds can help countries improve old technology, by improving access to workers’ phones and allowing them to access portals 24 hours a day, seven days a week, for example. It will also make it easier to pivot in times of crisis, experts said.

Funding is a “huge trap” that has allowed government systems to become “severely corrupt,” Dutta-Gupta said.

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In addition, policymakers could consider similar rules over the timing and amount of benefits, and who can collect them, said Evermore, the author of the NASI report.

States use different methods to determine information such as eligibility for benefits and weekly benefit payments.

The average American received $447 per week in benefits in the first quarter of 2024, replacing 36% of their weekly income, according to data from the US Department of Labor.

But benefits vary widely from country to country. Those differences are largely due to benefit formulas rather than differences in wages between states, experts said.

For example, the average wage earner in Mississippi earned $221 a week in June 2024, while those in Washington state and Massachusetts earned about $720 a week, Labor Department data shows.

In addition, 13 states currently provide less than 26 weeks — or, six months — of benefits, the report said. Many have requested 26-week conditions in all countries.

Various proposals have also called for increased weekly payments, up to perhaps 50% or 75% of lost weekly earnings, for example, and providing additional income to individuals. .

There are reasons for optimism, Evermore said.

US Senate Finance Committee Chairman Ron Wyden, D-Ore., the committee’s top ranking member Sen. Mike Crapo, R-Idaho, and 10 co-sponsors proposed bipartisan legislation in July to fix parts of the unemployment insurance program.

“I’m very encouraged right now” by the bipartisan will, Evermore said. “We need something, we need another big charge, before another recession.”

Correction: Andrew Stettner is the director of the Department of Human Resources’ Office of UI Modernization. An earlier version misstated his title.