It’s the Big Idea of the early Joe Biden administration: Getting the country back to normal after the pandemic is just a start. That’s why the president is pitching a nearly $4 trillion national rehab project focused on new roads and universal broadband, free child care and community college, and aggressive action on climate change and income inequality.
But there’s only a nod in the White House’s ambitious agenda to unemployment insurance, a mainstay of the social safety net that was pushed to the brink of collapse when COVID-19 threw more than 20 million people out of work in March and April of 2020.
The lack of urgency is head-scratching with a president who has made shoring up economic security for working families a top priority. What’s more, there’s a ready solution: making unemployment insurance a fully federal program, like Social Security.
This isn’t a new idea, but University of Massachusetts Amherst labor economist Arindrajit Dube last month released a plan laying out how to do just that. His policy paper, published by the Hamilton Project of the Brookings Institution, argued that taking control of unemployment insurance from the states is the best way for the federal government to tackle the system’s thorniest problems, including stingy jobless pay, overly strict eligibility rules, and the lack of “triggers” that effectively link benefits to economic conditions.
Dube’s work has been lauded by fellow labor experts as a timely and comprehensive blueprint for making unemployment insurance, known in the field as UI, more equitable and effective across all states. A few days after his proposal was made public, Democratic Senators Ron Wyden of Oregon and Michael F. Bennet of Colorado unveiled draft legislation that would enact some of the same proposals put forward by Dube, though the lawmakers didn’t call for a federal takeover.
The American Rescue Plan, the COVID relief package passed by Congress in March, included $2 billion to modernize computer systems used by the states to run their unemployment programs. Creaky technology plagued the states well before the pandemic, but the networks buckled under the crush of jobless claims, the introduction of emergency pandemic benefits, and a surge in fraud. The result was long delays in getting checks out the door at a time when the need was greater than ever before.
Now, the administration is putting together a task force to study broader UI policy changes, according to Secretary of Labor Marty Walsh, the former Boston mayor.
“Federalization has been brought up a couple of times — from the outside,” Walsh said on a conference call with reporters earlier this month. “Everything is on the table. . . We have to take a good look at all of this.”
Walsh’s task force and the Wyden-Bennet initiative are a start, but there doesn’t appear to be any forceful effort to pull the unemployment system into the 21st century.
The last meaningful UI upgrade at the national level came in 1976, when President Ford signed legislation that boosted federal unemployment taxes and revised requirements for extending the duration of benefits when jobless rates spike.
It’s an opportune moment to take a serious look at Dube’s plan and similar proposals; the economy is growing and more than 46 million Americans have just experienced firsthand the complications and stress that can go along with signing up for unemployment benefits.
“This is the time, more than in many generations, that people really understand UI benefits and weaknesses,” Dube said in an interview.
Unemployment insurance was established by the same legislation that created Social Security in 1935, and together they are perhaps the most enduring of Franklin D. Roosevelt’s response to the privations of the Great Depression. But there’s a key structural difference between the programs.
Social Security is run by the feds, and it works the same way for recipients regardless of where they reside. UI is overseen by the Department of Labor but is administered separately by each state. Benefits vary from state to state, as do the employer taxes that mostly fund them. Maximum and minimum payments, benefit duration, and eligibility requirements: They all depend on where you worked before losing your job.
Consider: In Massachusetts, the average weekly state benefit was $469 in the fourth quarter of last year, the highest in the country, and replaced only 43 percent of the recipient’s income, according to Labor Department data. In Louisiana, the average weekly payout was $183, the lowest among states and enough to cover just 23 percent of income.
That variability is a pivotal problem.
During a recession, when unemployment climbs, states frequently blow through their UI trust funds and borrow from the federal government to make payments to laid-off workers. When the economy recovers, Washington must be paid back and the trust funds replenished.
That usually means increasing UI taxes on employers, something lawmakers are hesitant to do, and cutting benefit levels, which happened in many states after the Great Recession.
This cycle creates an incentive for states to keep benefits and eligibility low, softening the budgetary blow of a recession and making it easier to be business-friendly with lower UI taxes.
“Leaving it to the state creates somewhat of a race to the bottom,” Dube said.
The parallel problems here are that eligibility requirements make it tough for many people to get UI benefits, and that compensation amounts are hard to live on even when you qualify.
In 2019, before the introduction of federal pandemic benefits, only 28 percent of all unemployed workers qualified for jobless pay, ranging from 9 percent in North Carolina to 59 percent in New Jersey. The average income replacement rate was 38 percent.
Dube offers a multipronged solution:
- Expand eligibility by reducing earnings thresholds and allowing workers to claim unemployment when they quit for reasons beyond their control, such as when their hours or wages are cut or they or a family member have health issues.
- Broaden the categories of workers who qualify for benefits to include gig workers and independent contractors, many of whom have received jobless pay under the federal Pandemic Unemployment Assistance program. His goal is an overall eligibility rate of 55 percent to 60 percent, about double the current level.
- Peg income replacement rates to earnings, and institute higher rates for lower-income workers because they have few or no savings to get them through a stretch without a paycheck. Dube proposes an overall replacement rate of about 75 percent, again roughly twice the current average.
- Create a “recession boost” — similar to the extra $300 a week now provided by the feds — that kicks in automatically when local employment conditions deteriorate. This would avoid delays like the one that happened when Democrats and Republicans in Congress fought for months over whether to extend the enhanced jobless benefits that expired in July.
There are many more elements to Dube’s plan, including a plea to revamp short-time compensation, or job sharing, an overlooked program that offers employers an alternative to layoffs by allowing workers to stay on at reduced hours.
Economists say the COVID Recession would have been more devastating than it was if the feds hadn’t stepped in with enhanced and extended jobless benefits. But those pandemic programs are quickly disappearing.
The governors of 22 states are now rushing to revert to their pre-COVID levels of jobless benefits. The pullback is premature; almost 16 million people continued to collect jobless benefits as of May 15, and the feds’ emergency aid doesn’t expire until September.
The governors — all Republicans, more than a few from states with below-average benefit levels — cite the same reason for their decision: Congress’s cushy UI bonus is encouraging workers to stay home rather than return to work, creating labor shortages as the economy ramps up.
Their claim is exaggerated and masks a deeper GOP disdain for all but the most miserly unemployment programs.
Is complete Washington control of UI necessary to make the system fairer and more efficient? Dube thinks so.
“It may be possible for the feds to use carrots and sticks” to get all 50 states (plus the District of Columbia, Puerto Rico, and the Virgin Islands) to voluntarily adopt a robust expansion of benefits. “It’s just hard to ensure effective administration.”
Not that getting a federalization bill through Congress would be any easier. Democrats are hardly jumping on the bandwagon. Moderate senators like Wyden and Bennet wouldn’t go there; their bill mostly calls for the feds to set minimum benefit levels for the states to meet.
Yes, making Dube’s vision for UI a reality would take a heavy political pull.
Biden’s decision to put a reboot of unemployment insurance on the back burner probably makes it easier to advance the rest of his “build back better” plans. But it’s a setback for the struggling families he wants to build back better for.