Last week, when national figures showed a significant uptick in new claims for unemployment insurance benefits, some analysts took it as a sign that higher interest rates were finally cooling the labor market.
Turns out they were wrong. What drove the number higher was a flood of fraudulent claims filed in one state — Massachusetts. Sure enough, this week new jobless claims dropped sharply in line with longer trends.
The Massachusetts Department of Unemployment Assistance released a statement blaming “an uptick in fraudulent attempts to access unemployment insurance benefits,” just as “fraudulent attempts are increasing across the country.” Analysts who track weekly unemployment claims singled out Massachusetts, though Kentucky mentions a problem with “imposter” claims on its website.
Such identity theft previously hit Massachusetts and other states at the height of the COVID-19 pandemic three years ago.
The Massachusetts agency says it is examining claims carefully and, of the most recent batch of applications, approved only 12 percent after an initial review, rejected 25 percent, and withheld approval of the remaining 63 percent pending additional identification verification.
One explanation for why Massachusetts suddenly was targeted is because it has among the most generous state unemployment benefits.
Fraud emerged as a major problem across the country during the height of the pandemic, when states were inundated with claims for unemployment benefits at the same time tens of thousands of legitimate applicants who had lost their jobs were filing for help. In 2020, the administration of then-governor Charlie Baker said it recovered more than $242 million in fraudulently issued unemployment benefits.
“There is a tremendous amount of bot-based fraud going on,” Baker said at the time, referring to autonomous software programs that are able to interact online with systems and users.
The administration blamed an international criminal fraud ring targeting the state DUA. The scam prompted the Massachusetts agency to interrupt weekly payments to some claimants and to block the initial filings of others as it investigated. As a result, the agency implemented time-consuming measures to verify users’ identities. That left many legitimate applicants frustrated at long delays.
Most unemployment benefits fraud cases involve stolen identities. Scammers commonly obtain Social Security numbers and other personal information of individuals after data breaches of large companies or government agencies. The scammers use that information to file for employment under stolen identities and attempt to divert the benefits to themselves.
A recent report from the Government Accountability Office, the nonpartisan research arm for Congress, estimated that states in fiscal year 2022 made almost $19 billion in improper payments, or about 22 percent of all payments.
“GAO found evidence of substantial levels of fraud and potential fraud in unemployment insurance during the pandemic,” the report says.
The volume of new unemployment claims is closely watched by economists and others because it is seen as an indicator that employers are reining in spending by reducing their workforces. And a surge in applications is usually interpreted as a sign that layoffs are accelerating.
Between mid-April and the first week of May, the number of new claims in Massachusetts more than doubled.
Some analysts looking at the national unemployment claims numbers for the week ending May 6 noted that new claims were the highest since November 2021, up 22,000, including 6,420 new ones from Massachusetts. That led to speculation among economists that the figures might influence the Federal Reserve to pause its rapid pace of interest rate increases, which were meant to cool the economy and tamp down inflation.
But now many analysts who once saw a cooling economy are instead acknowledging the elevated numbers were a blip, underscored by the newest report that came out Thursday. The number of new applications for the week ending May 13 fell by 22,000 to 242,000 from 264,000 the week before, mainly due to a drop of 14,000 claims from Massachusetts
The DUA said the recent surge in claims two weeks ago was not indicative of more unemployment.
“The increase seen in initial weekly unemployment claims is not reflective of individuals filing for unemployment insurance but rather fraudulent attempts on the system,” according to a DUA statement.
The DUA “continues its efforts to prevent, detect, and capture these fraudulent claim attempts,” the statement said.
The US Department of Labor, which oversees most payments to jobless workers, “has taken some recent steps to address fraud risks,” the GAO said, by, for example, providing state agencies like the DUA with “fraud-related guidance, integrity tools, and grant funding.”
The Labor Department in April announced $200 million in grants available to state unemployment agencies this summer to help them “build systems to prevent and detect future fraud more effectively.” Those state systems “were targeted by organized crime rings that quickly exploited vulnerable, chronically underfunded systems to steal pandemic-related assistance fraudulently,” the agency added.
A representative of the Healey administration said the DUA is “actively pursuing” a grant from the Department of Labor.
Material from wires services was used in this report.
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