This article appears in the June 2023 issue of The American Prospect magazine. Subscribe here.
LaShondra White worked at a Kohl’s in Detroit, Michigan, for a decade before the pandemic hit. As in-person businesses shuttered, the company told its employees that they would all be furloughed. For White and millions of other workers, their recourse was unemployment insurance.
Enrolling wasn’t much of a hassle at first, and White received over $600 a week, thanks to extra benefits passed by Congress in the CARES Act. It was enough not just to cover her bills, but to give her room to dream. “To me that was my chance to get out of this situation,” she said. She had always wanted to own her own business, and now she had an opportunity to make it happen. She figured out how to fix her credit score, and she rented out a space for an eyelash studio, which she still owns. “Honestly for me it was a blessing, because it allowed me to do things, and now I’m better for it,” she said.
But White also experienced the downsides of unemployment insurance. When she finally went back to work at Kohl’s in July 2020, it was only on reduced hours, given how few customers were coming into the store. She struggled to get her benefits recertified every week, which meant a delay in getting her checks. Getting help from Michigan’s unemployment agency was nearly impossible. “I’ve never seen anything like that from a customer standpoint,” she said, and she would know, having worked in customer service. “If you work and you’re a taxpayer, these are people that should be working for you. It should not be the other way around where it’s driving you crazy.”
To resolve the issue, White contacted her congressional representatives, getting her case fixed and her benefits flowing. It was a common solution: Organizers say that the best way to get an answer about a delayed claim during the peak of the pandemic was to have workers contact their state representatives to put pressure on the agencies. That can be effective, but it’s incredibly inefficient; Michigan has 15 House and Senate members, and at the height of the pandemic, over one million Michiganders were unemployed.
White was grateful for what she received and that she was able to eventually fix the problems. “But I do remember thinking it shouldn’t be this chaotic,” she said.
IT WASN’T SO LONG AGO THAT MICHIGAN was a poster child for all the wrong ideas about unemployment insurance. After the Great Recession, as states looked at how to replenish trust funds that had just been depleted, Michigan was the first to make the math work by cutting back on benefits and going after the unemployed. In 2011, it reduced the number of weeks someone can be enrolled from 26 to 20—breaking with a half-century-long norm—and then in 2013, it implemented an automated fraud detection system (causing a huge spike in claims against recipients) and levied quadruple penalties on those accused, the highest in the nation. The war on the jobless took such a toll that the University of Michigan put a suicide hotline number on its unemployment insurance clinic website.
If there was ever a time to reinvent unemployment, it’s now, after the best and worst of the system were on such public display.
Today, Michigan is “committed to holistically modernizing and overhauling the unemployment insurance program,” said Julia Dale, director of the state’s unemployment insurance agency. That’s in line with Gov. Gretchen Whitmer’s focus, she said, on making Michigan a good place to live and work.
The holistic approach includes upgrading IT systems; in May, the state enlisted a new vendor, Deloitte, to implement an entirely new computer system for both applicants and agency staff. It’s also tackling inequities in who is able to claim benefits. With some of the billions of dollars the federal government has made available to states through the American Rescue Plan, Michigan has translated unemployment materials into multiple languages and created road maps for both claimants and employers to better navigate the process.
Last year, after the Department of Labor told states they could waive overpayments for those who mistakenly got higher benefits thanks to confusing guidance or processes, Michigan issued 76,000 waivers, erasing more than $555 million that residents would have otherwise had to pay back, months or even years after receiving benefits. “That’s money that allows them to pay the rent, to pay the mortgage, to put food on the table, to buy necessary medication,” Dale noted.
Then at the start of this year, Dale’s agency formed a first-of-its-kind modernization work group made up of labor, business, and unemployed worker representatives to come up with policy recommendations to improve the system, including how many weeks are offered, how much money unemployed workers receive, and what taxes are levied on businesses to fund the program.
“The needle has moved,” Dale said. “What the pandemic revealed was the historic disinvestment in unemployment insurance programs across the country.” She wants to turn Michigan’s new approach into a “national model.” But the agency can’t accomplish this transformation on its own. The power to set benefit amounts or extend the duration lies with the legislature. Eventually, she might need Congress to act, too.
If there was ever a time to reinvent unemployment, a core but little-loved thread of the social safety net, it’s now, after the best and worst of the system were on such public display. Enhanced pandemic benefits lifted millions out of poverty, pushed people into better jobs, and led to one of the fastest economic recoveries in history. Yet creaky technology generated unnecessary hardships and invited fraud. A reasonable country witnessing that would work to keep what worked and jettison what didn’t. But it remains to be seen whether there is enough political will—and resources—to craft a better system.
COURTESY LASHONDRA WHITE
LaShondra White of Detroit used enhanced unemployment insurance to create a business selling eyelashes.
UNEMPLOYMENT INSURANCE STARTED as a radical idea. President Franklin D. Roosevelt included it in the Social Security Act after the carnage of the Great Depression. “We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life,” Roosevelt said upon signing it into law, “but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job.”
The program had two purposes: to catch American workers when they were pushed out of work and to prop up the economy in times of mass joblessness by making sure families could keep buying necessities. But it goes beyond income replacement. If workers know that they will have income if they lose their jobs, they will be emboldened to speak up about and fight abuse. Plus, if someone does end up losing her job, having income while looking for another allows her to hold out for the right match and the right wage. More generous unemployment benefits lead workers to find better, higher-paying jobs.
But if benefits are difficult or impossible to access, then “it becomes really hard to reject poor offers,” said Will Raderman, policy analyst at the Niskanen Center. “You don’t want to give up a solid wage for a fairly low chance of getting UI.”
Its myriad problems also date back to its inception. “The decision that put us in this spot in the first place,” said Michele Evermore, senior fellow at The Century Foundation, “was deciding to make this be a state-run federal-state partnership.”
Congress considered two different versions of unemployment insurance. One, supported by a Minnesota lawmaker and discussed in the “non-southern-dominated House Labor Committee,” writes Ira Katznelson in When Affirmative Action Was White, would have created a federal trust fund to administer benefits. Instead, Congress went with a model in which benefits are funded by employers paying taxes on their employees’ wages, while states have control over eligibility and benefit levels. Domestic and agricultural workers, who were overwhelmingly Black, were excluded, as were government, nonprofit, and self-employed workers. Interruptions for pregnancy and childbirth weren’t covered. The NAACP testified against the bill, calling it “a sieve with holes just big enough for the majority of Negroes to fall through.”
It was the kind of deal fashioned to pass many New Deal reforms: In order to gain support from white Southern lawmakers, it essentially carved out many Black workers and gave states power to keep excluding people of color as they saw fit. But unlike Social Security retirement benefits and the minimum wage, which have been reformed many times since then to reach more Americans, unemployment insurance “operates almost exactly as it was designed in the late 1930s,” said Jenna Gerry, senior staff attorney with the National Employment Law Project. Agricultural and domestic workers have been included, but not those on small farms, and the self-employed, irregular workers and new parents are still left out.
Talk to any unemployment insurance expert and they’ll say that there are really 54 different state and territorial systems. While many government programs exist as a federal-state partnership, here the separation is nearly complete. The federal government funds the administration of the program, and states are then left to set the rules wholly by themselves, with no national floor. States can be found to be out of compliance with the minimal administrative requirements, but the only option available to the Department of Labor is to more or less revoke a state’s federal funding and prevent it from giving out benefits. “It’s basically like the Department of Labor only has a nuclear option, and it’s never used it because it is the nuclear option,” Gerry said.
As a result, state programs vary wildly. Maximum benefit amounts, which are often set as a percentage of an individual’s average wages before unemployment, range from as little as $235 a week in Mississippi to as much as $1,015 in Massachusetts. In some states, benefits are “so low that many workers will choose to not even apply,” Gerry said. On average, Americans get $392 a week; that wouldn’t even keep a family of three out of poverty in more than three-quarters of all states.
The way the system is funded also drives inequities and shortfalls. Employer taxes go into state trust funds to pay out benefits. States are supposed to keep those tax rates high enough to ensure an adequate safety net and replenish the coffers after severe downturns. But employers have a vested interest in keeping rates low, and many state lawmakers listen to them. The business community has more expertise lobbying on this issue than unemployed workers.
The share of unemployed workers has gradually declined; on the eve of the pandemic, less than 30 percent were eligible.
States are only required, at the minimum, to make employers pay taxes on the first $7,000 of employees’ wages, a figure that hasn’t been updated since 1983. Arizona, California (!), Florida, and Tennessee still keep it that low. Many states don’t index the amount of earnings that is subject to the tax, allowing it to erode over time. Social Security’s taxable wage baseline, on the other hand, started out the same as unemployment insurance’s but has been increased and indexed and is now $160,200. “By not adjusting [taxable wages] to inflation, the program is sowing the seeds of its own demise,” said Peter Ganong, an economist at the University of Chicago.
The low revenue base incentivizes states to cut benefits to keep funds solvent. Since the 1950s, nearly all states ensured at least 26 weeks of benefits. After the 2008 recession, however, rather than increase tax rates, ten states reduced the number of weeks. Florida, Kentucky, and North Carolina now offer less than half.
To be eligible, an applicant must have made a certain level of earnings and certify that they are actively searching for work. But those rules can disqualify irregular, seasonal, or part-time workers, as well as those with hefty caregiving responsibilities. People who quit or are fired for cause can’t enroll, but even the definition of involuntary unemployment varies—some states will reject someone who, for example, is told their job is moving 30 miles away, or someone who had to leave a job because they feared an abusive partner would find them at work and hurt them. Undocumented workers, even if they pay taxes, are excluded entirely.
While Evermore says an ideal goal is for half of unemployed workers to qualify—a peak that was reached in the 1950s, and roughly the share of unemployed people who are out of work involuntarily—only two states today (Minnesota and New Jersey) achieve that. Alabama and North Carolina reach less than 10 percent. The share of unemployed workers who receive benefits has gradually declined; on the eve of the pandemic, less than 30 percent were eligible.
As with most things, low-wage workers experience the brunt of this inequity. A 2007 GAO report found that while they were almost 2.5 times as likely to be out of work, they were half as likely to receive benefits as those earning higher wages.
Low-wage workers are also more likely to have their employers fight claims. Business taxes rise as former employees enroll in the system, so companies have taken to hiring third-party firms to wage aggressive challenges, depriving those who need the assistance the most. This practice deters some workers from even bothering to make claims, if they know they’ll run into such an intense counteroffensive.
THE CHALLENGES AREN’T JUST AROUND varying access to benefits, though. The fact that each state operates its own unemployment insurance fiefdom means there is no standardization. When Evermore worked as deputy director of policy in the Office of Unemployment Insurance Modernization at the Department of Labor, she tried to create a glossary of common terms. But even something as basic as defining “fraud” varied too much between states. Improvements or technology upgrades therefore can’t be rolled out quickly or easily across systems, so states have to keep duplicating the same work.
The federal government gives states funding to administer benefits, but even that has significant issues. The amount each state gets is based on how many claims were made in the previous year; by definition, less funding goes out in times of low unemployment. Then when there’s a sudden increase in unemployment, states are ill-prepared. The funding levels generally are inadequate. The money comes from the appropriations for the Department of Health and Human Services, and “you can probably see why UI administrative funding is not the highest priority when it’s up against cancer research and disease control,” Evermore said. Funding was at a 30-year low when the pandemic hit.
That doesn’t leave much room to update technology so it works smoothly. We learned during the pandemic that many UI systems are programmed with COBOL, a dead computing language used on old mainframes that is rarely taught anymore. Even if programmers could be found, government work pays less than private-sector technology jobs, making it hard for agencies to hire and retain staff. Many end up outsourcing their needs to the few contracted vendors in this space. States are left unable to make changes easily on their own when needed; the governor of New Jersey used a live press conference in 2020 to ask for volunteers who knew COBOL to help fix their system.
This technology deficit does not interact well with the extreme complexities in benefit delivery. Evermore once worked with a state that had 1,500 questions in its decision tree to determine eligibility.
Some of the hurdles the unemployed face are accidents of bad policy, but some are deliberate. In 2011, Florida became the first state to require claimants to answer 45 math and reading questions before they could apply, and then it updated its online portal in 2013, which was so riddled with technological failures that now-Gov. Ron DeSantis has said it had to be done purposefully to keep people out. “I think the goal was for whoever designed, it was, ‘Let’s put as many kind of pointless roadblocks along the way, so people just say, oh, the hell with it, I’m not going to do that,’” he said. States with larger Black and Latino populations have the strictest rules and the lowest rates of recipiency and replacement of workers’ incomes. Overall, Black workers are about a quarter less likely to receive benefits than white ones.
If the program was flawed from the beginning, we’ve only allowed it to get worse over time. “We’ve just seen this slow and steady decline in the system,” said Andrew Stettner, deputy director for policy at the Office of Unemployment Insurance Modernization. “We’ve definitely had a policy of neglect.”
WHEN THE PANDEMIC HIT, a system that was already primed not to respond when workers most needed it buckled and nearly collapsed. New claims for unemployment benefits hit three million the week of March 21, 2020, triple the previous record, and then doubled to reach six million for two weeks. First-time claims stayed above one million for over a year.
In an unlikely turn of events, Congress reacted quickly to the crisis, enacting the largest increase in unemployment benefits and eligibility in history. Lawmakers created a new program to reach nearly everyone who would otherwise be unable to enroll, including self-employed and independent contractors, caregivers, part-time employees, and underpaid workers. Congress also provided 49 additional weeks of benefits to those who exhausted their state benefits, and offered a flat increase in benefits. Until July of 2020, unemployed workers received an extra $600 a week, and then between December 2020 and September 2021, they got a $300 top-up. For about three-quarters of eligible workers, that meant they received more than they had been making at work.
In 2019, unemployment insurance kept a mere 500,000 people out of poverty. In 2020, that figure was 5.5 million, bested only by Social Security and stimulus payments as an anti-poverty measure, and even that may well be an undercount. The benefits also helped keep the economy from going into free fall. Recipients quickly turned around and spent their benefits, which propped up business activity. That contributed to the economy’s output fully recovering within about a year of the pandemic’s beginning.
That didn’t mean that everything ran smoothly. Claims were taking weeks, sometimes months, to get processed and approved. Florida, predictably, was the slowest state to process claims in the first month of the pandemic, reaching only about 1 percent of its workforce. In July 2020, over 100,000 people had waited 70 days or more for a check. People couldn’t get through on the phone lines to get help.
At the same time, the overwhelmed, antiquated systems invited sophisticated forms of organized crime to take advantage. The Government Accountability Office found in January that $4.3 billion in benefits were definitively paid out fraudulently, and potentially much more. Over 1,000 people have been arrested in association with unemployment fraud.
Perversely, fraud reports led to haphazard measures that harmed actual recipients. The Center for Popular Democracy worked with people who had monthslong gaps waiting for benefits. “A lot of workers would be denied on various technicalities when they were in desperate need of income,” said Francisco Diez, senior policy strategist at CPD. They were “in danger of not being able to pay their rent and potentially being pushed out of their homes.”
Eventually, making the lives of the unemployed a little less anxious sparked controversy, and months of headlines about whether it was causing people to stop working. In response, 26 states ended the extra benefits early, despite a number of studies finding that increased benefits in the pandemic had little to no effect on whether people worked, and cutting people off from benefits didn’t suddenly spur them to get jobs.
What did happen when Americans got better unemployment benefits is that they were freed up to think about what kind of job they really wanted, and to pursue getting it. The labor shortage was more of a reset: People re-evaluated their relationships to work, facilitated by being able to make ends meet in the meantime.
Arindrajit Dube, professor of economics at the University of Massachusetts at Amherst, and two other economists found that the resulting tight labor market led to rapid wage growth for low-wage workers, which erased a quarter of the wage inequality that had been growing for decades. “We started with an economy with so many bad jobs where there is a lot of room for improvement,” said Dube. But when workers received generous unemployment benefits, they made room for “looking around more and finding better opportunities,” he said.
WITH THIS KIND OF TRACK RECORD, you would think that the pandemic experience would trigger a reassessment of how unemployment insurance can stabilize workers and the broader economy. But you would be wrong.
The new set of benefits are all completely gone. Before the pandemic expansions expired, three-quarters of people were accessing benefits through them rather than their state programs. Today, the share of unemployed workers getting benefits is now back to about 25 percent of jobless Americans. Despite the focus on the system and its failures, as well as these brand-new experiments, “it didn’t accomplish any durable change,” said Indivar Dutta-Gupta, executive director of the Center for Law and Social Policy.
That’s despite new coalitions that rose with the unemployment rate. In July 2020, three organizers formed Unemployed Workers United. They started to engage unemployed workers, first by going into Facebook groups where people had already started connecting with each other to share resources, then by tapping voter data and analyzing it to estimate who was most likely to be experiencing unemployment. They contacted over two million people in 2021 and 2022 and now have a base of about 300,000 people. They hosted dozens of “know your rights” workshops with legal aid lawyers who could answer their questions, drawing 50 or more attendees at each. They held cookouts with community organizations to give people in-person support.
“Unemployed workers often feel isolated because an identity of being unemployed is not something a lot of people identify themselves with,” said Lynn Hua, director of digital organizing for Unemployed Workers United. But these spaces gave them a sense of community in the experience.
SIPA USA VIA AP
The $1.9 trillion American Rescue Plan offered billions to states to modernize their unemployment systems.
The Center for Popular Democracy also launched an unemployed action project to mobilize unemployed workers “to have a say in what a better unemployment system could look like,” according to Diez. The large universe of unemployed workers—1 in 4 Americans received at least one payment in the pandemic—helped the campaign spread and got workers to see things differently, Diez said. “That reality opened up a realization that ‘I’m not alone in this.’”
But as CPD members go back to work, they’re now organizing around issues like wage theft and poor working conditions. Unemployment has gone back to the sidelines. “A lot of it has, to be frank, lost momentum because it’s not an urgent issue,” Diez said. Hua’s organization is part of a national unemployment reform coalition and still has a pending lawsuit against the governor of Arizona for ending federal benefits early. But it’s pivoted to “focus on precariously employed, periodically employed, temporarily employed workers,” Hua said, running campaigns such as banning source-of-income discrimination in housing in Arizona or fighting unfair treatment by temporary staffing agencies in Texas.
Workers are most attuned to unemployment insurance when they need it in a crisis. After that, they go back to trying to earn a living, shedding the identity of an unemployed person. Employers, on the other hand, have a deeply vested and ongoing interest in keeping their tax rates low.
Lawmakers, meanwhile, typically turn their attention elsewhere. Unemployment insurance reform didn’t even make it into the early, expansive versions of Democrats’ Build Back Better reconciliation package. “It’s really hard to get policymakers to care about unemployment insurance in non-recessionary times,” Gerry said.
ONE PERMANENT CHANGE DID COME out of the pandemic: The Office of Unemployment Insurance Modernization. The American Rescue Plan that President Biden signed into law in March 2021 gave the Department of Labor $2 billion for UI administration, and the department is focused on “three critical goals,” said Stettner, its policy director: “equity, timeliness, and accuracy of payments.”
The office has created what it’s calling “Tiger Teams,” experts who deploy into a state government for six weeks to identify problems and offer potential solutions, all coupled with funding to entice states to make changes. The teams look at everything from whether the program uses easy-to-understand language to the effectiveness of its fraud prevention tools. It’s a voluntary program, so a state has to request a team. But 30 have gone through the process, and about 40 have committed to it, Stettner said.
Michigan isn’t the only state to use the funding to embark on ambitious changes. Colorado took $600 million in ARP funds to cover undocumented immigrants, make sure the unemployed receive benefits immediately, and ease up on going after recipients for accidental overpayments. Tennessee used $61 million to upgrade its systems to process claims faster. Washington state put $31 million toward upgrading its IT systems and translating materials into ten languages.
But the Labor Department can only do so much within the existing framework. Even states that are eager to make changes are short on cash, still working through pandemic-era issues and paying back loans from the federal government while doling out ongoing claims. “We can’t fix the system alone,” Stettner said. “We need policy reform.”
The Biden administration has given Congress an idea of what it thinks that reform should look like: ensuring an “adequate” duration and level of benefits in every state, making sure the program responds automatically and quickly to downturns, and expanding eligibility so those who were newly covered during the pandemic qualify. “The Administration calls on Congress to act now while unemployment is low to ensure that unemployed individuals, regardless of where they live, have equitable access to benefits that are adequate to meeting their basic needs while they are unemployed and searching for new work,” the Department of Labor’s FY2024 congressional budget justification states.
Another economic downturn will come. The unemployment system is still unprepared to handle it.
Change has happened before, and could happen again. When Congress passed the American Recovery and Reinvestment Act in 2009 to pump stimulus into a depressed economy, it added some strings. If states accepted extra funding for unemployment benefits, they had to permanently expand eligibility for those benefits to low-income and seasonal workers, part-time workers, and those who leave their jobs due to domestic violence or another “compelling family reason.” It was “the largest expansion in unemployment insurance in a recession really since its history,” Dutta-Gupta said. But it was also an “uphill battle.” Then-Louisiana Gov. Bobby Jindal at first refused to accept the $98.4 million in funding because of the expansion requirements.
Not all lawmakers have lost sight of the need for reform. In early 2021, Sens. Ron Wyden and Michael Bennet, two of the leaders of the pandemic-era reforms, put forward a proposal to overhaul the system by requiring states to offer at least 26 weeks of benefits, replace 75 percent of workers’ wages, cover part-time workers and those who quit for a qualifying reason, create a $250 benefit for those who aren’t covered by the system, and increase the taxable wage base from its $7,000 minimum.
Organizers aren’t done, either. In Louisiana, for example, they helped secure an increase in the maximum weekly benefit. In New York, a coalition is pushing for the state to pass the Unemployment Bridge Program modeled after the excluded workers fund the state ran to cover undocumented workers and others left out of federally expanded pandemic benefits.
PLENTY OF PEOPLE LOSE JOBS even in good economic times, in what amounts to a personal recession. The pre-pandemic Trump administration, for example, saw decades-low unemployment rates, but there were still 58.7 million instances of individual unemployment. Yet there was no expanded coverage or benefit generosity to cushion those workers.
Meanwhile, another economic downturn will come, be it from a recession caused by the Federal Reserve, a string of bank runs, or another pandemic. The system is still unprepared to handle it. “We are absolutely totally not ready for any economic downturn right now,” Evermore said. But there’s little mystery about what it would take to get ready.
Instead of requiring Congress to top the system up every crisis, the program could be put on autopilot—if the right economic triggers were met, more weeks and more dollars of benefits could automatically kick in. “That eliminates state confusion and makes things go smoother when times are hard,” Evermore said. Otherwise, Americans have to rely on Congress to find the will to enact temporary extensions and enhancements. That leaves the possibility that political infighting will get in the way the next time catastrophe strikes.
“In its true form, it should be social insurance, which is available to workers at all times when they’re experiencing unemployment,” Raderman said. The challenge is to institute minimum federal standards all at once. That way, a state can’t comply with, say, a requirement to offer 26 weeks by turning around and cutting the maximum benefit amount. “You either have to be comprehensive in mandates or reforming the system or you would literally have the federal government run the system,” Dutta-Gupta said.
All of this is “stuff you can’t really do on the fly when there’s a catastrophe,” Evermore said. The question is whether there’s enough momentum from the pandemic catastrophe to truly change the way the system works.
LaShondra White started organizing with the Center for Popular Democracy after her experience with unemployment insurance because she didn’t want other people to struggle with the system. But she worries that the exact same problems will emerge in the next economic downturn. “They may try to push it under the rug because we’re not in [the same] moment,” she said. “But when it comes around again you should be prepared. To put a system in place that works.”
“I just hope going forward we’re prepared for the next time. Because there will be one,” White said. “It’s just a matter about when and how prepared are we going to be.”
