Fixing unemployment insurance and the coronavirus response
The novel coronavirus has brought sudden attention to the unemployment insurance (UI) system and its ability to quickly deliver aid to families and stimulus to the economy. Economists estimate that we will lose nearly 14 million jobs by the summer even with a sizable stimulus package. Workers in industries heavily dependent on women and workers of color, like food service and retail, have borne the brunt of the pandemic. Policymakers must focus both on immediate changes to help these individuals, and structural fixes that can gird the nation for the challenges of a recession and future economic crises.
This fact sheet is a joint project of the Women’s Law Center, the National Employment Law Project, the Economic Policy Institute, the Century Foundation, and the Georgetown Law Center on Poverty and Inequality Economic Security and Opportunity Initiative. View the fact sheet
The UI System Is in Desperate Need of Repair
The basic UI program, operated by the states with federal oversight; the federal-state Extended Benefits (EB) program; and the Disaster Unemployment Assistance (DUA) program are facing this crisis at one of their weakest points in history.
- Access to UI Is Already Extremely Limited: The percentage of all jobless workers receiving a UI payment has dropped from 43.7 percent in 2001 to just 27.8 percent in 2018, with low-wage workers the least likely to receive benefits.
- UI Programs Have Been Inadequately Funded for Decades: During the last recession, 36 state unemployment trust funds went broke, and despite the longest economic expansion in U.S. history, 22 entered the COVID-19 crisis with insufficient savings. Without aid many trust funds will go broke again.
- UI Benefits Are Meager: The average benefit of $382 per week only represents 32.7 percent of the average wage.
- UI Administration Has Been Dramatically Under-Resourced: The federal grants for state operations have been cut by 30 percent since the 1980s, leaving states with threadbare staff and antiquated computer systems overwhelmed by COVID-19. The additional $1 billion appropriated by Congress won’t meet the need.
- Disaster Unemployment Assistance (DUA) is ill equipped to handle this or other crises given its low benefit amounts, unrealistic time limits, and limited coverage.
Ongoing Federal Reforms Represent a Timely Down Payment on Overdue Structural Change
The Families First Coronavirus Act and the stimulus package being negotiated go a long way toward addressing the challenges facing unemployed workers during this current crisis.
- The Families First Coronavirus Act delivered $1 billion in aid to states to process the spike in claims, and granted states more flexibility to approve unemployment claims due to the unique circumstances of the COVID-19, such as quarantines and stay-at-home orders. It also provided full federal funding of the federal EB program, which will trigger on when unemployment rises.
- The 3rd COVID-19 response package is reported to have $250 billion in temporary enhancements to unemployment assistance through 2020, including a $600 increase in the weekly checks of unemployed workers, a special disaster unemployment assistance program (Pandemic Unemployment Assistance) that covers the self employed, a temporary 13 week extension of benefits, federal funds to eliminate the waiting week and to support shared work programs.
Now Is the Time to Advance Structural Reforms
Unfortunately, the challenges ahead in the coming months of crisis and recovery will extend beyond the timeline for these shorter-term reforms, which alone are not enough to upgrade the UI system to fully respond to a crisis of this magnitude. Businesses large and small are already closing, and many workers will count on the UI program to weather the many months it will take to find new jobs in an economy slowly regaining its footing. Providing a strong, sustained structure of benefits now is a critical part of the architecture of mitigation and recovery.
In the coming weeks and months, Congress must:
- Fix automatic EB triggers: Turn on additional weeks of benefits automatically anytime the unemployment rate jumps a half percentage point, and add more weeks when it goes up to 6.5, 7.5, and 8.5 percent.
- Require states to enact shared-work programs that allow companies to avoid layoffs by putting workers on part-time schedules with partial unemployment benefits and provide federal funding for these programs during economic crises like now.
- Create minimum state standards around benefit length and generosity: Federal law should require all states provide a minimum of 26 weeks of benefits, reversing the actions of states that reduced the duration of benefits after the Great Recession. State UI programs should also replace at least 60 percent of a worker’s weekly wages, with a maximum of 67 percent of state’s average weekly wage.
- Create a jobseekers allowance of 13 weeks, at a lower benefit amount, for workers who are not covered by regular or pandemic unemployment insurance. This includes populations such as new entrants and students graduating into this recession, and returning caregivers, some of whom may need additional wrap-around services to support job search.
- Fill holes in the unemployment safety net: Increase recipiency of low-wage workers, who are disproportionately people of color and women, by requiring states to count the most recent earnings of UI applicants, treat part-time and full-time workers equally, and recognize unemployment caused by compelling personal issues such as illness, domestic violence, and relocation to follow a partner to a new job.
- Adequately fund unemployment benefits: Current federal law only requires states to tax $7,000 of each worker’s wage. This taxable wage base should be increased over five years to one-third of the Social Security wage base and indexed to gradually increase every year, to provide a stronger foundation for financing. Link any rescue funding for state trust funds to these long term fixes.
- Help UI claimants get back to work through the Wagner-Peyser Employment Services and periodic reemployment services.
Congress failed to fix these structural flaws in the wake of the Great Recession and the numerous state roll-backs of UI benefits and lingering insolvency that followed. The COVID-19 crisis should be a wake-up call to the need to immediately improve the basic structure of the nation’s first responder to economic distress.
Here are safeguards needed in bailout packages to protect working people and fight corporate greed
This week, Congress continues to negotiate a fiscal stimulus package to help ease the economic shock of the coronavirus. In these negotiations, it is critical that lawmakers establish strong conditions for industry bailouts. Working families, not just shareholders and corporate executives, must receive the benefits of any taxpayer-funded bailout.
Our economy is marked by extreme inequality. Chief executive officer (CEO) compensation has grown 940% since 1978, while typical worker compensation has risen only 12% during that time. From 1979 to 2018, the wages of the top 1% grew 158%, whereas the wages of the bottom 90% combined grew just 24%, less than one-sixth as fast. Extreme inequality and wage stagnation for virtually all but the highest earners for most of the last four decades have left fewer and fewer U.S. workers able to access the middle class. What Congress does now with this fiscal stimulus will either help address this inequality, or compound it and leave more workers behind.Read more
The unemployment rate is not the right measure to make economic policy decisions around the coronavirus-driven recession: Policymakers should use the employment rate to continue or stop economic assistance
Policymakers often use the unemployment rate to trigger when to turn on or turn off financial assistance in economic downturns and recoveries. The unemployment rate, however, is a bad choice for a policy trigger in the current pandemic-driven recession.
A large share of workers who lose their jobs in the coming weeks and months will very likely not be counted in the official unemployment rate because they won’t be actively looking for work. Given the nature of the pandemic, where we are all being told to stay away from work and all non-essential public activity, many laid-off workers will make the rational decision not to search for work until they get the all-clear from public health authorities.
Think of the restaurant worker who just got laid off. They might not report looking for work because that whole sector is shut down. What would be the point in actively looking for a job when it’s clear that there are none out there?
(In this video, Elise breaks down how to go about finding the right measures for economic policy decisions.)
Instead of using the unemployment rate as a trigger-off mechanism, policymakers should use the employment rate—the share of the adult population with a job.
The coronavirus fiscal response should be as big as needed—but current forecasts indicate at least $2.1 trillion is needed through 2020: The expected hit to the economy would mean almost 14 million job losses by summer
- The stimulus package to deal with the coronavirus economic shock should be as big as economic conditions dictate.
- The package to restore the nation’s economic health should spend at least $2.1 trillion through the end of 2020. This amount could increase even this year, and aid should continue past this year if conditions warrant.
- The fiscal response should continue until we reach full employment.
- The stimulus should be well-targeted and not squandered on unconditional giveaways to business that don’t spur the needed growth.
- The risk of going too small on stimulus is large and scary, while the risk of going too big is almost nonexistent.
Congress is taking up a fiscal stabilization package this week to cushion the economic shock of the coronavirus. A natural question arising in this debate will be “how big should it be?” The experience of the Great Recession argues clearly that the answer to this has to be “as big as is needed.” This is unsatisfying but is the most important answer to this question so we don’t repeat the fiscal policy blunders of the past.
For those who absolutely need a number to focus on, the likely cost of a fiscal boost sufficient to restore economic health by the end of 2020 starts at $2.1 trillion—but it could be more, and fiscal policy should be set to deliver more if conditions warrant. And conditions continue to worsen. The expected hit to the economy would mean a job loss of almost 14 million workers by summer.Read more
Every state will lose jobs as a result of the coronavirus: Policymakers must take action
Workers across the country have already lost their jobs as businesses temporarily shutter in response to the social distancing measures necessary to stop the spread of coronavirus—a trend which can be mitigated if policymakers act quickly. Expectations of just how many jobs will be lost are rapidly evolving. Goldman Sachs forecasts that the economy will contract by 2.5% over the first half of this year—which we estimate will translate into a loss of 3 million jobs by June. An even bleaker forecast from Deutsche Bank, which is in line with projections from JPMorgan, suggests that 7.5 million jobs will be lost by the summer. In this post, we attempt to predict the state-level impacts of these losses using the midpoint of these two forecasts—an estimated 5.25 million jobs lost.
We have distributed this projected job loss across states to provide a sense of the magnitude of the state-level shock, shown in Figure A. The coronavirus shock that is causing this recession is broad-based; the effects will likely be felt in every industry and geography. Still, workers in certain industries will be disproportionately affected—in particular, workers in food service, accommodations, and brick-and-mortar retail. As a result, states where these industries make up a larger share of employment, such as Florida, Hawaii, and Nevada, will be particularly hard hit. In Nevada, where two out of every five jobs are in leisure, hospitality, or retail, the state will likely lose 5.3% of private-sector jobs.Read more
Not everybody can work from home: Black and Hispanic workers are much less likely to be able to telework
The commonly paired statements that “everyone is working from home” and “everyone is having their goods delivered” amid the coronavirus outbreak ignores a whole segment of the workforce—the ones prepping and delivering their purchases. In fact, less than 30% of workers can work from home, and the ability to work from home differs enormously by race and ethnicity.
The chart below separates the share of workers who can telework for the three largest race groups as well as by Hispanic ethnicity (these groups are not mutually exclusive in these data). Asian workers are the most likely to be able to work from home, followed by non-Hispanic and white workers. Only 16.2% of Hispanic workers and 19.7% of black workers can telework.
Less than one in five black workers and roughly one in six Hispanic workers are able to work from home: Share of workers who can telework, by race and ethnicity, 2017--2018
| Race/ethnicity | Able to telework | |
|---|---|---|
| Race | White | 29.9% |
| Black or African American | 19.7% | |
| Asian | 37.0% | |
| Ethnicity | Hispanic or Latino | 16.2% |
| Non-Hispanic or Latino | 31.4% |
Source: U.S. Bureau of Labor Statistics, Job Flexibilities and Work Schedules — 2017–2018 Data from the American Time Use Survey
The next figure illustrates the share of workers who can telework by wage. Not surprisingly, low-wage workers have the least flexibility in their jobs: Only 9.2% of workers in the lowest quartile of the wage distribution can telework compared with 61.5% of workers in the highest quartile.
Higher-wage workers are six times as likely to be able to work from home as lower-wage workers: Share of workers who can telework, by wage level, 2017--2018
| Usual weekly earnings of full-time wage and salary workers(single jobholders only) | Share of workers who would work at home |
|---|---|
| Earnings greater than the 75th percentile | 61.50% |
| Earnings from 50th to 75th percentiles | 37.30% |
| Earnings from 25th to 50th percentiles | 20.10% |
| Earnings less than or equal to the 25th percentile | 9.20% |
Source: U.S. Bureau of Labor Statistics, Job Flexibilities and Work Schedules — 2017–2018 Data from the American Time Use Survey
What to expect in tomorrow’s unemployment insurance numbers: The leading edge of the coronavirus’s shock to the labor market, not the full picture
Tomorrow morning we will get the first piece of government labor market data that will show early signs of the coming coronavirus shock—initial unemployment insurance (UI) claims. When a worker is laid off and they apply for unemployment insurance, they show up in the Bureau of Labor Statistics’ initial unemployment insurance claims data, which means these data are a timely proxy for the number of workers who have been laid off. And reports of layoffs due to the coronavirus are beginning to stream in.
We estimate that by the summer, more than 3 million workers will have lost their jobs due to the coronavirus shock. How much of that will show up in the numbers released tomorrow? Definitely some, but perhaps not as much as you might expect. Tomorrow’s numbers capture unemployment insurance claims for the week ending last Saturday, March 14. While media reports suggest layoffs began accelerating last week, there is often a lag between when people are laid off and when they apply for benefits. If a worker was laid off last week and waited to apply for benefits until this week, they will not show up in tomorrow’s data. Further, while coronavirus layoffs began last week, the full weight of the impact—while swift—is still ramping up as businesses realize what they are up against.
This means that we should look at the numbers that come out tomorrow as just the leading edge of the labor market impact of the coronavirus shock. No one should take comfort if these numbers are relatively modest. In coming weeks, millions will likely be laid off, or not hired when they otherwise would have been. Policymakers should be thinking about a big fiscal stimulus package, including financing a sizeable amount of household consumption, giving fiscal aid to state governments, providing a payroll tax credit to businesses to not lay off workers, ramping up direct government purchases of things like medical equipment to help fight the virus, and making sure all measures to address the coronavirus economic shock are automatically continued until economic conditions warrant them being removed.
I will be analyzing the data when they are released tomorrow and down the road, as we have a fuller picture of how the coronavirus has impacted the labor market.
Update: Shierholz’s March 19 analysis of the unemployment data is available here.
Senate coronavirus bill is crucial—but it’s a fraction of what’s needed
Family First Coronavirus Response Act is an important first step in the United States’ response to the COVID-19 pandemic, and the Senate should pass it immediately. There are provisions for both health spending and paid sick leave, as well as income supports in the form of expanded food-assistance programs and unemployment insurance.
We summarize some of the bill’s specific provisions below, but we first want to highlight a few important loopholes and talk about the important next steps.
The bill has some glaring exclusions. Perhaps the most problematic is the carve-out for large businesses; the bill exempts employers with more than 500 workers from its paid leave mandate. Bureau of Labor Statistics data show that 11% of workers at private-sector businesses with 500 workers or more do not have access to paid sick leave, and 48% of private-sector workers work in firms with 500 workers or more. Together, that means that 6.8 million private-sector workers in large firms will not have paid sick days as a result of the large-firm exemption. And this does not count the fact that workers at these firms that do provide paid sick days often do not provide enough time for workers to self-quarantine for the recommended 14 days.
The bill also makes it possible for the Secretary of Labor to exempt certain health care providers and emergency responders from its paid leave provisions, and to exempt businesses with less than 50 people. The data show that 36% of workers at private-sector businesses with less than 50 workers do not have access to paid sick leave, and 27% of private-sector workers work in firms with 50 or fewer workers, together meaning that 12.8 million workers may not have access to paid sick days as a result of potential exemptions for small businesses. Read more
The coronavirus pandemic requires state and local policymakers to act, in addition to demanding a strong federal response
Federal lawmakers seem poised to enact legislation that would help combat some of the public health and economic dangers posed by the COVID-19 pandemic. However, this initial legislation is not sufficient to fully address the problems created by the crisis, and even with additional federal action, there are still steps that state and local policymakers must take—both to slow the spread of the virus and to mitigate the economic toll that the crisis will take on state and local economies. Here are some of the critical steps that state and local officials should consider, including many good ideas that are circulating and some of the positive steps already being taken:
Protect public health
- The foremost action for state policymakers and community leaders is to do everything they can to slow the spread of the virus. Though it will be disruptive in the short run, leaders need to strongly encourage social distancing. In many communities, this may require closing schools, libraries, and other community centers; cancelling events; requiring telework where possible; ordering retail shops, restaurants, and bars to close or shift to delivery service only; and setting strict limits on public gatherings.
- Expand access to testing and treatment by bolstering state and local health care systems with emergency funding and, to the extent possible, removing any financial barriers for people seeking care. Good examples can be seen in Washington, where Governor Inslee used his emergency powers to require state health care insurers to waive all copays and coinsurance for all coronavirus testing. Similar actions have been taken in California, Colorado, Massachusetts, New Jersey, and New York. But states should commit to not only covering the cost of coronavirus testing, but treatment as well. Federal lawmakers are considering a 6.2% increase in the share of Medicaid costs covered by the federal government to help relieve the strain on state budgets caused by the virus. Such an increase should hopefully be enough to cover the vast majority of COVID-19-related care.
- Expand health care coverage through Medicaid and the exchanges, and protect coverage for those with employer-based plans. As the Century Foundation discusses, states should request emergency waivers to quickly expand eligibility for Medicaid, especially in those states that did not adopt the Affordable Care Act (ACA) expansion. States that run their own health insurance exchanges can also declare the COVID-19 outbreak as a special enrollment period that allows people to sign up for coverage outside the standard open enrollment period. Governors should also use emergency authority to require employers to maintain insurance coverage for employees whose work hours fall below the ACA’s 30-hour threshold for employer provision of insurance.
- Enact emergency paid sick leave programs that cover all workers in businesses of all sizes in those states where such systems do not already exist. The federal COVID-19 response bill that is moving through Congress takes an important step in the right direction, but does not provide the comprehensive access to paid leave that this moment demands (and should really be available in non-pandemic times anyway). Giving workers the ability to take time off when they or a family member are sick protects public health. It eliminates the need to work when they’re ill or must provide care for a sick family member, thereby reducing the risk of disease transmission. Studies have shown that paid leave programs measurably reduce virus transmission. In states that have paid leave programs, lawmakers should mandate that businesses provide at least 14 days of leave, regardless of workers’ accrued leave time.
- Create clear, accessible systems for communicating information about the virus and resources for the public. This can include hotlines and online resource pages. It may also require larger public education efforts—public service announcements, social media campaigns—and resources to expand online access for low-income communities and make content available in multiple languages.
Coronavirus shock will likely claim 3 million jobs by summer: Policy is needed now to curb further losses
Note: Economic forecasts have been revised since this post was published. See this post for more recent job loss projections.
At this point, a coronavirus recession is inevitable. But the policy response can determine how deep it is, how long it lasts, and how rapidly the economy bounces back from it.
If this response includes enough fiscal stimulus that is well-targeted and sustained so long as the economy remains weak, job loss will be substantially reduced relative to any scenario where policymakers drag their feet. Even with moderate fiscal stimulus, we’re likely to see 3 million jobs lost by summertime. Keeping this number down and allowing any job loss to be quickly recouped after the crisis ends should spur policymakers to act.
Put simply, the federal government needs to finance a much larger part of household consumption in coming months, transfer significant fiscal aid to state governments, and ramp up direct government purchases (particularly on items helpful in fighting the epidemic).