The Unemployment Insurance System Is Not Ready For The Next Recession

States are cutting back, and Congress is unlikely to step in even after the pandemic exposed the unemployment system's shortcomings.
Republicans blamed extra unemployment benefits for causing a “worker shortage” in 2021, but businesses have continued to complain of worker shortages long after the supplemental benefits disappeared.
Republicans blamed extra unemployment benefits for causing a “worker shortage” in 2021, but businesses have continued to complain of worker shortages long after the supplemental benefits disappeared.
Nam Y. Huh/Associated Press

No one knows exactly when the next recession will happen, but layoff victims will certainly fall into a safety net that is weaker than ever.

After Congress turbocharged jobless benefits in response to the coronavirus pandemic, lawmakers in three states have already slashed the state-funded benefits that are the foundation of the unemployment insurance system.

Lawmakers at the federal level, meanwhile, have lost all appetite for improving the system even after the pandemic exposed its flaws on a national scale. And it’s hard to imagine Congress stepping in with another temporary expansion of benefits as Republicans continue to blame high inflation on the extra benefits Democrats approved last year.

“We’ve seen incredible gridlock in Congress to pass things that are overwhelmingly popular with the public, like the $15 minimum wage,” Rebecca Dixon, director of the National Employment Law Project, told HuffPost. “I think we could get to a place where there is a crisis and Congress can’t get out of gridlock and address it.”

In response to every recession since the 1950s, Congress has added additional weeks of benefits to the standard 26 provided by states. After lawmakers temporarily added 73 weeks of benefits in the wake of the Great Recession, Republicans in 10 states permanently cut the duration of their underlying state programs.

The give-and-take pattern ramped up with the coronavirus pandemic. Congress added weeks of benefits in 2020 and also took the unprecedented steps of temporarily boosting the weekly value of benefits by $600 and expanding eligibility to include workers without traditional payroll jobs, such as rideshare drivers.

Republican governors in 25 states then took the unprecedented step of rejecting extra federal benefits in 2021. State legislatures in 10 states also took up bills cutting benefits, according to Andrew Stettner, director of workforce policy at The Century Foundation, a progressive think tank.

“There was some bad activity last session and we expect some of these states will come back for more,” Stettner said in an email.

Only Iowa, Kentucky and Oklahoma permanently cut benefits in the last legislative session. Kentucky’s new law also imposed stricter work search requirements; Iowa’s requires unemployment recipients to accept jobs at lower wages.

Iowa Republican state representative Michael Bousselot said the safety net should be less of a safety net and more of a trampoline that bounces layoff victims back into jobs.

“What we are proposing to do is to refocus unemployment on ‘re-employment,’ rather than just being a safety net,” Bousselot said in March.

Republicans at the state and federal levels blamed extra benefits for causing a “worker shortage” in 2021, but businesses have continued to complain of worker shortages long after the supplemental benefits disappeared.

One of the most important changes Congress made in 2020 allowed the self-employed and independent contractors, such as Uber drivers, to apply for benefits for the first time in the history of the state-federal unemployment insurance system. The Pandemic Unemployment Assistance program paid workers who were ineligible for regular unemployment because they didn’t have a history of payroll earnings on file with their state government.

A Bloomberg investigation showed that in the first year of the pandemic, Black workers in Georgia were more likely than their white counterparts to be denied regular benefits; the special pandemic benefits helped close some of the gap in benefits coverage. But the program might be better known for fraud than for reducing racial disparities.

“It’s so hard to bring attention to this program when there’s not a crisis.”

- Rebecca Dixon, director of the National Employment Law Project

Progressive Democrats want to reform the unemployment system so that it covers nontraditional workers, reduces variation among states and stops states from slashing benefits. And they want to upgrade out-of-date information technology used by many state workforce agencies. Some workers had to wait several months for benefits due to the strain an unprecedented surge in claims put on antiquated state systems.

But Democrats omitted the proposals even from the most expansive version of the domestic policy bill they wound up whittling down and passing last month as the Inflation Reduction Act. There’s no hope of its return in the immediate future.

Dixon said it would likely take another crisis to create a window of opportunity for Congress. “It’s so hard to bring attention to this program when there’s not a crisis,” she said.

Many economists expect a recession and widespread job losses sometime in the next year as the Federal Reserve raises interest rates in order to tame inflation by slowing the overall economy. Job growth has remained strong, but there are potential warning signs.

Matt Darling, an employment policy fellow at the Niskanen Center, a center-right think tank, has pointed to widening gaps between the unemployment rates for college-educated workers and those with no higher education, as well as between white workers and Black workers.

“If we are seeing the effects of the Federal Reserve’s [rate hikes], these are the places we’d expect to see them first,” Darling said in an interview.

It’s possible that the widening gaps represent “noise” in the data, but it could be that layoffs have begun to increase for the more vulnerable members of the American workforce.

Dixon said she didn’t think a recession caused by interest rate hikes would be as bad as the one caused by the pandemic or the one caused by the financial crisis more than a decade earlier. But she does expect a familiar pattern in who gets hurt the most.

“I don’t know that there’ll necessarily be widespread pain from the recession, if we have one in the near term, but there will be pain,” she said. “And the people who experience the most pain are also the ones who are most likely to be locked out of the UI system.”

Popular in the Community