Unemployment Insurance Modernization and Eligibility

Brief

Unemployment Insurance Modernization and Eligibility

Abstract

Since the early 1990s, states have gradually adopted modernized eligibility rules for their unemployment insurance (UI) programs. The American Recovery and Reinvestment Act of 2009 further spurred this modernization by providing states with financial incentives to adopt specific provisions. This September 2015 brief updates and extends the 2012 work of Lindner and Nichols by examining the potential and actual effects of UI modernization through 2013. The modernization provisions examined are relaxing the work history requirement by adopting an alternative base period calculation, extending eligibility to those seeking part-time work, and extending eligibility to those who quit their jobs because of compelling family obligations.

Full Publication

Since the early 1990s, states have gradually adopted modernized eligibility rules for their unemployment insurance (UI) programs. The American Recovery and Reinvestment Act of 2009 further spurred this modernization by providing states with financial incentives to adopt specific provisions. Lindner and Nichols (2012) estimate that modernization laws could increase UI eligibility by 20 percentage points if implemented in all states, but that only about one-third to one-half of this potential increase has been realized because not all states have implemented them.

 

This brief updates and extends the work of Lindner and Nichols (2012) by examining the potential and actual effects of UI modernization through 2013. The specific modernization provisions examined include relaxing the work history requirement by adopting an alternative base period (ABP) calculation, extending eligibility to those seeking part-time work, and extending eligibility to those who quit their jobs because of compelling family obligations.

 

This analysis uses the Survey of Income and Program Participation (SIPP) to describe the population targeted by each specific program change, and estimates the extent to which changing UI rules can and have increased eligibility for UI. We first examine the period from 1997 to 2013, then focus on the Great Recession and the early years of the subsequent sluggish recovery.

 

As in Lindner and Nichols (2012), we find that if all states adopted all three of the proposed changes for modernizing UI that are examined in this brief, the share of out-of-work individuals eligible for UI benefits would reach 76 percent, more than 20 percentage points higher than if none of the changes had been implemented. Reforms implemented between 2008 and 2013 resulted in a moderate increase in eligibility, but roughly 40 percent of the potential increase—or about nine of the more than 20 percentage points—remained unrealized as of 2013.

 

The policy changes affect different subgroups of nonemployed workers, that is, those in the labor force without employment, including both workers who are searching for employment and workers who are not. Adopting the ABP and extending eligibility to part-time workers primarily improves access to UI for younger, lower-wage workers with lower levels of education and irregular past employment. In contrast, including family circumstances in determining eligibility primarily affects prime-age workers with regular employment records and substantial past earnings.

 

Unemployment Insurance Provisions

 

Simply being out of work does not qualify individuals for UI. To be eligible for benefits, an individual must also have sufficient work history, be actively looking for a new job, and have left his or her previous job for good cause. In addition, because UI benefits last only a limited number of months, individuals can become ineligible when they exhaust their benefits. Program rules vary from state to state.1 Though many states have gradually passed modernization laws over the past 20 years, the pace has increased in recent years. For example, since 2008, 19 additional states have implemented an ABP, 7 states have adopted a provision for part-time workers, and 1 additional state has covered alternative good causes. As of 2013, a total of 38 states have implemented an ABP, 33 cover part-time workers, and 28 have laws for alternative good causes.

 

Monetary Eligibility

 

To determine monetary eligibility, states compare claimants’ past earnings with thresholds set by the state. Traditionally, states used only earnings in the base period, defined as the first four of the last five completed quarters before job loss. States typically specify a minimum earnings requirement for the base period, the quarter with the highest earnings, or both. Some states stipulate alternative or additional eligibility rules, such as requirements for earnings in at least two quarters or minimum hours worked during the base period.

 

More recently, states have adopted the ABP, which gives UI applicants the option to have their base period include work from the last four completed quarters rather than work completed two to five quarters before job loss. The ABP does not alter the earnings criteria for benefits but changes which quarters’ earnings are considered. Because the ABP includes earnings just before job loss, implementing this reform expands eligibility to individuals with shorter and more intermittent recent work histories.

 

Availability for Full-Time Work

 

All states stipulate that workers must be available for work, but they interpret this rule in different ways. States fall into three different groups depending on the degree to which they allow individuals seeking exclusively part-time work (as defined as 20 to 34 hours a week) to claim UI benefits:

  • Full access. Individuals seeking part-time work have the same access to UI benefits as workers seeking full-time work. (17 states as of 2014)
  • Restricted access. Individuals seeking part-time work can claim UI benefits only under certain conditions. These conditions involve either personal circumstances, such as a disability (five states), or a history of part-time work during six or more months of the base period (10 states).
  • No access. Individuals seeking part-time work cannot claim UI benefits (19 states).

 

Good Causes

 

In addition to these requirements, applicants for UI benefits have to be out of work through no fault of their own. Thus, workers who are involuntarily laid off without cause may be eligible for UI benefits. However, even if a worker separates from work voluntarily, he or she might still be eligible for UI benefits through “good cause” provisions in state laws, such as the following:

  • separation from employment because of an illness, and
  • separation from employment to accept other work.

Alternative good-cause provisions recognize additional reasons that employees may need to quit their jobs through no fault of their own, such as

  • harassment at work,
  • domestic violence,
  • need to care for sick family members, and
  • need to move for a spouse.

Unfortunately, these causes of separation are challenging to capture in available survey data.

 

Survey Data and Sample Selection

 

Data and sample selection closely follows Lindner and Nichols (2012). Our primary data source is the SIPP, a nationally representative sample of the noninstitutionalized civilian population ages 15 and older. Respondents are interviewed once every four months over a multiyear period, with each interview period called a wave. Respondents are asked to provide information about the preceding four months. We use SIPP panels that begin in 1996, 2001, 2004, and 2008 (the four most recent SIPP panels)—each lasting three to five years and together covering the calendar years 1996 to 2013. The initial sample size for each panel ranges from a low of 95,300 individuals in the 1996 panel to a high of 105,600 individuals who start in the first wave of the 2008 panel. Our results based on these data show how UI modernization laws changed the number and composition of UI-eligible workers during normal economic times when there was no deep and prolonged recession, as well as during the Great Recession of 2007–09 and the subsequent recovery.

 

Sample selection proceeds as in Lindner and Austin (2012). We only include individuals who respond to all waves and who work for at least one month and are out of work for at least one month. We then select spells of nonemployment, which we define as months during which individuals are out of work after a job separation and are either actively looking for work (i.e., unemployed) or not looking. A job separation occurs if a person is employed during one month and not employed during the next. We include all spells of nonemployment, whether or not individuals search for jobs, because we are interested in estimating how UI modernization laws affect all people who might conceivably be eligible for benefits.2 We disregard spells when the individual is younger than 16 or older than 65 at the time of job separation. To calculate earnings in the base period, we also disregard spells starting during the first 17 months of a panel. Therefore, our sample does not include the years 1996, 2001, 2004 and 2008 as well as only parts of the years 1997, 2000, 2002 and 2009; the last month of our study period is September 2013. Finally, we exclude spells with an unknown reason for job separation because we cannot determine whether a common or alternative good-cause provision applies to those spells. The final sample includes 28,488 individuals and 36,506 spells of nonemployment.

 

Characteristics of Workers Affected by UI Modernization Laws

 

This section describes the characteristics of five groups of jobless workers: (1) those eligible under common UI law,3 (2) those who become eligible under the ABP, (3) those who become eligible under part-time work provisions, (4) those who become eligible under good-cause expansions, and (5) those who remain ineligible even if states adopt any combination of the three expansion provisions (table 1).

 

Only 2.1 percent of jobless workers would become eligible for UI benefits if all states introduced the ABP. Compared with workers who are eligible on the basis of common UI law, workers eligible for UI only due to an alternative base period are younger, more likely to be female, and less likely to be married, as shown in the second column of table 1. They also have, on average, more children. Workers who would be eligible under the ABP tend to be less educated but are more likely to have attended school during the past year and to have attended school during the year following job loss. They have worked fewer months during the year before job loss, have lower earnings before job loss than workers eligible for UI under common law, and are more likely to have incomes below 150 percent of the poverty level. However, their quarterly earnings are noticeably higher in the last quarter, which shows that the ABP helps individuals with a recent work history become eligible for UI benefits.

 

Workers who would be eligible under the ABP are also slightly less likely to search for a job and to find one within four months. Finally, they rely more on Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF) benefits while out of work, presumably because they are more likely to be eligible for these programs and because they cannot access UI. Eight percent of those who would become eligible under the ABP are already receiving UI benefits; this finding reflects policy changes made by some states during the study period.

 

Part-time-eligible workers, shown in the third column, constitute 13.1 percent of jobless workers, a much larger group than ABP-eligible workers. Part-time-eligible workers tend to have characteristics similar to those of ABP-eligible workers, but a few differences are notable. On average, part-time-eligible workers work more months during the last year before job loss, and their earnings before job loss are much steadier and higher (except for the last quarter before job loss) than those of ABP-eligible workers. Finally, their UI participation rate is 9 percent, indicating again that some are eligible for UI benefits because the states they live in implemented policy changes during the study period.

 

The fourth column shows results for workers who would become eligible for UI benefits if all states adopted alternative good-cause provisions. This small group of individuals has very distinct characteristics. The large majority of them are female, and most are married. They have the highest number of children and are the most educated of all three groups of potentially eligible workers. The months they worked during the preceding year and their past earnings are almost identical to those of workers eligible under common UI law. However, they are less likely to search for a job after separation, and only a quarter of them are reemployed within four months. Finally, their UI participation rate is similar to that of ABP- and part-time-eligible workers because some states adopted good-cause expansions during the study period.

 

The final column shows results for individuals with nonemployment spells who are not eligible for UI under common UI law or nor would they be eligible under any combination of modernization laws. These individuals are the youngest, least educated, and least likely to be reemployed within four months. However, this category has the highest percentage of individuals enrolled in school in the coming year. Trends for this group’s past earnings are similar to those of the ABP-eligible group; their earnings in the most recent quarter are higher than their earnings in previous quarters. However, earnings in most quarters are lower than those of individuals eligible under ABP.

Table 1. Worker's Characteristics by Eligibility for Unemplyment Insurance (SIPP, 1996-2008)

Table 2 illustrates how the provisions would magnify eligibility. The first row of the first column shows the baseline eligibility rate if no modernization laws were passed. Slightly more than half (53.8 percent) of all workers in the sample are eligible under such a scenario. The next three rows show eligibility rates if only one policy were implemented. These increases correspond to the number of individuals in each group from table 1. The large increases caused by extensions of eligibility to part-time workers are consistent with calculations reported in Lindner and Nichols (2012) and with the findings of other researchers (Gould-Werth and Shaefer 2013).

 

Finally, the last row shows the eligibility rate if all modernization laws were implemented (75.8 percent), which amounts to more than a 20 percentage point increase over the baseline scenario where no provisions are implemented. This increase is larger than the sum of the eligibility increases associated with each provision because some individuals are ineligible for UI under common law for several overlapping reasons (e.g., they do not have sufficient work histories under the base period and they are available only for part-time work). These workers do not become eligible for UI benefits if only one of the three provisions was implemented in their state, but they become eligible if all three are implemented.

 

The second and third columns of table 2 show corresponding results for two less advantaged subgroups: individuals with family income less than 150 percent of the federal poverty level and individuals who have not attended college. Although they start out with lower baseline eligibility rates than all individuals, the increase in eligibility for these two groups is roughly the same as for the broader population of all jobless workers.

Table 2. Increase in Insured Workers by Unemployment Insurance Modernization Provision

 

Elimination of Jobless Workers from the Great Recession and Beyond

 

The dramatic rise in unemployment and the duration of unemployment during the Great Recession may have altered the composition of jobless workers in ways that could affect UI eligibility under common UI law as well as under the three modernization provisions. To assess that possibility, we restrict our analysis to jobless workers from just the 2008 SIPP panel (table 3). Generally, the characteristics of jobless workers across eligibility categories are similar to those reported in Lindner and Nichols (2012), whose analysis spanned the period from 1997 to 2007. We found that UI eligibility during and after the Great Recession was slightly higher under common UI law and the introduction of ABP and part-time worker provisions, whereas the effect of introducing the alternative good-cause provision was slightly lower than in Lindner and Nichols (2012). Previous earnings of jobless workers in the recent data were somewhat higher. This finding is largely consistent with the findings of others (Gould-Werth and Shaefer 2012).

 

Actual UI participation is higher across the board for each eligibility category in the 2008 panel than in the 1997 to 2007 period, reflecting higher participation across the nation because of various factors, including extended eligibility periods. Those extensions have since been rolled back (Farber, Rothstein, and Valletta 2015).

 

Some of the growth in participation is due to new states passing UI modernization laws as a result of the American Recovery and Reinvestment Act, which made funds available for states certifying eligibility expansions between February 2009 and August 2011. Participation grew the most for ABP-eligible individuals: 19.5 percent for the 2008 panel, compared with 3.2 percent as reported in Lindner and Nichols (2012). Part-time-eligible individuals and those eligible under alternative good-cause provisions also participate in UI at higher rates than in older panel data, but the growth is more modest (5.7 percent higher for the part-time provision and 3.8 percent higher for alternative good causes). This could be because more changes to UI eligibility provisions since 2008 have been for the ABP (19 states) compared to part-time (7 states) and alternative good-cause provisions (1 state). Additionally, SNAP participation is much higher for each eligibility category, which is to be expected given the growth in SNAP participation in all worker groups over the past decade and the increased financial hardship across the board in the post-recession period.

Table 3. Workers' Characteristics by Eligibility for Unemployment Insurance (2008 panel only)

Table 4 illustrates how overlapping laws would magnify the increase in eligibility for the 2008 panel. Under common UI law alone, more than half (54.3 percent) of all workers in the sample are eligible. If all modernization laws were implemented, 75.7 percent of individuals would be eligible for UI, virtually identical to the finding from earlier years.

 

The second and third columns of table 4 show that, although individuals with low family income or no college degree start out with lower baseline eligibility rates than do all individuals, the increase in eligibility for these individuals is roughly the same as for the broader population of all jobless workers. The findings for individuals in low-income families and for those with no college degree are also very similar between the 2008 panel and the 1997–2007 period covered in Lindner and Nichols (2012).

Table 4. Increase in INsured Workers by Unemployment Insurance Modernization Provision (2008 panel only)

 

Realized Change in the Number of Eligible Workers

 

The last part of our empirical analysis examines how UI modernization laws implemented thus far have affected the number of eligible nonemployed workers.

 

For each month included in the sample, we calculate the number of nonemployed workers who are eligible for UI benefits on the basis of both common provisions and provisions that have been implemented at that time. We contrast this number with the number of workers who are eligible on the basis of common provisions only, as well as with the number of workers who would be eligible if all states had implemented all modernization provisions. Figure 1 shows these results as five-month moving averages (appendix table A.1 shows estimates for each calendar month), excluding the final two calendar months that appear in each SIPP panel, because more than half the sample is missing in those months. The gaps in the lines occur because, to allow for calculation of base-period earnings, we do not include spells that begin during the first 17 months of each panel.

Figure 1. Unemployment Insurance Eligibility Rate and Implementation of Modernization Laws, 1997-2013

The distance between the blue line and the gray line in the figure shows the potential increase in eligibility had all states implemented all provisions. This potential increase corresponds to the more than 20 percent increase in table 2. The black line in the middle represents the actual number of eligible workers. It is close to the black line during the mid- and late 1990s because many states had not yet implemented any of the modernization provisions. The picture looks different by the late 2000s, when nearly half of the potential increase in eligibility had been realized. The portion of potential increase realized has further grown since 2010 and reached about 60 percent by 2012 and 2013, even as overall eligibility has fallen. Thus, despite progress in many states, a significant portion of the potential increase remains untapped, because some states have held out against UI modernization.

 

Because the composition of the unemployed population remained mostly unchanged over time, we can look toward policy changes as a driver behind the modest growth in UI eligibility. Most of the modernizations of state UI laws since 2008 have been for ABP, which has only a minor effect on eligibility. However, several states have also implemented part-time provisions in recent years, which had the biggest effect on eligibility in our analysis, and one additional state has recently implemented alternative good-cause provisions.

 

Conclusions

 

As states have continued to pass rules modernizing unemployment insurance, eligibility for nonemployed individuals has expanded. The results in this paper build on Lindner and Nichols (2012) by looking at more recent data to observe any compositional changes and differences affecting eligibility under modernization laws. Using the 2008 SIPP panel, our analysis shows that the composition of the nonemployed population remained relatively unchanged over recent years. From 2008 to 2013, the number of nonemployed individuals eligible for UI continued to grow while the number of states implementing UI modernization laws increased.

 

We find that even though the gap between potential and implemented eligibility has decreased over time, eligibility could substantially increase if all states adopted all the modernization rules. That is, UI modernization can substantially increase eligibility, especially if all provisions are adopted, but states have not uniformly adopted all provisions. Consistent with previous findings, we find that one of the largest sources of increase is extensions of eligibility to part-time workers. However, we also find that the alternative base period calculation appears more important in more recent data, reflecting the spottier earnings histories of workers after the Great Recession.

 

Appendix A

 

Table A.1. Unemployment Insurance Eligibility for Nonemployed Workers (percent)

Table A.2. Implementation Dates of Unemployment Insurance Modernization Provisions

 

Notes

 

  1. Details of specific state policy choices can be found in US Department of Labor (2005), and recent changes in law are summarized in GAO (2015). We summarize key provisions below. Relevant dates of policy changes can be found in appendix table A.2. Also see Lindner and Nichols (2012) for additional details.
  2. Some states impose minimum search requirements for UI recipients, but these requirements are only for those already on the program. Therefore, workers who are currently not searching could begin receiving UI benefits as long as they pass the initial eligibility test and start searching for work.
  3. Common UI law refers to monetary eligibility based on a state’s base period (first four of the last five quarters), and nonmonetary eligibility based on history of full-time work as well as no-fault layoff or common good-cause work separation such as illness. See Lindner and Nichols (2012) for details.

 

References

 

Farber, Henry S., Jesse Rothstein, and Robert G. Valleta. 2015. “The Effect of Extended Unemployment Insurance Benefits: Evidence from the 2012–2013 Phase-Out.” American Economic Review 105 (5): 171–76.

GAO. 2015. Unemployment Insurance: States' Reductions in Maximum Benefit Durations Have Implications for Federal Costs. Washington, DC: GAO.

Gould-Werth, Alix, and H. Luke Shaefer. 2012. “Participation in Unemployment Insurance: Differences in Application Rates and Receipt among Applicants by Education and Race and Ethnicity.” Monthly Labor Review 135 (10): 28–41.

———. 2013. “Do Alternative Base Periods Increase Unemployment Insurance Receipt among Low-Educated Unemployed Workers?” Journal of Policy Analysis and Management 32 (4): 835–52.

Lindner, Stephan, and Austin Nichols. 2012. How Do Unemployment Insurance Modernization Laws Affect the Number and Composition of Eligible Workers? Washington, DC: Urban Institute.

US Department of Labor. 2005. Comparison of State Unemployment Insurance Laws, 2005. Washington, DC: US Department of Labor.

 

About the Authors

 

Thomas Callan is a former research associate in the Income and Benefits Policy Center at the Urban Institute, where his research focused on issues related to the safety net—unemployment insurance, the Supplemental Nutrition Assistance Program, and Temporary Assistance for Needy Families—as well as workforce development programs. Additionally, he has technical experience with national survey datasets such as the Survey of Income and Program Participation, the Current Population Survey, and the National Longitudinal Survey of Youth. Callan received his BA in economics and international affairs from the University of Colorado at Boulder and a MA in economics from American University.

 

Stephan Lindner is a research associate in the Income and Benefits Policy Center at the Urban Institute, where his research examines social insurance and welfare programs—in particular, Social Security Disability Insurance, Supplement Security Income, and unemployment insurance. He is interested especially in how economic circumstances, income sources, and program characteristics influence program participation for displaced and disabled workers. His other research interests include technological change and employment prospects of workers, the wage effect of immigration reform, and how family arrangements are affected by unemployment.

 

Austin Nichols is an Urban Institute–affiliated scholar who specializes in applied econometrics, labor economics, and public finance. His research focuses on the well-being of families and social insurance programs, including work on child poverty, disability insurance, income volatility, and economic mobility (within and across generations). He also studies education, health, and labor market interventions, and determinants of poverty and economic inequality. Nichols holds an MPP from Harvard University and a PhD in economics from the University of Michigan.

 

Acknowledgments

 

This brief was funded by the Center for American Progress. We are grateful to them and to all our funders who make it possible for Urban to advance its mission. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of Urban experts. Further information on the Urban Institute’s funding principles is available at www.urban.org/support.

Copyright September 2015. Urban Institute.

 

To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.

LATEST IN Job Market and Labor Force

To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.