An escalating number of economic indicators signal the seriousness of the COVID-19 pandemic for America’s economic health. Stocks and bonds reacted early to the spread of the virus, but this week brought shocking surges in unemployment insurance claims.
In Connecticut, new claims increased tenfold this week. The Colorado unemployment insurance director reported on Tuesday that “we’re seeing one-day or likely one-week and two-week spikes like we never saw in the Great Recession.” On the same day, the New York unemployment insurance website crashed, overwhelmed by the surge of new claimants. On Thursday morning, jobless claims data (PDF) reported an increase of 70,000 claimants over the prior week.
These data don’t even include the extraordinary midweek growth in claims, which will show up next week. Analysis of preliminary data from Goldman Sachs suggests next week’s claims data could surge to an almost unbelievable 2.25 million claims.
This incredible demand for unemployment insurance benefits is a result of the heavy toll of closures, quarantines, and social distancing on the service sector. The unemployment insurance system needs to prepare to serve workers in the COVID-19 recession.
On Wednesday, Congress passed and the president signed legislation addressing a range of policy domains to address the COVID-19 pandemic. The legislation makes several emergency changes to the state Unemployment Insurance (UI) program, including in benefit availability, financing, and program administration. But the federal government and states can do more to make unemployment benefits available quickly to the growing number of people who will need them.
Changes in UI benefits
Easing eligibility requirements is critical for ensuring that workers can access benefits. Because the UI system is a partnership between states and the federal government, states have ultimate control over many program features. The legislation suggests that states waive the work search requirement—or rule that people must engage in certain job search activities in order to receive benefits—and waive the one-week waiting period required by most UI programs.
The bill encourages other benefit changes, such as broadening access to Short-Time Compensation (STC, or worksharing) for COVID-19-related reductions in weekly work hours, allowing employers to retain, rather than lay off, their staff with these reductions. STC policies provide partial unemployment insurance (UI) benefits to workers placed on reduced work schedules. These benefits can help maintain employment levels by spreading available work across more workers.
Changes in program financing
Most UI benefit payments are financed by experience-rated UI taxes, which means employers with higher UI claims pay higher UI taxes. The proposed legislation urges states to waive charges related to COVID-19 benefit payments, so financing these payments will become a general responsibility of the entire employer community.
When states face difficulties financing their UI systems, they can turn to the federal government for loans and assistance. The federal government’s capacity to support these programs is well established and well positioned to confront the COVID-19 recession. Thirty-five state unemployment insurance systems borrowed from the US Department of the Treasury during the Great Recession, and many are likely to do the same during the COVID-19 pandemic.
Changes in program administration
The legislation transfers $1 billion to states to cover the increased UI program administrative costs from COVID-19. Within 30 days of enactment, half of each state’s share will be transferred to states where current claims are at least 10 percent higher than claims in 2019. This rapid response will take over the usual cost-sharing response to claims increases that typically slows processing by at least six months. This speed should help states make needed administrative adjustments.
Additional steps to improve access to unemployment insurance
The UI program is structured to make short-term income support payments available to applicants quickly. Initial claims and continuing claims are taken mainly over the internet and by phone with few in-person claims taken at UI offices. Claiming and receiving benefits should therefore be straightforward for workers who are reluctant to spend time outside of their homes during the pandemic.
However, claiming and receiving benefits still pose challenges for some workers. Filling remaining gaps in coverage and extending eligibility for people unemployed long term would strengthen unemployment insurance during the COVID-19 recession.
Fill remaining gaps in coverage
The federal coronavirus response legislation will operate within the current framework of the state UI system, which should help ensure adjustments are made quickly. But providing support through the existing state UI system also means that gaps in program coverage will continue.
People who don’t typically qualify for UI coverage include self-employed, low-wage, and intermittent workers, who may face the greatest risk of losing employment. Many low-wage and intermittent workers may not be eligible for benefits under current rules because they don’t have high enough recent earnings. Policymakers can adjust these eligibility rules to ensure that more vulnerable workers qualify.
One way these classes of workers could be supported is through Disaster Unemployment Assistance (DUA) payments to workers not normally covered by the UI system. However, experts caution that DUA payments are relatively small and cannot exceed 50 percent of the average benefit amount in the state.
Although DUA could more rapidly provide resources to workers not normally covered by UI, the low rate at which it would replace lost wages only makes it a stop-gap measure that can be invoked quickly. A better option would be to pass federal or state legislation that dramatically expands eligibility (perhaps temporarily) to workers who would not normally be covered.
Extend eligibility to people unemployed long term
The legislation also excludes many people who have been unemployed long term whose maximum benefit durations have been shortened in 10 states (mainly in the South and the Midwest) since 2012. Beneficiaries in these states will exhaust benefit eligibility in as few as 12–14 weeks.
These states could move quickly to extend benefit eligibility for people unemployed long term, and federal Emergency Unemployment Compensation (EUC) can also be used to help them. EUC is regularly passed by Congress in recessions to supplement the normal UI system, particularly after long-term unemployment increases and benefit exhaustion becomes a pressing problem. Although new beneficiaries may not exhaust their benefits in the near future, other longer-term current beneficiaries might, and there is no reason to delay EUC payments to provide for the needs of those beneficiaries.
The COVID-19 recession unemployment crisis will be one of the worst on record, and it will come faster than other economic downturns. Unemployment insurance needs to be prepared. Because states can turn to the Treasury for loans, financing this essential social insurance program is not the primary concern. The most critical concern is extending coverage to keep pace with the crisis.