AN UNEMPLOYMENT SYSTEM Frozen ın Amber

Pandemic-era benefit boosts worked for jobless recipients and the economy. Why did they go away?

By Bryce Covert

ILLUSTRATION BY CORNELIA LI

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 unem- ployment 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.

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.

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, higherpaying 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 selfemployed 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 attor- ney 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 threequarters 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. 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 pro - grammers 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.