You Should Be Protected If You Lose Your Job
Two in three Americans will experience at least one year of unemployment for themselves or their household head during their working years. As any of the tens of millions of Americans who lost their jobs during the Great Recession will tell you, unemployment can be excruciating for families — devastating finances, reducing subsequent earnings, and inflicting severe psychological and emotional damage on workers and their children. Unemployment also has enormous costs for our entire economy, depressing GDP growth and eroding the skills of our workforce.
Unemployment insurance (UI) was created eight decades ago to mitigate the risks and hardships of job loss. UI is earned insurance: firms contribute to the system on behalf of their workers through a modest payroll tax. If workers are laid off through no fault of their own, UI benefits temporarily replace a fraction of workers’ wages while they seek new job opportunities. UI is also a state-federal partnership: states are responsible for paying benefits, while the federal government is responsible for funding administrative costs and reemployment services.
The UI system provides economic security for working families, serves as a gateway to new employment and training opportunities, and automatically stimulates the economy by boosting consumer spending when unemployment rises. In the aftermath of the last recession — when Congress took significant but temporary steps to beef up the UI system — UI kept 5 million Americans from falling into poverty, saved more than 2 million jobs by boosting demand, and closed nearly one-fifth of the shortfall in GDP.
But UI hasn’t adjusted to dramatic changes in the American workforce. Globalization and technological change mean that many laid-off workers need to retrain for work in new sectors to become reemployed. Yet UI’s reemployment services — while highly effective — are sorely underfunded. In fact, as a share of GDP, the U.S. spends just one-seventh as much on workforce development as it did in 1979, and just one-sixth as much on labor-market policies that get people back to work as do other OECD countries.
Meanwhile, women are now primary breadwinners in 40 percent of families with children — a fourfold increase since 1960. Yet, far fewer women qualify for UI because they are more likely to work part-time, have caregiving responsibilities, or face low wages or erratic schedules. Furthermore, a growing share of the workforce — nearly 16 percent as of 2015 — is in an alternative work arrangement, including gig economy workers and other independent contractors. Yet these workers are systematically excluded from UI because it was designed for a workforce in narrow traditional employment relationships.
Exacerbating the consequences of these trends, many states have made draconian cuts to their UI programs in recent years. States have shrunk the number of weeks a qualifying worker can receive UI benefits, slashed the share of earnings that UI benefits replace, and tightened already restrictive eligibility criteria.
As a result, only about one in four unemployed workers received UI in 2014 and 2015 — the lowest in the program’s history. When so few jobless workers receive UI benefits — and those who do receive only minimal income replacement — UI’s capacity to stabilize our economy is compromised, to say nothing of its capacity to shield families from hardship.
To make matters worse, policymakers in most states have woefully underfunded their UI programs by repeatedly cutting the already-modest taxes on corporations that are used to finance UI. As a result, 36 states had to borrow more than $62 billion during the Great Recession to pay UI benefits. If the next recession were to arrive today — even if mild — only 18 states would be even minimally financially prepared, according to the U.S. Department of Labor.
A new proposal from the Center for American Progress, Georgetown Center on Poverty and Inequality, and National Employment Law Project lays out a comprehensive roadmap for reversing these shortcomings. The report offers detailed recommendations to update the UI system, in three categories.
First, policymakers must reinvigorate UI as a workforce development tool. That means channeling more resources to the UI system’s successful re-employment services and related training initiatives, as well as ramping up practices, such as work sharing, that reduce costly layoffs.
Second, we must better insure more American families against the shock of unemployment. That means expanding UI eligibility to underserved groups and improving UI benefit adequacy by setting minimum federal standards for states’ programs.
Third, policymakers must put the UI system’s finances back on firm footing before the next recession. This necessitates introducing solvency requirements for states as well as repairing the Extended Benefits program, making it fully federally financed and more automatically responsive to economic conditions.
However, even under a modernized UI system, not all jobless workers would be eligible for UI’s earned insurance; independent contractors as well as those who have little or no recent work history like recent graduates or returning caregivers would be excluded, for example. To help these individuals successfully seek work, the proposal also includes a new means-tested federal benefit called a Jobseeker’s Allowance (JSA). Modeled after similar initiatives in the United Kingdom and Germany, the JSA would be a more modest, shorter-term benefit than UI, with work-search requirements at least as stringent as UI’s. The JSA would also connect jobseekers to any resources needed to address barriers to employment, such as substance abuse issues or criminal records.
Strengthening UI and creating a JSA would do more than improve families’ financial security and prepare our economy to face the next recession. Such steps would also help reverse the long-term decline in U.S. labor-force participation; reduce costly layoffs; facilitate better-quality “matches” between employers and employees; and encourage the beneficial risk-taking that leads to entrepreneurship and innovation. That’s the stuff economic growth is made of.
After decades of stagnant incomes and sagging workforce participation — and with the majority of American families feeling economically vulnerable — social insurance for jobseekers is overdue for an overhaul. The next recession, although unpredictable, is inevitable. Policymakers must begin immediately to shore up and expand critical unemployment protections before it arrives.
Rachel West is an Associate Director for the Poverty to Prosperity Program at the Center for American Progress.
