Unemployment Benefit Expansions: A Guide for Policy Responses in the Wake of COVID-19

By Elizabeth Pancotti

Overview

The Unemployment Insurance (UI) system replaces wages for workers who lose their jobs. The Department of Labor oversees the system, but states administer programs and set eligibility and benefit guidelines. In most states, unemployed workers are eligible to receive about half of their previous wages for up to about 26 weeks.

What Tools Are Available

States are mostly empowered to design their UI systems as they see fit, controlling regulations about how long benefits last, when benefits kick in, benefit amounts, which workers are eligible for benefits, and requirements for keeping benefits. Even modest changes to each of these areas could translate to meaningful financial assistance for many unemployed workers over the coming months as businesses close or scale back operations in response to the COVID-19 pandemic.

Extending Maximum Benefit Weeks

In most states, unemployed workers are eligible for UI benefits for a maximum of 26 weeks — 10 states provide fewer than 26; Montana provides up to 30. Virologists expect mitigation efforts (e.g., business closures, expansions in teleworking, restriction of restaurants to take-out only service) to last 3–4 months, with the number of COVID-19 cases peaking in June or July. If a worker was laid off today, she would run out of benefits, in most states, in mid-September. At its peak in the Great Recession, the median duration of employment was 25 weeks. If 1) unemployed workers are unable to begin searching for work until restrictions on gatherings and business activity are lifted in four months, and 2) it takes half as long to find a job as it did in 2009, they’ll need at least a month more of UI benefits to sustain them to the first day of the new job, let alone the first paycheck. These are very rosy assumptions; COVID-19 threatens to wreak as much or more havoc among labor markets as the Great Recession did.

Removing Benefit Waiting Periods

A one-week waiting period is often enforced for UI beneficiaries so that states have time to verify claims and collect any documentation from the employee and the employer. During this week, if in effect in the employee’s state, workers must meet the eligibility requirements (such as searching for work) and submit a weekly claim, but they do not receive any payment. The average weekly UI benefit is about $400. Forgoing seven days of UI benefits can cost a family of four about two weeks of groceries or 1/3rd of their monthly rent for a two-bedroom apartment. In some states, such as Georgia, there is a 2-week waiting period.

Increasing Benefit Amounts

Maximum weekly UI benefit amounts range from $235 in Mississippi to $790 in Washington. States vary in their calculations of benefit amounts, but it’s commonly a percentage of their earnings in the base period (typically the year before they were let go). Unemployed workers are typically eligible for about 50% of their previous wages, but not more than the maximum. For instance, if an employee’s weekly wages were $800 for the past year, he would receive $400 per week in UI benefits. However, if a Washington employee’s wages were $1,800 per week, she would only be eligible for $790 per week in UI benefits.

Expanding Partial-Benefit Programs

To qualify for UI benefits in 22 states, workers must be entirely unemployed. However, 28 states and DC have implemented work share programs, which allow businesses to reduce employees’ hours without laying them off entirely, and UI benefits can fill the gap in wages. For example, if a restaurant that switched to only taking take-out orders reduced their staff’s hours by 50%, states would allow employees to collect 50% of the state’s weekly UI benefit amount. There is still a reduction in wages for employees in absence of an increase in replacement rates — for the 50% of hours worked, they’ll collect 100% of their wages, but for the 50% of hours reported on their UI claims, they’ll collect 50% of their wages, consistent with how UI benefit amounts are calculated.

Expanding the Pool of Eligible Workers

Because few states (11 and DC) have paid sick leave policies, it is incumbent on UI offices to fill wage gaps for uncompensated workers who need to take leave. Eligible workers should include those who have to quarantine themselves or who are unable to perform their normal duties because of risk or exposure, as well as those who need to take leave to care for a family member. Some states have taken steps to do this so far, such as Massachusetts.

Removing Work Search Requirements

In many states, UI benefits are contingent on seeking work. Rules vary across states, but in many cases, UI regulations require claimants to make contact with a few potential employers or participate in a few job-search activities. While these regulations could be warranted in better economic circumstances, they are unreasonable and potentially harmful in the current context.

Funding and Feasibility

Economic uncertainty means uncertainty about costs of this proposal, but the changes I call for here are not cost-free. States and the federal government have signaled a willingness to spend aggressively on fiscal stimulus policies in the next month in many forms. Expanding UI benefits should be a top priority.

  • Scenario 2: If the wage replacement rate is increased to 100% (up to $1,500/week), the unemployment rate rises to 15%, 5% of workers who would otherwise be entirely unemployed participate in a 50% workshare program, and benefit eligibility periods are extended by 8 weeks (assuming everyone takes all 34 weeks): $584 billion.
  • Scenario 3: If the unemployment rate rises to 15%, 5% of workers who would otherwise be unemployed are able to participate in a workshare program, 10% of workers take 5 weeks of leave paid for through the UI system, the wage replacement rate is increased to 100% (up to $1,500/week), and benefit eligibility periods are extended by 8 weeks (assuming totally unemployed workers take all 34 weeks and workshare workers take 26 weeks): $643 billion.

Conclusion

Supported by concurrent federal changes, states are well positioned to make meaningful changes to their UI systems in the coming weeks that could benefit millions of Americans. They should start by ensuring everyone who needs UI benefits can easily access them for much longer periods than current rules allow. By relaxing eligibility regulations and increasing benefits, states will allow families to remain financially stable and will encourage compliance with public health guidelines in the coming months.

We write, crunch #’s, and tweet about the labor market and economic policy.

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