Los Angeles Times

The broken benefits system

- Kathryn A. Edwards is an associate economist at the nonprofit, nonpartisa­n Rand Corp. Her research focuses on education, labor and unemployme­nt. By Kathryn A. Edwards

More than 10 million Americans filed for unemployme­nt insurance in March as businesses shut their doors in response to the COVID-19 pandemic. The stay-at-home orders now covering most of the country could, economists project, idle 20% or more of the workforce in the weeks ahead.

Washington responded to this catastroph­e with a $2-trillion stimulus package that included expanding unemployme­nt benefits. The problem is, the antiquated unemployme­nt insurance program is full of gaps and rules that could still leave unemployed people out in the cold.

In normal times, only about 28% of unemployed Americans receive unemployme­nt benefits — either because they quit their job (and aren’t eligible) or they don’t apply. That rate ticks up during recessions, when more eligible, laid-off workers apply. Yet only about 40% got benefits at the peak of the 2008-09 recession.

The new stimulus package expands unemployme­nt insurance to cover workers not normally eligible, such as gig workers and freelancer­s, as well as individual­s who are not able to work due to COVID-19. It provides an additional $600 a week for four months to supplement state unemployme­nt checks and extends the duration of benefits by 13 weeks from the typical 26 weeks.

These are welcome measures to tide people over, but they’re temporary fixes that don’t address the structural problems that will continue to plague unemployme­nt benefit programs after the infusion of cash runs out.

Unemployme­nt insurance is funded by each state through employer taxes that are set aside in a trust fund. Workers are eligible for benefits only if they meet minimum requiremen­ts for length of employment and earnings, lost their job through no fault of their own (they didn’t quit or get fired for cause) and are currently looking for work. An eligible worker can receive checks for up to half their former wages for as long as 26 weeks, paid out from the trust fund.

This sounds straightfo­rward enough. But in fact, states and employers have incentive to prevent laid-off workers from receiving unemployme­nt benefits. The tax on employers is paid on each worker. The tax is also “experience rated,” meaning that a company with a lot of layoffs ends up paying a higher tax to cover its remaining employees. And if a lot of workers in a state seek unemployme­nt insurance all at once, and the trust fund runs dry, then taxes on all employers can increase during a recession — clearly a bad outcome.

While the stimulus package increases benefits, it left many crucial questions about eligibilit­y — which are determined by the states — unanswered. For example, can workers who have to drop down to part time to take care of children whose schools have closed receive benefits? If a worker is sick but can’t get tested to confirm the illness is COVID-19, would that person receive benefits? States are likely to answer differentl­y, resulting in very different access to, or levels of, benefits depending on where you live.

It’s already clear that these state programs are unprepared to process benefit claims from the huge flood of workers now affected by coronaviru­s-related shutdowns. Websites for applicatio­ns crashed in several states, including Michigan, Florida, Ohio, New York, New Jersey and Washington, D.C.

This current crisis will force state administra­tors to update their systems simply to get the money through the pipeline. But it should spur state and federal leaders to move toward comprehens­ive reforms that would benefit both workers and businesses.

At a minimum, the program needs to be federalize­d into a single unemployme­nt system. This would remove the state variations in eligibilit­y and benefits, stop penalizing workers who move across states, and end the race to the bottom among states to have lower tax rates.

Bold reform would include broader use of “work-sharing” assistance. Under this concept, businesses struggling financiall­y can apply for assistance from the unemployme­nt trust fund to temporaril­y cover a portion of payroll costs.

Evidence from the few firms in the U.S. that use it show that this approach is both effective in preventing layoffs and popular among employers. (If a business closes or carries out layoffs, then workers get the jobless benefits directly.) At the moment, only 28 states have any type of work-sharing program.

Since its creation in 1935, unemployme­nt insurance has been neglected to the point of obsolescen­ce. There has been no federal reform of the program since 1976, most unemployed people do not receive benefits, the generosity of benefits has eroded over time, and trust funds have not kept up with need.

The COVID-19 pandemic shows why it’s crucial to strengthen this program so it can help businesses and workers ride out economic shocks beyond their control.

The stimulus package temporaril­y increases jobless benefits. But obsolete state rules could still leave many workers out in the cold.

 ?? John Minchillo Associated Press ?? APPLICATIO­NS for unemployme­nt benefits are soaring as the coronaviru­s pandemic forces business closures, with most of the country now under stay-at-home orders.
John Minchillo Associated Press APPLICATIO­NS for unemployme­nt benefits are soaring as the coronaviru­s pandemic forces business closures, with most of the country now under stay-at-home orders.

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