Enforcing Unemployment Insurance Performance Standards to Support More Workers

Economic downturns can devastate communities: When large numbers of workers lose their jobs their families struggle and spending declines, which can lead to more layoffs. Without the right policies in place, recovery can be slow and sluggish. A robust unemployment insurance system—one that reaches unemployed workers and provides support to keep them afloat long enough to find new jobs— is one of the most effective policy tools to spur recovery. Yet unemployment insurance (UI) in the U.S. fails to reach most unemployed workers: In 2024, only 27 percent of jobless workers nationwide received UI benefits. In many states the proportion was far lower; just nine percent of unemployed workers in Kentucky received UI benefits in 2024.

To improve unemployed workers’ access to UI benefits, NELP proposed a set of federal performance standards that states administering the UI program should be required to meet. The most important proposed standard sets a target that at least half of unemployed workers in a state receive UI benefits. The percentage of unemployed workers who receive UI benefits is known as the recipiency rate, so the proposed standard is equivalent to a 50 percent recipiency rate or greater. We detailed seven polices that states could pursue to increase UI recipiency and meet the standard, as well as recommendations for how the federal government could support these state efforts.

Yet, offering tools and providing policy support may not be enough to get states to comply with performance standards. For example, in 2024, only nine states met the existing federal standard for on-time payments. One factor that may contribute to states’ lack of compliance is that the enforcement tools currently available to U.S. Department of Labor (USDOL) for UI are very limited. Without more effective mechanisms for enforcing standards, the performance standards intended to increase UI access could be completely ineffectual. As we explained in our policy brief on performance standards:

The Social Security Act requires that states must provide for “such methods of administration . . . as are found by the Secretary of Labor to be reasonably calculated to insure full payment of unemployment compensation when due” in order to receive administrative funding for their UI programs. States that perform so poorly that they fail this standard could ultimately face the loss of federal administrative funding. However, this drastic step has never been implemented, as it would result in a loss of all federal administrative funding used to operate the state’s UI program, essentially shutting down the UI system in the state entirely, causing great harm to unemployed workers.

The federal government’s other enforcement mechanism is similarly blunt: states found not to be in conformity with federal law face a dramatic increase in the payroll taxes the federal government levies on employers in the state. Under current law, employers are subject to a $42-per-employee federal tax for UI, but this tax rises to $420 per employee if the state fails to conform to federal rules. This penalty is so large that USDOL has never imposed it.

Penalties that are too extreme to be imposed are not practical enforcement tools. A more effective system would authorize USDOL to increase the federal tax rate on a state’s employers in increments, depending on how far short of the standard states fall and how persistent the problem is. A 2021 report by NELP and partner organizations recommended increasing employer tax penalties within the range between 0.6 percent and 6.0 percent. State policymakers would quickly hear complaints from employers subject to the penalty tax, providing a powerful incentive to improve performance on the standards.

USDOL should also have the authority to incrementally reduce administrative funding, with the option to have the withheld funds given back to the state agency if they agree to take corrective action. These more proportional penalties will impel states to meet performance standards or face a tax increase on employers in the state or loss of administrative funding.

In addition to improving enforcement mechanisms, states also need more resources from the federal government to effectively administer UI benefits to more unemployed workers. Between 2007 and 2023, federal funding for states to administer the UI program declined 27 percent when adjusted for inflation. In 2017, just eight percent of state UI agencies described their current level of UI administrative funding as adequate while 55 percent described funding levels as a “serious or critical shortfall.” Inadequate administrative funding contributes to states’ failure to meet existing standards for program performance. The Trump administration’s recent cancellation of hundreds of millions of dollars in grant funding to states to modernize their UI programs can only make matters worse.

So far, the Trump administration has shown indifference and hostility to social infrastructure like unemployment insurance, even when benefits play a critical role in supporting communities and the economy. However, every administration should recognize the importance of UI and seek to facilitate and require states to provide support to more unemployed workers. When they do, better enforcement mechanisms for federal standards should be part of a UI system overhaul.