Reforming Unemployment Insurance: Stabilizing a System in Crisis and Laying the Foundation for Equity

Executive Summary

The unemployment insurance (UI) system is a cornerstone of our economic infrastructure. It supports working people who have lost their jobs through no fault of their own with cash benefits while steadying the economy during crises. A successful UI system can be the centerpiece of economic recovery, particularly for those communities, such as workers of color, who bear the brunt of downturns and are left behind in the wake of recessions. In addition to sustaining people through jobless spells, swift and adequate UI benefits during recoveries would allow workers to search for good jobs, not just the first job that comes along. UI benefits that serve as a bridge back to good, well-matched jobs help to ensure that the economy grows faster and that people don’t get trapped in low-quality jobs that depress their lifetime earnings.

Unfortunately, the current federal–state UI system, financed by state and federal taxes, is crumbling. It fails to serve many workers, ramps up too slowly and unevenly to stabilize the economy during recessions, and sets perverse incentives for states and employers that undermine program integrity. States set most rules, and the vast majority of states set benefits too low and cut them off after too short a time. Many workers, especially low-wage and involuntary part-time workers, are left out entirely, and workers of color are overrepresented in both these groups. Exclusionary eligibility rules are just one of many racial disparities state control creates.

Temporary UI programs first enacted as part of the CARES Act at the onset of the COVID-19 pandemic papered over a few of these problems. But even those emergency programs have proven inadequate, with already overstretched state systems failing to get out emergency benefits in a timely manner. Once again, workers of color, who are bearing the brunt of the coronavirus downturn, are at risk of being left behind. Half of the states are now choosing to cut off their residents’ access to these programs early, causing extraordinary harm to vulnerable families and impeding economic recovery. GOP governors’ attacks on these critical emergency benefits are the most vivid and recent manifestation of recurring dysfunction in the UI system: The federal government has ceded so much control to states that it has failed to equitably protect working people.

The fundamental necessity of the UI system, and the human suffering and economic instability caused by its repeated failures, should compel drastic changes. The basic remedy is clear: a stronger federal role. Building on recommendations from workers and experts alike, this report proposes five priority recommendations for urgent interventions to ensure the UI system can sustain families and the economy, with detailed actionable proposals for each recommendation.

The time is ripe for a fundamental worker-led reimagining of the UI system; in the meantime Congress must immediately implement the following equity-focused steps to repair and stabilize the system:

  • Guarantee universal minimum standards for benefits eligibility, duration, and levels, with states free to enact more expansive benefits
  • Reform financing of UI to eliminate incentives for states and employers to exclude workers and reduce benefits
  • Update UI eligibility to match the modern workforce, and guarantee benefits to everyone looking for work but still jobless through no fault of their own
  • Expand UI benefit duration to provide longer protection during normal times and use better measures of labor market distress to automatically extend and sustain benefits during downturns
  • Increase UI benefits to levels working families can survive on

Download the report to read more. 

Related to

About the Authors

Center for American Progress

The Center for Popular Democracy

Economic Policy Institute

Groundwork Collaborative

National Employment Law Project

The Washington Center for Equitable Growth

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