Unemployment Insurance (UI) is a valuable program in the United States, covering 98% of all workers. The program was enacted in 1935 to address the risk of job loss by providing partial income support for Americans while they search for work, which in turn helps to keep the economy strong.
Little change has been made to the system since 1976, when necessary reforms were enacted after the 1974-75 recession. Academy member Stephen Wandner is the editor of and contributor to a new book, Unemployment Insurance Reform: Fixing a Broken System, which proposes ways to modernize and improve the unemployment insurance system. We recently sat down with Stephen to discuss the book and the UI issues facing the nation. The following is an excerpt of our conversation.
Who should read this book?
Stephen: This book—about unemployment insurance and reemployment services—has been written by five people who are experts in the UI program. The five of us have an average of over 30 years of experience, so it is a field we know well. Our hope is to get our policy recommendations into the hands of Federal and state government officials so that improvements can be made to the system before the next recession takes place. We see the readership as those in Congress, Federal and state policy makers, and interest groups.
Why is reform needed?
Stephen: There have been no major changes to the UI program since 1976, the last time comprehensive reform was enacted. It is now 40+ years later, and what was working then is not working well now. The book outlines some significant changes that have occurred over time, such as the increase in permanent layoffs, the need of dislocated workers for reemployment assistance, the failure to update provisions, the failures in the federal-state partnership, and the lack of adaptation to major demographic shifts in the labor force.
For instance, a big change in the U.S. labor market has been the increased participation of women and older workers. Some of the state UI laws make it hard for women and older workers to get UI benefits if they become unemployed, which discourages their participation in the labor force. Why? One important reason is that women and older workers are often part-time workers and may not be entitled to UI benefits.
What is at stake?
Stephen: The big worry is that the system is not working well for employers or workers, and that if we have another major recession the unemployment insurance system won’t be ready to adequately serve unemployed workers who will be laid off. There were two purposes of UI when it was established; one was to help individual workers, and the second was to be a counter cyclical force during recessions. When individuals have sufficient money to live on, they also help to stimulate the economy, so UI has what economists call a micro-economic purpose and a macro-economic purpose. The problem for the next recession is that some unemployed workers may not get any benefits, get insufficient benefits, or get less than those in other states.
Under the Social Security Act, individual states are given considerable freedom to determine UI benefit payments and eligibility. Consequently, there is little uniformity in the benefit payment provisions. For instance, the percentage of unemployed workers who receive unemployment insurance is 12% in Florida but 50% or more in six other states. There is both a huge disparity in benefit receipt and benefit amounts. Some states pay smaller amounts on a weekly basis or payments will be of a shorter potential duration; some states are generous and some aren’t.
It is also possible that some unemployed workers won’t get any benefits, even if their employer has paid taxes on their wages. Why? Unemployed workers have to apply for unemployment benefits and have to be found eligible to receive them. They have to have earned enough in a “base period,” and they have to lose their job through no fault of their own. In addition, applying for UI can be a daunting process these days, as it’s almost completely automated and not user friendly. Applicants have to find the right website, and when completing the forms, if they make a mistake, it can lead to rejection. In particular, older workers are often not computer literate and are at a disadvantage in successfully completing UI applications.
If the U.S. experiences a major recession, the broken unemployment insurance system will be a big problem for the unemployed and the economy as a whole. We were in a hurry to publish this book and get our recommendations into the hands of policymakers now so they can consider enacting reforms to improve the unemployment insurance system before the next recession. Whether that will happen or not remains to be seen.
About Stephen A. Wandner
Stephen Wandner is an economist, a Research Fellow at the W.E. Upjohn Institute for Employment Research, a Nonresident Fellow at The Urban Institute, and a Senior Fellow at the National Academy of Social Insurance. Prior to joining The Urban Institute, Dr. Wandner was a Senior Economist for the U.S Department of Labor's Employment and Training Administration where he served as Director of Research and Demonstration for the Employment and Training Administration. In addition, he served as the Acting Director of the Office of Legislation and Actuarial Services for the Unemployment Insurance Service, where he also directed research.
His book Solving the Reemployment Puzzle: From Research to Policy received the 2010 Richard A. Lester Award for the outstanding book in labor economics and industrial relations from Princeton University. He is co-editor of Unemployment Insurance in the United States: Analysis of Policy Issues; Targeting Employment Services; and Job Training Policy in the United States. He has published many other articles, papers, and monographs on unemployment insurance and workforce programs. A member of the National Academy of Social Insurance since 1998, Dr. Wandner received his Ph.D. in economics from Indiana University.
About the book
Unemployment Insurance Reform: Fixing a Broken System was published in 2018 by the W.E. Upjohn Institute for Employment Research. Contributing authors are David E. Balducchi, Christopher J. O’Leary, Suzanne Simonetta, Wayne Vroman, and Stephen Wandner. The book is available from Upjohn Institute Press.