BEYOND THE NUMBERS
Today’s jobs numbers make June’s and July’s gains the largest since August 2020: 943,000 jobs added to private and government payrolls in July with revisions to May and June adding another 119,000. The unemployment rate dropped to 5.4 percent, labor force participation rose slightly, and the share of the population with a job rose 0.4 percentage point. While these are all welcome signs of an improving labor market, they shouldn’t distract policymakers from the need for fundamental reform of an unemployment insurance (UI) system that poorly served many workers who lost their jobs before the crisis, was unprepared to provide assistance to the surge of unemployed workers during the crisis, and will poorly serve many workers who lose their jobs after it.
Putting the July number into perspective, job growth averaged 421,000 jobs a month from September 2020 to May 2021. The jobs deficit — 10 million at the end of 2020 compared with February of that year — has shrunk to a still-large 5.7 million. The deficit in the number of people with a job, which is measured differently, is similarly large, at 6.1 million. In short, despite considerable economic improvements, unemployment is still too high and a full jobs recovery has not yet been achieved.
Turning to UI, federally funded emergency UI benefits are scheduled to end September 6, but 26 state governors have already ended some or all of this federal assistance. They cited the atypical April jobs report and employers’ claims that the additional benefits were discouraging workers from staffing their re-opening businesses. But shutting off emergency UI hasn’t led to more hiring in those states, preliminary evidence suggests — just greater self-reported hardship.
In the pandemic, emergency federal programs have served an invaluable role addressing the deep flaws in the permanent federal-state unemployment insurance system, which fails to cover many workers who lose their job through no fault of their own, replaces too small a share of eligible workers’ wages, and provides too few weeks of benefits. Yet this is the system unemployed workers will face going forward, and if history is any guide, states may well weaken their systems further. This is what they did after the Great Recession to avoid raising taxes on employers to build up their depleted trust funds, out of which future benefits were to be paid.
Low-paid workers, women, and workers of color are the ones most likely to be left without any help at all when they lose their jobs, with inadequate benefits when they do qualify, and with so few weeks of assistance that they run out before they find new jobs. This is a major reason why President Biden has called on Congress to join him in enacting fundamental UI reform.
Policymakers can jump-start this process by including some key initial steps in the recovery legislation they will be putting together in coming months. They should address issues of:
- eligibility, such as by ensuring that eligibility determinations include workers’ most recent earnings, that part-time workers can get help when they are out of work, and that people are covered when they have to quit their jobs for compelling family reasons like domestic violence or caring for a sick relative;
- adequacy, by adopting a minimum required replacement rate of a worker’s lost wages in all states and a maximum benefit level high enough to let workers with low earnings receive the full amount to which they are entitled; and
- duration, by requiring that a recipient be eligible to receive benefits for at least 26 weeks during normal economic times.
Fundamental UI reform ultimately must go beyond these basic reforms and should include, among other changes, measures to automatically increase the number of weeks of UI available and benefit levels in a national recession or when a state or area within a state is experiencing elevated unemployment. Without fundamental reform, the country will again be unprepared for rising unemployment in the next recession.
But unemployment is not just a phenomenon in recessions. Workers lose their jobs through no fault of their own in good times, as well. To tide them over during periods of joblessness and help them avoid a family financial emergency, they deserve a better UI system than the one that awaits them when federal emergency assistance is gone.