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POLICY INSIGHT
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Ways and Means Bill Omits UI Reform in Glaring Omission

| By Nick Gwyn
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Nick Gwyn

In its most glaring omission, the economic recovery bill that the House Ways and Means Committee will consider today lacks any permanent reform to the nation’s very weak unemployment insurance (UI) system. Without the temporary measures put in place when the pandemic hit, a large share of workers won’t qualify for any help when they lose their jobs and those who do will often face very low benefits that leave many households struggling to afford the basics. Final “Build Back Better” legislation should address this omission so when workers face a job loss, they have the protection they need.

Last spring Congress responded to the pandemic and economic fallout and the underlying weaknesses of the UI system by establishing temporary additional programs that have protected millions of workers from hardship. Those temporary programs have all now expired. The nation is left with a system that, due to outdated and overly restrictive eligibility rules, leaves out about two-thirds of unemployed workers during normal economic times and a significant percentage of those unemployed during recessions. It provides low benefits — typically covering less than half of lost wages — to those who do qualify. Workers of color, workers in low-paid jobs, and women are less likely than white workers, workers in higher-paying jobs, and male workers to qualify for UI benefits when they lose their jobs.

A strong UI system is essential not only for responding to economic downturns, but also for helping unemployed workers sustain themselves and their families as they look for new jobs during normal economic times. In an economy as dynamic as ours, even during periods when the economy is growing, workers lose jobs as some companies contract or go out of business even as others are growing. Workers need UI benefits while they pick themselves up and look for the next job.

But our UI system fails broad swaths of workers. Some states were providing regular UI benefits to only about 10 percent of unemployed workers before policymakers established the temporary pandemic programs. One of the many obstacles that low-paid and part-time workers who seek UI benefits face is outmoded eligibility rules. For example, 14 states don’t consider workers’ most recent wages when determining if they qualify for UI benefits. This provision — a vestige of an eligibility determination process that was once performed solely through paper, rather than current electronic submissions — is blatantly unfair, and policymakers should prohibit it.

In urging UI reform as part of the President’s 2022 budget, the Biden Administration noted eligibility restrictions and other UI system features have driven “longstanding racial and gender inequalities embedded in the UI system.” For example, while Black workers have been nearly twice as likely to be unemployed as white workers, studies show that a lower percentage of Black applicants receive UI benefits. There are likely several reasons for this inequity beyond potential direct bias, including the fact that workers of color disproportionately live in the states with the lowest UI coverage rates and work in the jobs with the least access to unemployment benefits, especially low-wage and part-time positions.

Without congressional action, this very weak system will likely get even weaker as states consider further cuts in their permanent UI programs to shore up their unemployment insurance funds, which were depleted during the pandemic. Among the greatest risks, more states may cut the number of weeks of basic, regular unemployment benefits that they provide, just as ten states did after the end of the Great Recession of 2008 and 2009. Until then, all states had for decades routinely provided at least 26 weeks of regular UI benefits to ensure that workers had enough time to find new work. With higher average durations of unemployment, Black workers once again are disproportionately hurt by states that cut their weeks of benefits.

A shored-up UI system would better serve workers during normal economic times and would be ready to respond during recessions, when the number of people needing help rises. The temporary measures that policymakers put in place after the pandemic hit provided enormous help for millions of workers and their families, but those measures didn’t work as well as they should have because the weak underlying UI system was overwhelmed by the number of jobless workers who needed help. Workers deserve an unemployment system that provides adequate benefits when they need them, in a timely way, so a temporary stint of joblessness does not mean an immediate financial crisis for them and their families.

To this end, Congress and the President should make sure that permanent UI reforms that focus on, and improve, coverage, duration, and benefit adequacy are included in economic recovery legislation as it moves through the legislative process.

Nick Gwyn is a consultant with the Center and an expert on unemployment insurance.

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