Last Friday’s Job Report was disappointing. After a summer of average job growth at 800,000 new jobs a month, September saw an increase of a mere 192,000. This is especially concerning because many policymakers and commentators had hoped that the recent withdrawal of the enhanced unemployment insurance (UI) programs would lead to faster job growth. Sadly, this was not the case.

Unemployment insurance has been a crucial lifeline for many families throughout the Covid-19 pandemic. But the pandemic also exposed numerous problems with the UI program as it currently operates. Many of the CARES Act programs and their successors were aimed at temporarily patching these holes, expecting that long-term improvements would be eventually made. 

Unfortunately, it appears that while the short-term programs have expired, there are currently no active plans in place for broader reforms. Early in September, the House Ways and Means Committee released the markup of the Build Better Act. While the markup includes several good policy ideas, there were no proposed reforms to the UI program. This is surprising, as Secretary Yellen and Secretary Walsh have forcefully argued for inclusion in the reconciliation bill.

Policymakers should prioritize permanently improving the functioning of the UI program. These measures should include:

  • Capacity Improvements: Many states process unemployment insurance claims with systems that badly need an overhaul. The current UI systems – often built on the back of legacy code from the 1960s –need to be replaced. Many people who were eligible for unemployment did not receive their payments for several months after application; others are still waiting.

    Congress should look for opportunities to invest in the infrastructure we need to have a functional UI system that gets assistance to the people who are owed it. It would require federal investment in a UI system that states could use if their own systems are insufficient, especially since many states appear to have UI systems deliberately designed to be inaccessible.

  • Eligibility Reform: Under the current system, many people, such as the self-employed and “gig” workers, are ineligible for unemployment. The Pandemic Unemployment Assistance program filled in this gap during the pandemic. If we want a flexible and dynamic economy going forward, we should continue to cover them.

    Going forward, a potential replacement is a jobseekers’ allowance that would cover individuals who would not be eligible under the current system, such as gig workers, new entrants to the labor force, and parents returning to the labor force as their children grow up. Senators Wyden and Bennet have proposed an allowance of $250 a week which would cover this population.

  • Benefits Reform: Finally, unemployment insurance can be less complicated as well as more generous. States use wildly different formulas to determine benefits. For example:
    • Louisiana used to pay benefits equal to 1/25th of wages in the previous year. But legislators changed the benefits twice, first increasing them by 5 percent, then by 15 percent. As a result, current benefits are equal to 4.83 percent of wages in the previous year.
    • Rhode Island pays UI benefits equal to 3.85 percent of wages in the two highest quarters in the previous year. Additionally, they provide additional benefits per dependent of the maximum of either $15 or 5 percent of the weekly benefit rate, up to either $50 or 25 percent of the weekly benefit rate.
    • West Virginia defines 254 different “wages classes.” UI recipients receive 55 percent of the median earnings in their wage class.

This complexity has substantial costs. When the pandemic began, legislators wished to set the insurance replacement rates temporarily at 100 percent (so that everyone who lost their job would continue to receive the same income). Still, the complexity of each states’ unique code made this impossible. Instead, unemployment insurance benefits were increased by a flat rate–first at $600/week, and until recently $300/week. A consequence of this is that many people received replacement wages above100 percent of their previous income.

While the expanded benefits programs have expired, we should look to standardize the provision of unemployment across states. While different states may wish to set benefits higher or lower, standardizing benefits so that states use the same variables would make it easier to respond to future crises, and make the differences between states’ unemployment policies more legible. Similarly, Congress should consider mandating a specific length of time to provide unemployment claims, as Senator Wyden has proposed.

This should be paired with encouraging states to increase the generosity of benefits of unemployment insurance broadly. While higher benefits could reduce the job-finding rate, they also give workers more time to find a job that best matches their preferences and skills.Progress on these three issues is the bare minimum that Congress can do to make up for the shortfall caused by the lapse of the additional support during the early phases of the pandemic.

But more should be done. In particular, the United States would benefit from greater investment in Active Labor Market Policy programs to bring people back into the labor force. The current bill’s current iteration includes additional funding for the Trade Adjustment Act and Health Profession Opportunity Grants. However, they are not sufficient to make up the shortfall in the U.S. compared to other countries. The U.S. can be the most innovative and dynamic labor economy in the world. Congress should use this opportunity to ensure that it is.

Photo by Nick Jones on Unsplash