Unemployment is a much larger feature of our economy than a lot of media coverage indicates. While only a fraction of workers are unemployed at a given time, the cumulative number of workers experiencing unemployment balloons quickly. Tens of millions of workers are unemployed every few years and face a grim dilemma: can they afford to look for a quality job?
Many workers cannot because most states’ unemployment benefits aren’t adequate enough to ensure financial stability. Covering food and electric bills, let alone mortgage and car payments, becomes a challenge. In what amounts to a perverse waiting game, employers can offer lower salaries as workers cannot hold out for better, fairer offers. Time is money, and money is time.
New research confirms as much. A recent National Bureau of Economic Research working paper tracked the effects of permanent reductions to unemployment insurance benefits in seven states by linking to business data. Listed and starting salaries for jobs dropped after the benefit cuts were implemented, and workers experienced a “substantial decline” in their bargaining power.
These results are not surprising. Unemployed workers struggle to hold any leverage in negotiations with employers when they lack security between jobs. Unemployment insurance (UI) is insurance-in-name-only without the ability to qualify for sufficient benefits. Improving the level of investment in unemployment programs would establish better worker bargaining power and financial stability. People could afford the time to look for a good fit.
Unfortunately, UI reforms are often overlooked. Policymakers are not pursuing improvements with the requisite urgency despite state programs’ meager benefit levels and over ten million unemployment events occurring annually.
On average, unemployment benefits only replace 40 percent of prior earnings. Still, even that weak rate paints a rosier picture than the full, troubling reality. Because so few can access benefits – slightly over a quarter of unemployed workers receive UI nationally – the median unemployed worker received a weekly benefit greater than $0 in just two states (Minnesota and New Jersey) during the first quarter of 2022. That is, over half of the unemployed workers in all but two states received no benefits.
Furthermore, states often place strict caps on the benefits, meaning that middle-class UI recipients may receive far less than 40 percent of prior income. For example, an unemployed worker in Arizona who was earning $70,000 per year would only have 18 percent of their income level covered. Unemployed workers cannot remain financially stable when unemployment insurance is so frail.
Federal pandemic programs demonstrated the positive potential of improved and expanded unemployment insurance. Greater eligibility and benefit sizes gave workers more flexibility to turn down subpar job offers and leave harmful work environments, an invaluable source of health and economic protection. The stronger, albeit temporary, unemployment benefits were a real pandemic success story.
But we need more than temporary improvements during severe downturns. Consider: a similar amount of unemployment happened during the pre-pandemic stage of Trump’s presidency – a period known for its low unemployment rates – as occurred between March 2020 to September 2021 (the months when pandemic UI initially passed and then expired). A lot of unemployment occurs even in good economic conditions. Leaving unemployment programs untouched until the next crisis risks the livelihood of tens of millions more workers. That’s why we must make unemployment insurance expansions a permanent part of the strategy to improve labor outcomes.
There is too much reliance on tight labor markets alone to boost workers’ fortunes. Workers have gained a bit of edge as employers bid against one another for employees. Yet, there is a limit to how much that competition will help. Employers are still overwhelmingly in the driver’s seat, and those favorable market conditions, which have helped enable recent labor efforts, could soon disappear.
Without better income security between jobs, many will continue having to settle for less. Sometimes the best counter to excessive employer power is giving workers a financially secure period when looking for new work. Businesses should feel pressured to elevate job standards or risk missing out on hardworking employees.
For that vision to become viable, we must reform unemployment insurance. Our UI system—a complicated conglomerate of state systems—is a porous mess. Workers will continue to be relegated to worse salaries and bargaining power until benefits are improved. Unemployment is a serious impediment to workers, but with stronger unemployment insurance, it can be wielded as a tool for workers’ well-being.
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