Coronavirus creates new role for US unemployment insurance

The American unemployment insurance system was designed to encourage people to look for work during a recession. It was not designed to keep them at home during a pandemic.

This is what he will have to do anyway. Estimates compiled from early state reports suggest that up to 2 million people could have applied for cash assistance in the past week – an unprecedented number in any previous recession.

Unemployment insurance was “absolutely the quickest, final point, in getting people money,” said Michele Evermore of the National Employment Law Project. The $ 2 billion stimulus package that will reach Congress will significantly increase aid through the program, although the exact details remained unclear on Wednesday evening.

“Research shows that the US unemployment insurance system provides a valuable safety net for working families,” said Mary Daly, labor economist and president of the San Francisco Federal Reserve. “The federal government’s review of measures to increase federal funding and the availability of unemployment insurance benefits makes perfect sense.”

The unemployment insurance system is funded by both the federal and state governments, which will have to quickly expand their programs. Not all states are equally prepared. All states will find it difficult to adapt.

How does the American unemployment insurance system work?

Under federal law, each state in the United States maintains its own unemployment insurance fund. States accumulate their funds in the good years and spend them in the bad years. At the end of 2019, the unemployed received an average of $ 368 per week, or 45% of lost wages. Under normal conditions, most states pay benefits for 26 weeks.

The law also gives states wide discretion in determining benefits. In Florida, the average benefit was $ 251, offered for 23 weeks. In Massachusetts, it was $ 518 for 30 weeks.

The federal government acts as a safety net for state programs during a recession. States can extend benefits up to 20 weeks, and a federal fund pays half.

State officials know better where people live and how to pay them than federal authorities, said Evermore, and the unemployment insurance system “has a remarkable way of knowing who is unemployed.”

How will the Congress stimulus bill change state systems?

Under the proposed convention in Congress, the federal government would add up to $ 600 a week to state benefits, and add one month to the length of time people can get checks. This would bring the wage replacement rate for some to more than 100%.

The replacement rate is normally set too low to encourage people to find new jobs, said Martha Gimbel, economist at Schmidt Futures. “This is not where we are now,” she said. “We want people to stay at home.”

Peter Ganong of the Harris Public Policy School at the University of Chicago said that discouraging people from looking for work made sense during the pandemic. When the economy was in full swing just a few weeks ago, workers matched the right jobs. “If we can snap our fingers and in three months go back to normal and resume our jobs,” he said, unemployment insurance could be a good way to get as close as possible to this ideal.

What happens when 2 million people file a claim at the same time?

States will find it difficult to deal with a wave of claims, even though many started training additional workers last year after a bond market recession indicator – known as the Treasury yield curve – suggested that a slowdown may be underway.

Several state websites have already crashed under the sudden load. In 2016, the White House asked for $ 5 billion in new information technology from state unemployment agencies. It was not appropriate.

“It’s going to be difficult for the state [unemployment insurance] systems to accelerate enough, “said Mr. Ganong at the University of Chicago. “In general, what we need is a massive injection of cash [labour] to pay the administrative costs related to the extension of this program. ”

Which states will have the most problems?

Over the past decade, a few states have worked to reduce their “eligibility rates” – a measure of the number of unemployed people receiving benefits. They can do this by increasing barriers and red tape, discouraging applicants. They also reduced the benefits, making the app not worth it.

There is a clear division between the red and blue states. Mississippi, Tennessee, Georgia, Louisiana, South Dakota, Florida and North Carolina all have admissibility rates of 15% or less. California, Pennsylvania, Connecticut, Minnesota, Iowa, Massachusetts, Hawaii and New Jersey all exceed 40%.

According to Ms. Evermore and Mr. Ganong, the states with the lowest admissibility rates were likely to have the lowest staffing levels and the most difficulty adapting to growing demand, particularly if Congress encourages nominations by increasing the benefits, as it is likely to do.

Will the unemployment insurance system run out of money?

“States will burn up their trust funds,” some faster than others, said Evermore. About half of the states do not have enough funds to cover a normal year of recession. Congress will likely have to act again in several months, she said, as a deep recession will likely follow the pandemic lockdown for months – and public funds will be drained.

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