More than thirty eight point six million
Americans have applied for unemployment
insurance benefits as of May 21st.
Five weeks into the crisis, all the job
gains that the U.S. economy made since the
Great Recession have been wiped out.
In April, the U.S. economy lost a record
twenty point five million jobs, causing the
unemployment rate to skyrocket to fourteen
point seven percent. Experts say this number
may go higher. The St.
Louis Fed projects the unemployment rate may
get his high as 32 percent more Americans
than ever are turning to government run
unemployment insurance programs.
Terrence Jerard Shepherd was furloughed from
his job at a restaurant in Charlotte, North
Carolina. As a result of the coronavirus
pandemic, I then realized that I probably
wouldn't be back to work for a while.
So I did. I went ahead and I applied for
unemployment and if I could possibly get
food stamps to help me out with food.
The increased demand is calling attention to
the role of the social safety net and its
potential shortcomings.
A strong safety net, advocates say it will
help the economy rebound once lockdowns
begin to ease.
I don't feel like North
Carolina was ready for this many people to
all be out of work at the same time, or when
a vaccine or Covid-19 treatment hits the
market. Greg Casar is a city council member
in Austin, Texas, who is working to deploy
emergency funding to citizens at the local
level, everyday working people.
Not only need to survive the virus, they also
usually have to work to survive.
We have so many people in our city and in
this country that live paycheck to paycheck,
and when they're not working, we've got to
make sure they can make ends meet.
So how does the United States unemployment
insurance system compare to those in other
countries? And how will it hold up under the
stress of the coronavirus crisis?
The federal state unemployment insurance
program in the United States was created by
the Social Security Act of 1935 during the
Great Depression. Suddenly you had millions
and millions of people who didn't have the
means to take care of themselves and take
care of their families.
And the aggregate impact of that on the
economy was tremendously negative.
The unemployment system is set up as a
partnership between the federal government
and the states in order to provide temporary
financial aid to certain workers.
That's an old joke in the social policy and
unemployment insurance space that we don't
really have one unemployment insurance
system.
We have a collection of 50 different
unemployment insurance systems and what
kinds of benefits you get and then how easy
it is for you to access those benefits is
going to look very different, depending on
whether or not you're in California and
Florida, for example. Most states offer
unemployment for a maximum of 26 weeks while
workers look for new jobs.
But there are several states that make the
maximum period either longer or shorter.
Federal law sets the general criteria that
workers must meet in order to receive
benefits across all states.
Beneficiaries must have lost a job through
no fault of their own, be able to work and
are actively seeking work and have earned at
least a certain amount of money prior to
becoming unemployed. But each state can
apply these guidelines differently.
One example states can decide how much money
the program pays out in February 2020, just
before the coronavirus crisis started.
Average weekly benefits were about three
hundred and eighty seven dollars nationwide.
Mississippi offered the lowest amount and
benefits at two hundred fifteen dollars per
week.
While Massachusetts gave recipients
the most at five hundred and fifty dollars
per week. Each state has a trust fund that
collects all the payroll taxes from
employers. Employers pay into that fund
based on their workers earnings, taking them
out of each paycheck. Payroll taxes like
these increased for companies if their
workers end up using unemployment insurance
system more frequently.
Payroll taxes are experience rated, meaning
firms are supposed to incorporate some of
the costs they impose on the system by
laying off. However, states don't want to
raise payroll taxes on firms.
And for example, in California, the wage
base is ridiculously low and hence the trust
fund runs out of money all the time.
And then California has to borrow from the
federal government and to repay those loans.
There are automatic payroll tax increases on
all firms. Still, many eligible workers
don't know they qualify for benefits or they
have trouble navigating the system.
The recipients rate is really low, meaning
the response rate is the fraction of
unemployed workers who actually obtain
unemployment insurance benefits.
That rate nudges upward to 40 to 50 percent.
In the big recession and can be as low as 20
percent during regular time.
So unemployment insurance effectively does
not cover the majority of the unemployed.
The United States isn't alone in the
downturn. Spain experienced the country's
single biggest job loss on record.
300000 people lost their jobs in Spain
between February and March.
Increasing the unemployment rate there by
nine point three percent.
So Spain actually does something similar to
what the U.S. does right now, which is to
allow companies to furlough workers and
allow companies to to reduce working time
down to 100 percent or zero.
And then these workers become eligible for
unemployment benefits, even though,
technically speaking, the employment
contract is still valid.
Sweden's economy is also taking a hit from
the virus. Swedish officials expect the
country's GDP to shrink by four percent and
unemployment to rise as high as 10 percent
in 2020.
The Swedish government expects an
economic contraction as deep as during the
global financial crisis.
Unemployment could reach its highest rate in
more than 20 years.
This downturn occurred despite Sweden not
implementing the same sort of restrictive
social distancing measures as other
countries. But many Swedish residents and
businesses have been voluntarily social
distancing, which has lead to the economic
strain. One thing I would consider a bill is
to an extent, it was also sort of government
induced. It was a government decision to say
we shut everything down.
Everyone has to stay home.
Businesses are closed.
People need to be laid off.
When you look at the case of Sweden they,
they take a different approach.
To avoid, to the extent possible, closing
businesses. Sweden has a voluntary
unemployment insurance system, so workers
must decide for themselves to pay into the
program rather than their employer paying
taxes on their behalves.
Some of the funds are linked to unions for a
specific line of work, while others are open
to a range of professions.
What you would expect, theoretically, is that
the system shouldn't work as well as a
mandatory system because the people who
don't need insurance.
De facto, it does work.
The Swedish government has passed legislation
to provide more resources to benefit funds
and has also relaxed the eligibility
requirements. Germany's approach to the
crisis was also to keep workers attached to
their jobs by essentially subsidizing their
wages. What they do is they basically freeze
the employment contract.
So the government says, you know, the
employment contract cannot be dissolved,
so
you will stay employed.
Your working time might be reduced up to
100 percent and the government will
compensate essentially the employer for the
wage costs. Germany, notably, is an example
of an economy where there was already a lot
of economic coordination and sort of
industrial policy that that happens in the
form of councils that regroup.
Government officials and officials from the
private sector and representatives from
unions. And so they had this existing
infrastructure to draw on that made it
easier for them to deploy a reform like
that. Both Republican and Democratic
lawmakers agree that unemployment insurance
cannot adequately address the scale of
economic devastation caused by the
coronavirus pandemic.
As a result, Congress passed several bills
to provide support to the states.
Lawmakers currently remain in talks for
future legislation.
So far, the federal package is made up of
several different bills.
Together, they work to fill gaps in the
unemployment insurance system.
The legislation covers the following
measures, provides an additional six hundred
dollars to all beneficiaries, regardless of
which state they are collecting insurance.
It allocates funds to help states administer
the benefits more efficiently and allows
recipients to collect benefits for up to
four months.
It also expands who qualifies
to receive benefits, including self-employed
or contract workers, and provides state
trust funds with an additional one billion
in funding. One characterising feature of
the Covid-19 crisis in the labor market is
that it has hit low income workers
substantially. In California, for example,
we see that one in three workers coming from
the accommodation and food service industry
has applied for unemployment insurance
benefits, and one in five workers coming
from retail sale has applied for UI.
Given these individuals are low earners,
their typical UI benefits are not going to
be very high. And the six hundred dollars
per week from pandemic unemployment
compensation makes a big difference here.
The legislation also provides incentives for
businesses not to lay off workers.
Many economists say it is crucial for
workers to remain attached to their jobs
during the crisis, despite the decline in
the demand for labor.
The key thing is they keep their jobs and
that has these two really important effects.
The first one is fewer people face the
trauma of job loss, which can have very
lasting consequences.
And then the employers, when the recession
is over, don't have to scramble to find new
workers, hire them and train them onboard
them. And so they'll be able to when that
when the lockdown is over to do just turn
the lights back on and get things going
again. The Paycheck Protection Program is a
lending program to help small businesses
avoid bankruptcy. But the rollout of the
program has run into many problems.
Banks and small businesses spoke out about
how difficult the process was.
One of the problems with that is the
administration has been very hard.
There's so many businesses that are applying
for this work.
We don't really have the infrastructure in
place to process all of those loans.
Shierholz says the program focuses too much
on trying to prevent fraud through the
application process, which is delaying the
distribution of the loans at a time like
this. I always think of it's more important
to get the money out the door.
This timing is everything right now.
You're going to have people that get laid
off unless you can get this money right out
the door so you can do that sort of
oversight of something like this on the back
end, like with the small business loan
program. There have been administrative
problems. The state run unemployment systems
are not prepared to handle the volume of
applications the pandemic is creating.
The state of Texas has for the longest time
had a very, very thin social safety net if
they had a social safety net at all.
And so everything that was wrong about our
system in Texas becomes so much more clear
here in the middle of a pandemic or people
who've been calling to access their
unemployment, some of them calling dozens of
times a day and not being able to get access
to basic benefits.
Those state systems have
been profoundly underfunded for decades.
They're using ancient computer systems.
In many cases. They're not set up to be
agile, to be able to accommodate an
avalanche of claims like we're seeing.
So there have been and will continue to be
problems. The U.S.
system was not equipped to handle a huge
spike in unemployment all at once.
But could it have been more prepared?
The current state highlighted a few
drawbacks. One thing, of course, is that the
system was not ready for this onslaught of
unemployment benefits, and it always takes
some time until benefits are processed.
Some experts say the U.S.
can implement a system that automatically
triggers supplemental benefits during a
crisis.
This system is made for sort of
regular economic activity.
So in every major recession, the federal
government starts to extend and pay for
benefits. It's called emergency unemployment
compensation. But since this is a program
paid for by Congress, it's ad hoc.
Every time there's a debate, things are
delayed. There are also ways experts would
like to reform the unemployment insurance
system during times when there isn't an
economic downturn.
One of the big ways in which the system could
be reformed is if it were made into a truly
national system.
So many of the problems with the
unemployment insurance system as it exists
now can be traced to the fact that this has
been left to the states and they don't
really have many of them the capacity to do
this properly, whereas the federal
government does. States unlike the federal
government, are unable to run a deficit.
They need to balance their budgets at the
end of the year. And even though they can
borrow from the federal government to pay
for unemployment insurance benefits, they
have to repay those loans in about two to
three years. So they have a little bit of
breathing room, but really at the end of the
day, they face a severe budget constraint
and they don't have the power of the purse
in the way that the federal government does.
Latitude afforded to states leads to the
strange, patchwork, patchwork quilt.
Some states you can only apply by phone.
Some states you cannot only apply online.
The rules differ from state to state, and
the government just in general, needs to do
a much better job informing people about
their their eligibility for benefits.
We cannot go back to the system that we had
before this pandemic.
This pandemic has highlighted exactly what's
been wrong with our system in states like
Texas. We have underfunded and overburdened
our employment systems because of this myth
that having unemployment insurance somehow
makes people not want to work.
But the fact of the matter is we need
unemployment insurance.
So in a disaster like this, people can
afford not to work.
