Unemployment can be devastating—just ask the millions of workers who lost a job during the Great Recession. But it’s a commonplace experience: At some point during our working years, two-thirds of us will experience at least a year of unemployment firsthand (either ourselves, or for our household’s primary breadwinner).
The United States already has an effective program that protects workers from falling into poverty or losing their homes when they are laid-off, by temporarily replacing some of their earnings while they look for a new job. Unemployment Insurance (UI) isn’t exactly a household name, but the program’s benefits have provided stability and protection to working families for eight decades.
Unfortunately, the program isn’t reaching everyone who needs it—in 2014, just 1 in 4 jobless workers received UI benefits. In large part, that’s because policymakers have failed to update UI to keep pace with dramatic changes in the American workforce and overall economy. But in some states, lawmakers have done even more damage by cutting program benefits and tightening already-strict eligibility rules. This leaves workers—particularly low-wage workers, women, and people of color—without a safeguard if they lose their jobs.
Cutting UI also jeopardizes our entire economy, because it is our first line of defense against recession: it creates demand by boosting the spending power of struggling families, which helps to stabilize the economy during downturns. We’re currently enjoying our seventh year of economic expansion, but we’ve never had an expansion last longer than ten years—so lawmakers should be preparing for the next recession before it arrives.
Here are seven steps that would put the UI program on firm footing before the next economic downturn:
1. Give people enough time to find new jobs
Finding a new job takes time—in 2015, it took an average of 29 weeks. For that reason, UI was designed to replace about half of a typical worker’s wages for up to 26 weeks while she searches for work. But states have been slashing benefits so that they replace far less than half a worker’s wages, and nine states now offer fewer than 26 weeks of support (with Florida and North Carolina cutting off benefits after just half that time).
Since UI is an earned benefit—workers contribute to the program through payroll taxes, just like Social Security—these states are shortchanging workers on a protection they’ve earned. It’s time for Congress to set standards guaranteeing all qualifying workers 26 weeks of protection, and replacing at least half of wages for low- and middle-income workers.
2. Keep workers in the jobs they already have
UI includes a provision that can actually prevent layoffs from happening in the first place. Work sharing gives employers the option to temporarily reduce their employees’ work hours—rather than laying them off—while UI steps in to replace part of workers’ lost wages.
It’s a win-win—workers keep their jobs and businesses retain experienced employees—but 21 states still haven’t established work sharing programs. Policymakers should ensure work programs exist in all 50 states and the District of Columbia, so that employers and workers have an alternative to layoffs during the next recession.
3. Train unemployed workers for new careers
Many workers whose jobs fall prey to globalization and technological change will need to retrain for work in a different sector. Our nation’s workforce development system—and UI’s reemployment services, in particular—is highly effective, but it is woefully underfunded. As a result, the system doesn’t reach nearly enough workers. Worker retraining actually has bipartisanship support—the only hold-up is Congress’s failure to put more money where its mouth is.
4. Include low-paid workers
It’s bad enough that workers today can legally be paid a poverty wage. But leaving low-wage workers without assistance during unemployment because they were underpaid—even when they have typically contributed the same amount in unemployment tax as higher earners—is downright absurd. Yet because most states use an earnings threshold to determine who is eligible for UI, low-wage workers are only one-third as likely to get UI as higher earners (despite being twice as likely to be laid off).
To avoid punishing low-wage workers, UI eligibility should be based on the number of hours worked—not the amount of money earned. Once someone has worked 300 hours at the state’s minimum wage over the course of two calendar quarters, they should automatically qualify.
5. Protect more women in the workplace
Women are now primary breadwinners in 40% of American households, but UI hasn’t adapted to keep pace with this reality. Women are twice as likely as men to be part-time workers, but since part-time workers are excluded from UI in one-third of states, many women are being unfairly disadvantaged. Women are also more likely to have to leave the workforce to care for an ill relative or for personal reasons such as escaping domestic violence, and some states don’t allow them to receive UI when they search for new work.
All states should extend UI coverage to part-time workers, as well as workers who must quit for so-called “good causes.”
6. Make sure all workers pay their fair share
UI is funded through two modest payroll taxes. Nearly every worker—whether they are making millions of dollars or minimum wage—contributes the same $42 per year in federal UI tax. This is because workers only pay federal taxes on the first $7,000 of their wages every year. This hasn’t been adjusted in 33 years, and each year the tax gets more regressive. Congress should fix this by broadening the taxable wage base—for example, by applying UI taxes to earnings up to $59,000 (about half of the Social Security wage base). This would allow us to lower tax rates while still collecting the same amount of revenue.
7. Build the emergency exits before the next fire.
Jobs are scarce during recessions, so laid-off workers need longer on average to find new work. For that reason, UI has a program called Extended Benefits (EB), which is supposed to automatically activate when a recession approaches. It’s a great idea, but the triggers that turn on the EB program don’t respond quickly enough when unemployment rises, so the assistance EB provides is often too little and too late. To trigger EB now, more than 5% of the workforce would need to be receiving UI benefits—but since so few workers are eligible for UI, that’s a tall order.
Policymakers should fix these triggers so that the UI system is not caught unprepared when the next downturn arrives.
In the longer term, policymakers should give unemployment protections a big-picture update to match the modern economy.
Even if UI were fully updated, a substantial share of unemployed jobseekers today would remain ineligible for UI. This includes new college graduates and caregivers returning to work, as well as gig economy workers such as Uber drivers and TaskRabbit workers. To assist these workers, we should create a Jobseeker’s Allowance—a modest short-term stipend to support job hunting and training. Many countries—such as the United Kingdom and Germany—already have similar programs that help workers connect to job opportunities and improve their work-related skills.
Economic expansions don’t last forever—and experts are increasingly calling on Congress to prepare the nation for the next recession. By taking concrete steps today to fix the cracks in our nation’s unemployment protections, policymakers can protect more working families against the hardship of job loss.