Building a National Unemployment Insurance System

By Stephen A. Wander and Christopher T. King – Published February 2021 in BETSSubscribe to the WFMonitor eNewsletter

This Better Employment and Training Strategies (BETS) taskforce has developed policy recommendations to support the Biden-Harris administration and the 117th Congress in addressing the labor market impacts of the COVID-19 pandemic.

About the Authors
Formerly the Director of Research for Employment, Training and Unemployment Insurance (UI) with the U.S. Department of Labor, Stephen Wander is a Senior Fellow with the National Academy of Social Insurance. Co-author Christopher King is a Senior Research Scientist at the University of Texas at Austin’s Ray Marshall Center, which he directed for many years.

A Program in Bad Shape
The U.S. UI program has not been able to achieve economic stability or temporary income restoration for laid off workers. This paper recommends a more efficient program with a wide variety of reforms phased in over two years beginning in 2022. 

Over the past 40 years, four issues have affected the UI program: 1) congressional neglect; 2) economic shifts resulting in a rise in permanent job loss and longer unemployment durations; 3) demographic shifts such as more women, older adults, and two-earner households in the labor force; and 4) poor policies at state and federal levels.  

The UI program is currently experiencing several significant shortcomings. These include a deficit in financing and underinvestment in UI and ES (Employment Service) administration and staff, wage replacement and duration rates that have fallen since 2008, a lessening in the number of unemployed actually receiving UI benefits, inadequate reemployment services, and UI and ES offices with old and rigid IT systems.

Suggested Reforms
Three goals for reform are suggested: 1) Start paying sufficient benefits; 2) Increase funding of the UI program “through a low uniform tax rate and a progressive – at least lest regressive- payroll taxable wage base”; and 3) Provide better reemployment services. These three suggestions can be supported through federal-state partnerships with the U.S. Department of Labor; state UI programs consolidated into a federal program “with a single set of access, benefit payment and tax provisions;” and a national program administered by the Social Security Administration.

Features of an SSA- administered National UI Program

  • Better and simpler application forms and processes, including “a single application, benefit and tax system in which all UI data systems would be centrally held and analyzed by a federally-funded research and development center.” 
  • Improved access and more common eligibility requirements in all states.
  • “Wage replacement of 50% of lost wages up to two-thirds of the national average wage.”
  • Maximum of 26 weeks payment mechanism in all states.
  • “A taxable wage base pegged directly to the Social Security wage base ($142,800 in 2021) with an estimated tax of approximately 1.4% paid by employers.”
  • No more employer experience rating.
  • Automatic triggers for extended UI benefits.
  • More funding for self-employment and reemployment services.
  • More support for short-term compensation and work-sharing options.
  • More funding for current state and local ES/UI merit system staff.
  • “A common UI/SSA data record based on a single set of definitions for benefit and tax systems for terms like ‘employer,’ ‘employment,’ ‘wages,’ and other key terms.” 

Additional “Complementary” Reforms

  • Establishment of a JobSeeker Assistance program that supports “new labor market entrants, reentrants, and other noncovered groups, e.g., gig economy workers.” 
  • Expand the definition of employed workers to include currently misclassified independent contractors.
  • Expand ES services to include all permanently laid off unemployed workers.
  • Integrate more workforce training program services into the UI program. 
  • Provide a Universal Adjustment Assistance program “to unemployed workers who need income support while training for new skills, along the lines of what the current Trade Adjustment Assistance program now provides.”

Actions to Take Now

  • Increase staffing of National UI office.
  • Expand UI and ES services.
  • Increase proactive advice and technical assistance to state programs.
  • Reestablish the lapsed US Employer Service required by the Wagner-Peyser Act from 2002-03.
  • Fund a low-cost state UI application, benefit payment, tax and reporting system that would avoid “wasteful, large-scale IT investments in 50-plus state legacy systems.”
  • Legislate federal UI programs that “1) increase the duration of UI payments, 2) continue the Pandemic Unemployment Assistance program, and 3) increase the UI replacement employment rate beyond 50% of lost wages.”
  • “Reestablish a dedicated research and evaluation budget for the Unemployment and Training Administration, one that is separate and distinct from the one for the Chief Evaluation office of USDOL.” 

Conclusion
In short, “UI has become far less able to timely respond to the needs of the economy and the unemployed workers . . . The time for action is long overdue.”

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