Why the unemployment system is broken and how Biden plans to fix it

Why the unemployment system is broken and how Biden plans to fix it

Next month President-elect Joe Biden will be sworn in to lead a nation amid an unemployment crisis—and it could get worse before it gets better.

In all, more than 19 million Americans are still receiving unemployment benefits, including around 13 million covered by pandemic unemployment benefits created by the CARES Act. But unless Congress acts before the end of the year to extend pandemic unemployment benefits, around 13 million of those jobless Americans will lose their benefits.

Even if Congress renews those pandemic unemployment benefits, economic recovery may still be at risk. The rebound that started off strong in the summer, with 4.8 million jobs added in June alone, has since slowed to an anemic pace. The country only netted 245,000 jobs in November, and at that pace, it could take until late 2023 to fully recover.

The unemployed will look to the Biden administration to resolve both the weakened economic recovery and bolster pandemic unemployment benefits. But those issues come hand in hand with something else plaguing the jobless: an inept unemployment insurance system that’s struggling to get Americans their benefits, let alone on time.

The problem: An inundated system

At the onset of the pandemic, states abruptly closed their economies and jobless claims soared. In total, more than 40 million initial claims were filed in the first eight weeks of the crisis, including 6.9 million the week ending March 28. And that volume of claims completely overwhelmed state unemployment offices: In many states it took weeks, if not months, to process an unemployment claim.

That’s exactly what happened to Karen Engels. She quickly applied for unemployment insurance after losing her job at a Florida country club in mid-March. However, the 44-year-old told Fortune that she didn’t end up getting her first check until late May.

Long processing periods mean jobless Americans are forced to go weeks without pay. For Engels, that meant cutting back on everything that wasn’t essential. “The grocery bill was cut in half. Our kids need clothes, but we can’t buy clothes,” she told Fortune back in August.

And as jobless claims rise again, the backlogs are starting to return. In California the number of unpaid unemployment claims—the best indication of a logjam—is up 34% in the past three weeks.

Why exactly are state unemployment systems struggling to process claims and make payments on time? Experts tell Fortune it largely boils down to outdated technology systems that are struggling with large upticks—an issue that predates the pandemic—and issuing coverage to Americans covered by new pandemic UI programs.

“We saw all of this coming, and we’ve been lighting our hair on fire about this since the Great Recession and before. We’ve known that this system didn’t handle the Great Recession nimbly at all, that it wasn’t going to handle the next crisis well at all, and this is worse than anything we predicted,” says Judy Conti, government affairs director at nonprofit National Employment Law Project.

And it isn’t just backlogs: State unemployment offices have been underpaying millions of jobless Americans all year, a recent report by the Government Accountability Office found. States have also failed to weed out fraudulent unemployment claims, the same report finds. And according to NELP, for years the federal appropriations for states to run the UI programs have either stayed the same or decreased, resulting in states “running their programs on so much less money than they used to and that they should,” Conti suggests.

What Biden wants to do for unemployment insurance

President-elect Biden says he wants to turn unemployment insurance into “employment insurance.”

Biden’s plan advocates for getting all 50 states, plus Washington D.C., Puerto Rico, and the Virgin Islands, to “adopt and dramatically scale up” short-time compensation programs, also called work sharing. With short-time compensation, companies are able to reduce employee hours—and therefore save on their payroll—when times are tough, and the government contributes to their compensation in lieu of businesses laying off employees.

Currently, 27 states have adopted work sharing, and Conti agrees that President-elect Biden’s plan to make the program mandatory for all 50 states is a sound idea. “We’re huge fans of short-time compensation. It doesn’t solve every problem, but it’s a great layoff aversion strategy,” she says. That’s because it allows businesses to hold on to their trained talent and be able to easily revamp operations, while employees can keep their benefits and pay in the meantime.

Apart from getting all states to participate, Biden has indicated he wants to change the tax implications of work sharing. Biden’s platform suggests the government “temporarily waive the need for states to … force employers to pay higher taxes in the future if they use short-time compensation now.” And as is the case during emergencies like the pandemic, Biden wants it to permanently be 100% federally-backed. Per his plan, Biden would also seek to create a refundable tax credit for companies to use for employee health care benefits if they participate in work sharing.

But those are longer-term fixes. To immediately help unemployed Americans, Biden has advocated for extending pandemic unemployment programs that expanded who is eligible for unemployment benefits to workers like contractors, and bringing back $600 enhanced weekly unemployment payments, per his platform. The CARES Act initially paid unemployed Americans an extra $600 per week, but that benefit expired in July, and Congress has yet to fund a replacement. Current deliberations in Congress indicate that if enhanced benefits were to return, it’d be in the ballpark of $300 a week—not the $600 Biden has pushed for.

Meanwhile, both work sharing and pandemic unemployment benefits are key, says Conti, but she argues the current unemployment system itself needs a big update. “In a perfect world” the system would be federally run, but she estimates something in the ballpark of $5 billion would be appropriate for the government to invest in modernizing states’ technology and systems, while other reforms may require state tax increases to bolster unemployment trusts in order to pay better benefits. (Biden has acknowledged the need for the government to help states with staffing and technology solutions during the pandemic.) Conti believes all states need to provide at least 26 weeks of benefits and replace at least 60% of wages.

The Biden transition team did not comment further to Fortune on the President-elect’s plan for unemployment.

When could we see a system overhaul?

It’s no secret a split Congress doesn’t get along. And if Republicans maintain control of the Senate following two January runoff elections in Georgia, the Biden administration will find it even harder to pass legislation.

But unemployment reform might be an area where the two sides could find some common ground—especially when considering its price tag could be much smaller than other legislative measures the Biden camp would like to pursue. Dante DeAntonio, senior economist at Moody’s Analytics, tells Fortune even a small percentage increase in the unemployment insurance funding the federal government sends annually to states could go a long way in helping obtain the proper administrative and system upgrades.

“I do think there will be bipartisan support at least to some degree for a lot of these substantive reforms to the terms of the program,” Conti believes.

While unemployment insurance reforms likely won’t come this year, Conti suggests there is enough bipartisan understanding of “just how bad the current program is” that Congress may turn their attention to passing legislation in 2021.

And in terms of support from both sides of the aisle, she adds, “I don’t know yet if I would characterize it as ‘robust’… [but] would it be robust enough to get 60 votes on the Senate floor? Yeah, quite possibly.”

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