How the pandemic could permanently change unemployment benefits

The Department of Labor said on Thursday another 742,000 Americans filed jobless claims last week — in addition to the workers seeking benefits through emergency programs designed to help during the coronavirus pandemic. More than 20 million Americans are still claiming unemployment benefits of some sort.

The surge in demand for benefits throughout the pandemic — especially in the spring — has put a huge strain on states’ unemployment insurance systems. Some experts and lawmakers say the pandemic has highlighted the need for changes to U.S. unemployment benefits.

Sen. Ron Wyden, (D., Ore.), told Yahoo Finance revamping the benefits will be one of his top priorities, if the Democratic party takes control of the Senate by winning both runoffs in Georgia and he becomes chairman of the Senate Finance Committee.

“Now is the time to get ready for a long-term reform effort,” said Wyden.

Updated technology

Many laid-off workers struggled to access their benefits for weeks or even months, as state computer systems crashed and state offices became overwhelmed by the record wave of claims when the pandemic first hit the United States. Last week, new analysis showed millions of people were still waiting for their benefits due to backlog or ineligibility.

Wyden said the first priority has to be updating “technology from the dark ages.”

“It is creaky and dilapidated and the pandemic highlighted all of these flaws,” said Wyden. “Overhauling the technology will be at the heart of the agenda.”

The aging technology has been a major obstacle throughout relief negotiations. Lawmakers and officials said state systems were not capable of calculating targeted wage replacement for each worker, so lawmakers settled on a flat-rate weekly boost. In the CARES Act, Congress ultimately added an extra $600 each week for every worker.

That boost, which Wyden called “rough justice,” expired over the summer and lawmakers still haven’t agreed to renew it. Republicans argued against extending the additional money once it expired, saying it incentivized people not to return to work – even though data does not support this claim. If state systems had been able to generate more targeted, individualized relief, some lawmakers say they may have had more flexibility to come up with solutions.

“People are using the computer as a scapegoat in a lot of ways,” said Michele Evermore, a senior policy analyst at the National Employment Law Project. “The computer can be programmed to either do a good job or a bad job depending on what the policy focus is.”

Evermore, who is also part of President-Elect Joe Biden’s labor transition team, told Yahoo Finance she’s hopeful that if there’s another round of stimulus, it will include funding for technology upgrades. Still, she said it’s important to note that money won’t fix all the problems.

“Any funding that comes along to improve tech, has to include language that requires them to actually improve the tech,” said Evermore.

There is bipartisan support for updating the dated systems.

A federalized system

Evermore told Yahoo Finance she’s coming around to the idea of creating one federal unemployment insurance system, instead of leaving the responsibility to each individual state.

“There's no time like the present,” she said. “The more that we try to correct for state inequalities, states will figure out some other way to create inequalities.”

In recent years, some states have reduced the duration of benefits, made it harder to access benefits or cut the weekly payouts.

“When states reduce access, they don't just do it out loud. They don't just do it in the most obvious way by cutting benefits,” said Evermore. “What they also do is the sort of surreptitious way — that is, putting more questions on the initial questionnaire, making the questions more confusing so as to make people ineligible. On the back end, creating choke points, creating pain points... that just hold people for various reasons and give them extra scrutiny.”

Evermore argued after all the headaches during the spring, many states would be glad to have the federal government take over.

“It’s hard to understand why there's any need for the state level of involvement that we currently have — unless you think that with 50 states, some of the states will come up with ingenious measures to protect workers and the rest of the states can learn from them. I don't think it's worked out that way,” said Gary Burtless, a fellow in Economic Studies at the Brookings Institution.

Wyden has said federalizing the system is something Congress should at least consider, though he has not come out in support of the move.

Republicans will likely oppose the idea of taking control away from the states and giving it to the federal government. Yahoo Finance reached out to Senate Finance Committee Chairman Chuck Grassley (R., Iowa) multiple times, but his office did not make him available for an interview.

Expanding benefits

While a federal takeover would be tough to get through Congress, advocates are hopeful lawmakers could at least enact baseline requirements for states. Burtless told Yahoo Finance the requirements are so vague that states, in recent years, have offered only 12-14 weeks worth of benefits, pre-pandemic.

“Which I don't think is a good step forward, but that indeed has been the main direction of reform of the system in the last decade,” said Burtless.

Regular unemployment benefits typically last up to 26 weeks, but the CARES Act funded an additional 13 weeks of benefits for each recipient. The program expires in December if Congress doesn’t act. Both Burtless and Evermore said they would like to see a requirement that makes states issue 26 weeks of unemployment benefits. Evermore would like the benefits to be about 60% of prior income.

Wyden told Yahoo Finance expanding benefits will be a key part of his effort.

“If, for example, you're talking about somebody who's trying to survive on $200 a week, that's the average benefit in some states. That's just not something that should be acceptable in America,” said Wyden.

Wyden said the cost-of-living differences between states should be taken into account when expanding benefits, but he’ll be looking for ideas to ensure there is a “floor of dignity” for all workers.

After the battle over the extra $600 benefit during the pandemic, Wyden acknowledges it’s going to be difficult to get bipartisan support for boosting benefits and making other reforms in the future.

“I have no illusions about the challenge of trying to get support across the aisle,” said Wyden.

Making more workers eligible

The CARES Act also allowed gig workers, independent contractors and others to claim Pandemic Unemployment Assistance (PUA) benefits, even though they typically are not eligible for standard benefits. The PUA program will also expire next month if Congress does nothing.

There is a now push to make sure those workers still qualify in a post-pandemic world.

“Nobody in the 1930s ever heard anything about gig workers,” Wyden said.

Still, Burtless notes that questions remain about how to permanently make gig workers eligible — how to collect taxes, determine eligibility, when does a re-employed worker have enough replacement income to no longer receive unemployment checks, etc.

“We haven't even begun to think about it yet. And if we're going to make unemployment benefits available to that segment of the workforce, we have to come up with procedures that work fairly and equitably for gig workers as they do for wage and salary workers — and that’s a big task. That's not a little thing. That's a big deal,” said Burtless. “We can be relaxed in the current situation because we expect this situation is only going to last 12 or 18 months.”

President-elect Biden’s campaign website says he will work with Congress on legislation to ensure gig workers have access to legal protections and benefits. Biden argues many workers are misclassified as independent contractors, instead of employees — which allows companies to avoid the expense of benefits.

“This epidemic of misclassification is made possible by ambiguous legal tests that give too much discretion to employers, too little protection to workers, and too little direction to government agencies and courts,” Biden’s website reads.

During the campaign, Biden also released a plan to strengthen unemployment insurance by reforming short-time compensation programs.

Jessica Smith is a reporter for Yahoo Finance based in Washington, D.C. Follow her on Twitter at @JessicaASmith8.

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