Covid-19 shows where America’s safety net is broken. Maybe now we can fix it.

You’re going to want a better safety net.
You’re going to want a better safety net.
Image: REUTERS/Steve Nesius
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Tens of millions of workers and their families are facing economic catastrophe. Along with the risk of contracting Covid-19, they are contending with cut hours, furloughs, and record-breaking job losses. Evidence of this new reality continues to pour in as we recently learned that more than 16 million lost their jobs and filed for unemployment insurance over the past three weeks. As Americans are forced to confront both a health and economic crisis, many are relying on a safety net that is inadequate, inequitable, and antiquated.

Since its creation almost a century ago, America’s safety net has not kept pace with the changing economy. Its programs and protections, from unemployment insurance to the minimum wage, are generally dependent on working in a traditional employer-employee relationship. With the rise of non-traditional work, including gig, subcontracted, domestic, and seasonal work, basic benefits and protections have been increasingly difficult to access for millions of workers.

The coronavirus has shown a spotlight on these challenges, and increases the urgency to develop new and better systems that can help all workers, and not just those fortunate enough to work for a specific employer or meet specific eligibility requirements.

Reforming the Unemployment Insurance program is a case in point. Created in 1935, this essential component of the safety net, which provides a basic level of financial assistance to workers who lose their jobs through no fault of their own, is administered by states with federal oversight and funded through taxes on employers. But the performance of the program belies its goal. The share of unemployed workers who receive unemployment benefits has decreased steadily over the decades, from a high of 52% in 1952 to just 28% last year. The biggest drop in coverage happened during the Great Recession, when the number of applicants almost doubled, and many states tightened eligibility criteria. The strong economy and historically low unemployment that followed, and still existed just a month ago, made it easy for policymakers to ignore the program. And then the world changed.

According to an estimate by the Federal Reserve Bank of St. Louis, the number of unemployed Americans could increase to 47 million. Congress, to its credit, took quick action to increase the benefit amount, provide additional resources to states, and expand the eligibility of the program to non-traditional workers.  While these changes are critical, they are also temporary. More must be done.

We need a permanent solution that allows more workers to receive benefits—especially for gig and non-traditional workers

To be eligible for unemployment benefits, workers typically need to have consistently held a job for a year or more and have received consistent pay from which benefit amounts are calculated. This means independent and gig workers are often ineligible, and those with irregular schedules or who combine multiple jobs struggle to demonstrate required earnings histories.

For workers who do qualify, states typically require that recipients actively look for a new job; failure to comply and provide documentation of their efforts results in the termination of benefits, preventing the program from providing stable assistance especially in areas where few jobs exist. In the Families First Coronavirus Act, Congress provided flexibility around these requirements, but it remains unclear how consistently or permanently the states will implement these reforms.

To extend benefits to gig and self-employed workers, the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act created a new, but temporary, Pandemic Unemployment Assistance (PUA) program. This should extend benefits to millions of unemployed workers who would have been ineligible for traditional unemployment insurance, and access the extra $600 per week that is now available on top of the base benefit. Unfortunately, PUA expires at the end of the year, and generally does not apply to workers who use gig and self-employment income as a supplement to a traditional job.

We need to use the unemployment system to minimize layoffs and expedite hiring during recovery

Work-sharing programs, which exist in 28 states, encourage employers to forgo layoffs by instead spreading the reduction of hours across multiple workers. These workers then collect unemployment benefits for the work hours they lost. While more individual workers experience a reduction in hours and pay, no one worker suffers the full brunt of a layoff, thus staying connected to potential benefits offered by the employer, like healthcare. For employers, work-sharing can help retain workers they would otherwise lose, while offering greater flexibility to quickly increase hours when the economy recovers.

Despite the promise of these programs, they are significantly underutilized in the US. Even among the states with long-standing programs, only 0.2% of workers benefited from work-sharing in the last recession, compared to 16.9% of workers in Italy, 11.3% in Belgium, and 4.1% in Germany. The CARES Act reimburses states for the costs of their existing work-sharing programs and provides funding to encourage states without an active program to create one, but this provision is temporary.

There needs to be consideration of the full range of ways in which people work as they re-enter the labor market

As the economy eventually recovers, the job search and re-employment requirements for those receiving unemployment benefits need to be revised to consider the range of ways people work in the 21st century.

Unemployment insurance typically requires recipients to demonstrate that they are actively seeking full-time work. Evidence from prior recessions suggests that available jobs are likely to include part-time, occasional, and independent arrangements. Taking advantage of these options can be an on-road in the short term to badly needed income and, in the long term, to more traditional employment. States that require work search should take into consideration the range of available jobs, drawing from self-employment assistance programs in some states that allow recipients of unemployment insurance to collect benefits while establishing their own businesses.

Finally, we need an unemployment insurance system that is sustainable

Even before the Covid-19 crisis, many states were facing solvency issues and declining federal resources. Congress recognized the extra stress from the surge in unemployment claims and provided additional funding through the Families First Act for state administrative costs and interest-free loans to state trust funds. It remains to be seen whether states can use these resources to scale their efforts and meet the unprecedented challenge of providing benefits to millions of new applicants, including non-traditional workers who don’t typically apply for them.

In times of economic crisis, unemployment insurance has a critical role to play in helping people who are struggling to afford rent, food, and other basic expenses. Important short-term reforms have been made to address the long-standing holes in the system. The question remains, however, whether unemployment insurance can be modernized into a 21st-century program that provides benefits to all workers, or whether the crisis will pass and a critical part of the safety net will be forgotten again until the next crisis emerges.

Alastair Fitzpayne is executive director of the Aspen Institute Future of Work Initiative. He was chief of staff at the US Department of Health and Human Services and held senior roles in the US Treasury Department during the Obama administration.