There’s no good time to return to pre-pandemic unemployment insurance system

For American workers, Labor Day this year brings both reasons to celebrate and reasons to be wary. The labor market recovery from the recession caused by the COVID-19 pandemic has been strong, but it remains incomplete and unevenly distributed. Job openings are plentiful, but economic shifts have complicated returning to work for many people, who also face continued public health concerns and ongoing caregiving challenges. 

On top of that uneven recovery, the federal emergency unemployment insurance (UI) benefits enacted in response to COVID-19 are due to expire this Labor Day weekend, on Sept. 6. With continued uncertainty around economic conditions and the direction of the pandemic, some experts have questioned whether it is premature to cut off these benefits, and which workers will be left the most vulnerable following this termination.

This short-term decision shines a light on a larger problem: There is no good time to fully return to the UI system that existed before these emergency measures. Before the COVID-19-induced recession, only 28 percent of unemployed workers received any UI benefits, as a result of both policy choices and labor market dynamics. The protections afforded by regular UI benefits are in many cases too little, too short, and available to too few. Reforming the UI program more broadly is necessary to prevent workers from once again dealing with a system that fails to offer them adequate support and protection.

Ending pandemic UI will cut off benefits for millions of workers 

The depth and nature of the COVID-19 crisis prompted an unprecedented, but temporary, expansion of UI benefits. 

These measures expanded benefits in three ways: first, they made weekly benefit amounts more generous, initially by an additional $600 per week, currently standing at $300 per week (Federal Pandemic Unemployment Compensation benefits, or FPUC); second, they extended the duration of regular UI benefits, up to 53 weeks (Pandemic Emergency Unemployment Compensation benefits, or PEUC); third, they broadened eligibility for benefits to include workers, such as independent contractors and gig workers, who previously did not qualify for UI (Pandemic Unemployment Assistance benefits, or PUA). 

Cutting off these benefits sharply will impose substantial costs on many workers, their families and their communities. These programs are massive in scope and scale. Perhaps most stark, the expiration of PUA will mean that roughly 5 million people will lose those benefits entirely. This program alone is larger, by claimant count than regular state UI programs. 

The amount of dollars at stake is also significant. The extra $300 per week provided under the FPUC is large in absolute terms and relative to standard benefits. The average weekly benefit amount claimants received from regular UI prior to the pandemic was only a little larger than this supplement, about $370. 

Ending pandemic UI benefits will disproportionately hurt Black and Hispanic workers

The effects of withdrawing these UI benefits will hit some groups of workers harder than others. This is partly due to differences in the pandemic’s economic effects across groups. While the unemployment rate is down to 4.8 percent for white workers, for Hispanic workers it is 6.6 percent, and for Black workers, it is 8.2 percent. 

The uneven impact of ending these benefits is also the result of the types of work people do and the form of the benefits that are expiring. Black and Hispanic workers are overrepresented in low-wage forms of alternative work, reflecting structural inequalities and discrimination that have segregated these groups into lower-wage and informal occupations. The expiration of PUA will leave many of these workers ineligible for UI benefits. 

The uneven effects of withdrawing these emergency UI measures will also be magnified by inequities in the regular UI programs to which workers will be returned after the pandemic benefits end. Regular UI benefit levels and durations vary significantly across states. Losing an extra $300 per week, or facing reductions in weeks of eligibility, will have starker consequences for workers in some states than in others. 

For example, the maximum weekly benefit amount in Mississippi is only $235, compared with about $470 in the average state. In North Carolina, UI claimants qualify for only 13 weeks of regular benefits, while the typical state provides 26 weeks. These differences correlate with state racial composition, and they disproportionately disadvantage Black workers. Moreover, recent evidence suggests racial disparities exist even in access to available benefits.

Reforming the broader UI system can avoid the need for temporary fixes and ensure all workers are protected

One argument for letting the emergency measure lapse hinges on concerns that these benefits are holding back the recovery by reducing incentives for unemployed people to seek work. In fact, 26 states have already taken steps to end some of these benefits. But researchers have generally found the labor market effects of these benefits to be, at most, quite small. And these effects should be weighed against evidence from past recessions that UI can help improve other labor market outcomes while directly supporting workers and stimulating the broader economy. 

Beyond deciding whether now is the right time to cut off pandemic UI benefits, a bigger question is whether UI should adjust to economic conditions in this way at all. The fits and starts of temporary programs impose costs and disruptions. Many economists and policymakers agree that a better approach would be to build in more and better triggers that would allow the UI system to adjust more quickly, automatically and smoothly. 

Even in a fully recovered economy, American labor markets are dynamic, and workers remain exposed to the substantial risks associated with job loss. The pre-pandemic UI system did not serve workers sufficiently or equitably. Reforming the broader UI system is necessary to ensure all workers have the support they need in both good and bad economic times.

William J. Congdon is a principal research associate in the Urban Institute’s Center on Labor, Human Services, and Population and research director at WorkRise.