Key proposals

• Duration of standard benefits: Provide longer protection for unemployed workers during normal economic times by setting the minimum duration of potential benefits at 30 weeks during periods of low unemployment.

• Duration of extended benefits: Respond faster and more uniformly to growing labor market distress by using federal and state unemployment rates and changes in unemployment rates to automatically and rapidly trigger on extended benefits when the economy is deteriorating (when the unemployment rate reaches 5% or is 1.3 times the minimum unemployment rate in the previous year). Enhance the economy-stabilizing effects of extended benefits by lengthening duration as the labor market worsens, to as many as 99 weeks (when the unemployment rate reaches 10% or 3.2 times the initial minimum unemployment rate).
• Phased reductions of extended benefits: Support still-struggling groups of workers and stabilize state economies by eliminating “look-back” provisions that allow extended benefits to trigger off while the labor market remains weak (when unemployment is stabilizing at an elevated level or falling only because people have given up actively searching for work). Instead, sustain benefits until unemployment rates are declining and the declines are driven by rising employment (as indicated by a 0.2% reduction in the share of the state’s 25- to 54-year-olds with a job, i.e., the prime-age employment-to-population (EPOP) ratio (see Table 4.1 for the full set of on- and off-triggers).
• Federal data enhancements: Acknowledge the workers who tend to be left behind in recoveries with more targeted data. Require the Bureau of Labor Statistics (BLS) to develop state-level measures of prime-age employment rates that are reliable enough to use as UI off-triggers. Also require the BLS and the Department of Labor Office of Employment and Training Administration (U.S. DOL ETA) to analyze flows of workers out of UI recipiency and into paid employment by demographic and labor market characteristic to ensure that benefit extensions under future reforms do not trigger off when the overall labor market improves but it is actually just more-credentialed workers who are benefiting.

Introduction

The problem

The maximum length of time for which eligible workers can receive unemployment insurance benefits is too short in many states in normal times, grows too slowly and too little under automatic expansions during times of economic distress, is often prematurely cut short, and reinforces existing damaging disparities in the labor market by race.

Currently, it is up to state legislators to set the “potential benefit duration” (PBD) for the standard UI programs in their state. The current UI system does not provide benefits that last long enough to alleviate economic insecurity and enable workers to secure well-matched reemployment during normal economic times, largely because the standard number of weeks provided by most states—26—is well below international norms, and because a growing number of states provide even fewer weeks of eligibility.

Further, during times of labor market distress caused by negative economic shocks, potential benefit duration is not responsive enough to economic conditions. The automatic triggers that extend additional weeks of benefits to workers in high-unemployment states under the permanent Extended Benefits (EB) program have glaring flaws. Those flaws—explained below—have prompted Congresses in past recessions to enact ad hoc emergency programs to provide additional federal UI benefits. For example, over the Great Recession and through 2013, roughly 8.5 times as many weekly claimants received benefits from the Emergency Unemployment Compensation (EUC) program enacted by Congress in 2008 than from the EB program.1

The weakening of social insurance stemming from the shrinkage of potential benefit duration in some states in normal economic times and the failure to always maintain extended PBDs during periods of macroeconomic distress is apparent. UI is meant as wage replacement during periods of joblessness, but unemployed workers who receive fewer weeks of benefits have a smaller share of wages replaced by UI benefits and are under greater pressure to accept alternative work that is not a good fit for their skills and preferences.2 Further, cuts in weeks of benefits are highly likely to disproportionately harm workers with job search barriers like a lack of formal credentials or systemic discrimination based on race, ethnicity, gender, sexual identity, or other factors. These workers—and others who have a smaller cushion of savings for emergencies—rely on the social insurance function of UI the most, and shrinking PBDs disproportionately harm them.3 Short benefit duration particularly harms workers of color, as structural racism in labor markets leads to their suffering long durations of unemployment on average (BLS 2021). The limited duration of UI benefits keeps the UI system from being fully effective, not only in alleviating economic insecurity during downturns but also in providing a needed boost to the overall economy: Extending unemployment insurance to workers who then spend that money on necessities in the economy is one of the most prominent ways the federal government can combat macroeconomic contraction, and current policy prevents this tool from being used effectively.

The solution

A small number of straightforward policy reforms can significantly address the problems with potential benefit duration in the current UI system. We propose policy reforms to shore up the baseline level of PBD during normal times, make PBDs adjust rapidly and predictably—without relying on ad hoc actions by Congress—during periods of labor market distress, and ramp down gradually as key economic benchmarks are hit. Federal law should guarantee universal minimum benefit duration, as we now detail.

Implementation

Federal standards should be implemented to ensure that all states follow the processes for determining benefit duration outlined in this chapter.

Setting potential benefit duration in normal economic times

Unemployment insurance is a hybrid federal–state program. During normal times when the labor market is not distressed, states finance the regular UI system and state legislatures decide the potential benefit duration for their state. For decades following the enactment of the UI system, all states followed a norm that the minimum PBD should be 26 weeks. Before the Great Recession of 2008, for example, all states had PBDs of least 26 weeks.

However, since then, many states have weakened this standard. Before the COVID-19 economic shock hit the U.S. in March 2020, 10 states had reduced PBDs in their normal UI programs to less than 26 weeks (Whittaker and Isaacs 2019; Evermore 2020).4 Additionally, even after the COVID-19 shock prompted some states to restore some weeks of benefits, bills were introduced in a handful of states to reduce PBDs, and one appears headed for the governor’s signature (Golshan and Delaney 2021; Styf 2021).5 Reductions in normal PBD take needed assistance away from families while they are still struggling, as well as undermining the system’s macroeconomic stabilization goals in times of crisis.

Context: How low baseline levels of benefit duration weaken the economic stabilizing capacity of the standard UI program

When the economy contracts and people are no longer working, their earnings losses translate directly into spending declines, leading to further contraction. UI benefits kick in during these periods of macroeconomic contraction and offset some of that lost spending, helping to stabilize the economy. Low baseline levels of state PBDs hurt the macroeconomic stabilization function of the UI system in at least three ways. First, even during steep and long recessions, the majority of unemployed workers are getting UI benefits through standard programs, not extended benefits programs (including both the regular EB program and the ad hoc emergency programs).6 If the PBDs of these normal programs are shortened, it makes UI less effective as an automatic stabilizer. This is particularly true early in recessions, before any extended or emergency benefit programs have a chance to kick in.

Second, the states with reduced PBDs during normal times are also states with notably low recipiency rates, and these low baseline levels combined with their potential to discourage workers from applying mean there is less UI benefit spending stabilizing the economy.7 (Short PBDs might help convince unemployed workers that it is not worth the potential hassles of navigating the UI system.)8

Third, in the current system, the generosity of federal financing for extended benefits is determined in part by the state’s PBD of normal UI benefits, and this is often the case as well with the ad hoc emergency benefit increases financed during recent recessions. Reducing normal PBDs can hence reduce states’ availability to receive federal financing for extended benefits, or can reduce the amount they receive.

Policy proposal: Set a minimum potential benefit duration of 30 weeks during normal economic times

Before the COVID-19 shock, the state with the longest PBD was Massachusetts, which provided 30 weeks of benefits. Given that 30 weeks obviously provides longer protection for laid-off workers, and given that there is little to no evidence that the longer PBD in Massachusetts did any harm to their labor market or state economy, we suggest that the current gold standard among U.S. states set the new benchmark for a reformed UI system.

It is perhaps useful to note that a 30-week minimum would still leave the benefits available in the United States among the shortest in the developed world. Figure 4A shows the maximum PBD across a wide range of U.S. peer countries.

Social scientists agree that 26 weeks is too short to effectively serve UI’s basic purposes. Outside recessions, 2 million individuals on average collect some UI benefits in a given week. Of these, between 200,000 and 300,000 individuals will exhaust their available UI benefits each month (von Wachter 2019).

Setting potential benefit duration during downturns

The existing “automatic” system for increasing the number of weeks that unemployed workers can receive UI benefits during economic downturns has triggers that are deeply flawed. The Extended Benefits program triggers are not responsive enough, do not trigger benefits early enough during downturns, and “trigger off” extended benefits too soon. Again, by making benefits too brief, these flaws deepen family hardship and worsen recessions.

Context: How the current Extended Benefits program works

Under the Extended Benefits program, if an economic shock causes a state’s labor market to deteriorate to certain low benchmarks, the federal government funds (but the states will administer) additional weeks of benefits to workers who have exhausted their regular benefits. By establishing benchmarks that trigger extended benefits, past Congresses acknowledged that UI benefits should automatically last longer during labor market downturns. But as explained below, the precise design of the existing EB program often renders these triggers far less useful than they should be.

First, a note about financing. Under permanent law, the EB program is financed 50% by the federal government, though in an ad hoc way during recessions, Congress has usually amended federal law to provide for 100% federal funding of EB.

The total number of additional weeks typically ranges from 13 to 20 weeks, depending on state laws and state unemployment rates. Specifically, the EB program provides two tiers of extended PBDs: tier 1 adds 13 weeks and tier 2 adds an additional seven weeks. The mandatory triggers for tier 1 are based on the level and/or the change in the insured unemployment rate (IUR)—a measure of the share of people in the labor force who are receiving UI benefits. Obviously, this measure can vary not only by labor market conditions but also based on state-level eligibility criteria, as states with stricter eligibility criteria would have lower IUR rates, all else being equal. As will be explained in more detail below, the IUR is a deeply flawed measure of labor market distress that should be replaced with a trigger that is a much more focused measure of labor market distress: the official unemployment rate, a measure that includes workers who are unemployed but not receiving UI benefits. States can also opt to use an additional EB trigger that is based on the standard unemployment rate. Currently, more than half (27) of the states use only the IUR-based trigger for their EB program.9

Figure 4B illustrates that the existing base EB triggers fail to adequately extend benefits during the onset of recessions, and they cut extended benefits off far too soon to ensure support for jobless workers and an expedited recovery. It shows the share of UI recipients that were on standard UI, EB programs, and the discretionary programs (for example, the Emergency Unemployment Compensation or EUC program enacted by Congress during the Great Recession). It is particularly evident that in the wake of the Great Recession, EB programs did far less work in providing benefits to unemployed workers than the discretionary EUC program. Clearly, the existing triggers in UI need fixing to make sure the system is as responsive to downturns as it should be.

Context: How flaws with the current EB program’s on-triggers delay benefits and hurt workers in low unemployment states

Both of the triggers for turning on extended benefits have flaws. The insured unemployment rate often fails to reflect the true state of labor market distress because state UI policies can suppress UI recipiency in normal times. For example, if many of a state’s workers are unemployed, but because of strict eligibility guidelines are not receiving UI, then they are not counted in the IUR. States that use the standard unemployment rate triggers for EB see many more unemployed workers newly enrolled due to EB triggering-on during periods of labor market weakness.10

Both triggers are state-specific only and hence cannot be triggered on by deterioration in the national labor markets. Failing to include national as well as state triggers is problematic for several reasons. First, as mentioned above, residents of an otherwise low-unemployment state who live in a region with higher unemployment that is suffering due to a deterioration in the national labor market could be frozen out of aid. Second, without national triggers providing for wider extension of PBDs, the EB program provides a weaker macroeconomic stabilizer effect. Finally, without national triggers, states may suffer lags in extending benefits. A state with low unemployment as the national labor market deteriorates is highly likely to see its own unemployment rate rise shortly. Policymakers once recognized the value of a national trigger in helping states stay ahead of the curve: The EB program included a national unemployment trigger until the 1981 Omnibus Reconciliation Act.11

Context: How flaws with the current EB program’s off-triggers prompt premature withdrawal of needed assistance

By far the biggest problem with the current UI system’s EB triggers is that benefits are set to trigger off too early during periods of extended labor market distress. The EB program contains “look-back” provisions which trigger benefits off if there has been no significant increase in unemployment over the past two years. In essence, the EB program was structured under an implicit assumption (not so wrong before the 1990s) that labor market recovery would happen very quickly after recessions hit. So, for example, if unemployment rises even to an extremely elevated level like 9% and then stays there for two years, the EB provisions would automatically trigger off. This is not an academic concern. The national unemployment rate hit 9.0% in April 2009, but remained at 9.0% (or higher) until September 2011.

Context: How the ad hoc off-triggers for emergency aid hurt workers

After the 20 weeks of EB benefits (including both tier 1 and tier 2) are added to normal UI benefits, further extensions to PBDs have to be legislated on an ad hoc basis by Congress. In recent decades these extensions were labeled “temporary emergency unemployment compensation” or “emergency unemployment compensation” (TEUC or EUC), and were fully federally financed. These programs have been tied to calendar periods rather than economic conditions, and often lapse well before the economy recovers. For example, the federally financed extended benefits included in the CARES Act passed in April 2020 as a response to the COVID-19 economic shock—the Pandemic Emergency Unemployment Compensation (PEUC) benefits—lapsed at the end of 2020, when the virus was surging and the labor market remained very weak.

Sometimes these lapses are temporary, and longer PBDs are reextended after a short break, but temporary income losses can be devastating to households on tight budgets even if the programs are reextended and payments are retroactive —and cause extreme anxiety among workers depending on benefits.12 Sometimes these lapses are permanent. The EUC program put into place during the Great Recession in 2008 was allowed to completely lapse by the end of 2013, when unemployment had just barely dipped below 7% nationally and sat above its highest level during the early 2000s recession and jobless recovery. And by late May 2021, half of the states had announced plans to cut off their residents’ access to some or all of the emergency programs enacted in the wake of the coronavirus pandemic: the PEUC program as well as the Pandemic Unemployment Compensation (PUC) program offering $300 weekly in enhanced benefits and the Pandemic Unemployment Assistance (PUA) program offering benefits to workers traditionally denied UI, like self-employed workers (Berger 2021; Zeballos-Roig and Kaplan 2021).13 This threatened to cause extraordinary harm to vulnerable families and to impede economic recovery (Cooper 2021). Given that workers of color bore the brunt of the coronavirus downturn, they are at risk, once again, of being left behind (Gould and Wilson 2020; Gould, Perez, and Wilson 2020).

These glaring flaws regarding the triggers of extended PBDs—automatic extensions that trigger on too slowly and unevenly and can trigger off while the labor market remains weak, and the reliance on congressional whim rather than economic conditions to determine further PBD extensions—can be fixed by reforms we suggest below.

Policy proposal: Reform the Extended Benefits program to trigger on quickly as the labor market deteriorates and trigger off only when genuine recovery is underway

To ensure that unemployment benefits trigger on quickly as labor market distress begins and remain in place until the labor market mounts a genuine recovery, we propose the parameters for triggering on and off new tiers of PBD shown below in Table 4.1. Triggers-on are determined by the minimum of state or national unemployment rates—not the insured unemployment rate—and are determined by either a prespecified unemployment rate or a change in the unemployment rate. Triggers-off require both a reduction in either the state or national unemployment rate and an improvement in state-level measures of the share of adults between the ages of 25 and 54 with a job, known as the prime-age employment-to-population (EPOP) ratio. We sometimes refer to the prime-age EPOP ratio as a “failsafe” criterion, in that it will keep PBDs from falling into a lower tier based on improvements in the unemployment rate that are driven solely by reductions in labor force participation.

Triggers-on proposal

The key to effective triggers to turning on extended UI benefits is to ensure they respond quickly and provide longer PBDs as the labor market falters. We propose the on-triggers respond to the minimum of state or national unemployment rates. Existing triggers were designed in an era when unemployment rate expectations were much higher than today. As the Federal Reserve (2020) has observed, “it has become increasingly clear that low unemployment can be sustained without leading to an unwanted increase in inflation.”

Thus, we recommend that the first tier of longer PBDs (rising from 30 to 33 weeks) be triggered on when the state or national unemployment rate hits 5%. However, to ensure that states with traditionally low unemployment rates can see longer PBDs as their unemployment rate deteriorates quickly, we also allow the tier to be triggered on by a rise in the unemployment rate to 1.2 times the minimum unemployment rate that prevailed in the previous 12 months. So, if in July 2021 a state experienced an unemployment rate of 3.5% in any one of the months between the previous July through June, an unemployment rate of 4.2% in July 2021 would trigger on the first tier (33 weeks) of longer PBDs. This modification ensures that PBD extensions respond quickly to obvious deterioration in the labor market (say that caused by the onset of a health crisis like COVID-19 or by hurricanes and other natural disasters), even when the labor market was starting from a healthy state with a historically low unemployment rate.

From the first tier of extended PBDs, each additional percentage-point increase in the unemployment rate would trigger longer PBDs, as shown in Table 4.1. PBDs max out at 98 weeks for unemployment rates of 10% or higher. The unemployment rate levels that trigger on each new tier of PBD largely follow the recommendations of Dube 2021.

Triggers-off proposal

In addition to making UI benefit extensions quickly responsive to downturns, we also propose reforms aimed at keeping PBDs from falling during those periods when overall unemployment is stabilizing or declining for the “wrong” reason—when people have stopped their active job search and are dropping out of official counts of the labor force, and so are not counted as unemployed.14 To ensure that higher tiers of PBD only trigger off when unemployment rates are declining and those declines are driven by rising employment, we propose adding a second (necessary but not sufficient) trigger-off that requires a 0.2 percentage-point reduction in a state’s prime-age employment-to-population ratio (the share of the population ages 25 to 54 with a job).

So, for example, say that the state and national unemployment rate falls from 8% to 7% (and assume the alternative triggers-on don’t apply in this situation because the state and national economies entered the recession with a relatively high unemployment rate). All else being equal, this would lead to a reduction in PBD from 72 to 59 weeks according to Table 4.1. But, if over the last three months the prime-age EPOP averages a level that shows no improvement (or an improvement of only 0.1 percentage points) when compared with the prior (nonoverlapping) three-month period, then the PBD will remain at 72 weeks. Only when the unemployment rate is below 8% and there has been a 0.2 percentage-point improvement in the nonoverlapping three-month average of prime-age EPOPs will the PBD slide down to a lower tier. This same 0.2 percentage-point improvement is needed each time the unemployment rate falls far enough to push PBDs down to another tier. Because it is a necessary condition over and above improvements in unemployment, we refer to the required prime-age EPOP improvement as a “failsafe” condition.

The usefulness of this approach to making triggers automatic can be seen during and after the Great Recession. If these triggers had been in place, 37 states in 2014 and 2015 would have continued to have at least some tier of extended benefits in place rather than having all benefit extensions cut off at the end of 2013, when Congress forced them to lapse.

The prime-age EPOP failsafe would have been useful in this time as well. Nationally, the unemployment rate fell by a full percentage point (from 9.9% to 8.8%) between April 2010 and October 2011. All else being equal, this would lead to a reduction in PBD in the current proposal. But, over this same period, the prime-age EPOP actually fell by 0.3 percentage points. If the unemployment rate falls even as employment declines, this means by definition that all of the “improvement” in the unemployment rate was driven by reductions in the labor force participation rate—a reduction which itself was largely caused by the depressed labor market. A prime-age EPOP failsafe would keep PBD from falling in this situation.

Policy proposal: Improve data sources

Currently, the Bureau of Labor Statistics does not calculate state-level prime-age EPOPs that are measured precisely enough to make the PBD determinations we recommend. Accordingly, part of our policy proposal is a requirement that the BLS adds a prime-age EPOP measure to its monthly Local Area Unemployment Statistics (LAUS). This should be easily within its existing capability and resources.

A related and even more pressing data enhancement needed to establish useful triggers for extending UI benefit duration would be the ability to better measure group-specific unemployment rates. It is well-known that state-level unemployment rates calculated for particular racial or ethnic groups or even educational groups are inaccurate and change a great deal from month to month because household surveys do not reach enough members of the affected groups.15 Further, declining response rates among some racial and ethnic groups are actually making these household surveys even less useful in calculating group-specific labor market outcomes (Baker and Cai 2021).

Despite this measurement problem, significant evidence shows that workers of color often are still struggling to find work even as the economy overall recovers from recessions.16 There is a clear fairness argument for providing better ways to calculate group-specific employment rates: Our economic policy should be designed to improve the labor market experiences of all demographic groups, not just those who are quickest to recover. There is also an economic argument. Often those workers recovering fastest in the wake of economic downturns are white and college-educated workers who tend to have higher incomes and wealth than those still experiencing high unemployment. Improving labor market outcomes for more advantaged groups can conceal the continuing need to support poorer households who need it most. Cutting off benefits too soon for poorer families also slows the economic recovery, as they are usually the most apt to spend (Bivens 2017).

Ideally, we would measure group-specific unemployment rates finely enough to require that all (or at least most) group-specific unemployment rates declined before triggering off an extended tier of PBDs. Because today’s statistical infrastructure does not allow measures that are precise or timely enough to make these requirements reasonable, we further call on the BLS to expand the sample size of existing household surveys and explore other measures to ensure reliable, real-time data on labor market outcomes at much finer levels of geographic and group-specific detail.

Finally, we call for higher-quality and more finely disaggregated collection of data within the UI system. One promising avenue to construct group-specific triggers could be to use “exit rates” from UI receipt to employment, to determine the pace of needed labor market improvement. The existing data on UI recipients is plagued with a host of deficiencies and challenges that would currently make this impossible (see, for example, Cajner et al. 2020). Fixing this data collection is vital not only for a number of needed policy reforms but also for construction of even better benefits on- and off-triggers in the future.

Endnotes

1. Authors’ analysis of the data underlying Figure 4B referenced later in this chapter.

2. See Farooq, Kugler, and Muratori 2020 for evidence that longer UI benefit durations can increase the quality of a job match.

3. The social insurance function of UI essentially works as a substitute for other instruments that can help laid-off workers smooth consumption over a spell of job loss, the most obvious other instrument being private wealth. Given that holdings of private wealth are highly unequal, and that households with less education or headed by historically discriminated-against groups have less private wealth, it stands to reason that these groups will be most in need of an alternative instrument to private wealth (like UI) for maintaining consumption over a spell of job loss.

4. Whittaker and Isaacs (2019) include a list of the states with benefit durations of less than 26 weeks in the pre-COVID period.

5. As of early May, the Tennessee General Assembly had approved cutting unemployment eligibility weeks.

6. See Chodorow-Reich and Coglianese 2019 for this finding that regular UI benefits provide the majority of fiscal impulse (when combined with extended benefits), even during steep recessions.

7. See McHugh and Kimball 2015 for evidence on low-duration states seeing lower recipiency rates overall. Some of this correlation is clearly related to other factors: The reduced PBDs are obviously a sign of state government indifference or hostility to effective UI benefits generally, and so likely are accompanied by other aspects of the UI system (eligibility requirements or administrative features) that also reduce recipiency. But, as described in the main text, there are also independent causal effects running from reduced PBD to lower recipiency.

8. Anderson and Meyer 1997 provide evidence that lower benefit durations reduce takeup rates. The generosity of benefit levels matters the most for take-up rates.

9. For a list of states with the respective triggers, see U.S. DOL-ETA 2021a.

10. Mastri, Vroman, Needels, and Nicholson (2015) note that states were encouraged to adopt total unemployment rate triggers during the Great Recession because the American Recovery and Reinvestment Act provided 100% of EB financing. They find that adopting these triggers resulted in much-higher first EB payments (or number of new UI enrollees under the EB program).

11. See Lake 2002 for a history of these provisions.

12. See Kaverman and Stettner 2021 for how such delays harmed UI recipients when benefits lapsed in January 2021.

13. A particular target of Republican governors was the $300 in enhanced benefits included in the American Rescue Plan Act of 2021 (enhanced weekly UI benefits initially enacted under the CARES Act totaled $600 but were allowed to lapse in August 2020). For more on the controversial governors’ attacks on the emergency benefits, see Adamczyk 2021.

14. Traditional unemployment measures estimate the share of individuals looking for work who cannot find it. In contrast, labor force participation measures the overall share of the population that is working. Severe economic conditions can lead to some potential workers giving up on finding work, leading to a measured drop in unemployment that does not reflect an actual improvement in economic conditions.

15. For example, in a recent estimate of unemployment rates by state and race, Moore (2021) finds that over half of states lack a sufficient sample size to reliably calculate the Black unemployment rate.

16. See, for example, Cajner et al. 2017.

17. It is true that some papers, notably that by Hagedorn, Karahan, Manovskii, and Mitman (2015) find large effects, but as Boone et al. (2021) explain, that study has at least three substantial methodological problems.

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