Britain’s vote to exit the European Union—coupled with June’s less than robust U.S. jobs report—is a reminder that even in times of job growth, the United States must be ready for an economic downturn. While the latest labor-market data suggest that June’s jobs number were a one-off rather than a trend, a persistent sense of economic insecurity on Main Street and volatility in financial markets underscore the urgency of preparing for the next recession.
Worryingly, however, our nation’s first line of defense—unemployment insurance, or UI—is severely underprepared for future downturns. This leaves millions of working families financially vulnerable in the event of job loss and endangers our macroeconomic stability.
UI provides workers with earned insurance against the shock of unemployment. If a worker is laid off through no fault of her own, UI temporarily replaces a share of her wages while she searches for a new job. In this way, UI not only protects working families against hardship and poverty during unemployment, but it also stimulates demand and stabilizes the economy by targeting its benefits toward cash-strapped workers.
UI prevented 1.4 million foreclosures during the Great Recession, and kept 5 million Americans out of poverty in 2009 alone. UI also boosts labor-force participation by requiring participants to actively seek new work in order to remain eligible, and helps workers find well-suited jobs by connecting them to local employers, training opportunities, and re-employment services.
As critical as UI is for working families and our economy, the system hasn’t been adjusted for the dramatic changes in the American workforce. Since UI was created eight decades ago, women have entered the labor force in large numbers, and an increasing share of workers face non-standard or erratic work schedules. Today, nearly one in six workers is in an alternative work arrangement such as independent contracting or a gig economy job.
Many workers—including part-timers, independent contractors, or caregivers returning to work—are systematically excluded from UI. Others, such as those facing low wages and volatile schedules, struggle to meet the program’s outdated eligibility criteria.
On top of these shortcomings, many states have made deep cuts to their UI programs in recent years. State policymakers have tightened rules to exclude more workers, slashed the number of weeks over which a participant can receive UI benefits and the fraction of earnings that these benefits replace, and severely underfunded their programs. Consequently, a historically low share of jobless workers—only about one in four—received UI in the past two years. Less than one-third of state programs are financially prepared for even a mild recession.
Leaving so many working families without protection in the event of job loss—while offering only minimal protection to those whom UI does reach—jeopardizes both family economic security and macroeconomic stability.
Recently, leading policymakers and labor experts—including Congressman Sandy Levin (D-MI) and Chairman of the Council of Economic Advisers Jason Furman—convened for a discussion on shoring up the nation’s unemployment protections. The speakers discussed a comprehensive new proposal from Center for American Progress, Georgetown Center on Poverty and Inequality, and National Employment Law Project.
The proposal offers three sets of recommendations to modernize UI. The first set would restore and strengthen UI’s role as a pillar of the workforce development system by expanding its effective re-employment services, connecting more workers to training opportunities, and making more widespread use of work sharing to prevent layoffs.
A second set of recommendations would extend job-loss insurance to a much greater share of American workers who are underserved today—including many women, workers of color, and low-paid workers—and boost the adequacy of UI’s benefits. And a third set would make UI’s financing less regressive, put states’ programs back on track to financial solvency, and revamp the Extended Benefits program by making it fully federally funded and more responsive to economic conditions.
The proposal also sets forth a new Jobseeker’s Allowance, or JSA, to help the millions of Americans who would remain ineligible for UI—such as independent contractors, recent graduates, and returning caregivers—successfully connect to jobs, and boost the nation’s sagging labor-force participation rate. Like similar programs in the United Kingdom and Germany, the JSA would be parallel to UI, but with a more moderate, shorter-term benefit and a work-search requirement at least as stringent.
Another recession—although unpredictable—is inevitable. Still, even in a robust economy, about 1 in 20 workers are expected to be unemployed on any given day, and two-thirds of Americans will experience a year or more of unemployment for themselves or their household head during their working years.
Policymakers should act now to modernize social insurance for jobseekers. America’s working families deserve stronger unemployment protections—in good economic times and bad.
Rachel West is an Associate Director for the Poverty to Prosperity Program at the Center for American Progress.