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US Unemployment Insurance Not Ready for the Next Recession

The Federal Reserve keeps rising, markets keep sinking, and winter is coming: economic forecasters fear a recession is looming.

In the US, Federal Reserve Chairman Jay Powell made it clear this month that his policy is focused on fighting inflation, with Fed officials suggesting that the unemployment rate could reach 5% before the bank stops raising interest rates. That would mean more than 1.5 million Americans would be out of a job.

As the debacle in the UK shows, it is never a good idea for legislators in one country be against purpose In the US, however, the Biden White House and Congress have not adequately prepared for a recession induced by the Fed’s inflation-fighting. In particular, glaring flaws remain in the unemployment insurance (UI) system tasked with keeping people who lose their jobs from falling into poverty and further dragging down the economy.

During the 2020 pandemic-driven recession, unemployment insurance was a key tool that softened the blow of public health restrictions and helped bring about one of the fastest job recoveries in modern history. But the experience also reminded us of what needs to be corrected. Consider…

The fraud was serious.

US auditors suspect more than $45.6 billion of UI payments during the pandemic went to scammers using stolen social security numbers and other techniques to apply for benefits and then vanish. An important reason the system is so vulnerable to bad actors is that it is run by states. Even investigating past crimes requires a special effort on the part of the White House to collect data from each state. Many states have underfunded their UI bureaucracy, and some states are struggling to retrofit the computer systems that rely on outdated programming languages.

States cut support.

The federal government effectively funds states as they implement UI, but that creates worrying incentives. State trust funds are the primary source of money for UI, but once these are depleted, the federal government provides states with low cost loans. The idea is that during good times, states replenish their trust funds, but often the opposite happens: lawmakers reduce UI eligibility and the time it is available. to reduce the amount they need to save. We saw this after the financial crisis, and it is it’s already happening after the pandemic. It will leave future unemployed workers with less support, and will also contribute to the confusing mosaic system UI across the country. For example, in Alabama, there is a maximum of 14 weeks of UI available to workers, while in Georgia there are 26 weeks.

Freelancers need support.

UI is designed for workers who are employed by other people, but 10 of american workers are independent or self-employed contractors. During the pandemic, Congress passed a law that temporarily extended benefits to these workers, but faced significant administrative difficulties because state unemployment agencies were unprepared for the challenge of verifying income from the tax forms used by these workers. workers.

The user interface should be an automatic stabilizer.

During economic crises, US lawmakers have Expanded and improved UI payments. But these decisions are usually not made in a timely manner and are often delayed due to brinkmanship. That makes funding less effective when it reaches the people who need it and slows economic recovery. It would be more efficient to make more generous UI payments automatic when economic data, such as a three-month average unemployment rate, shows that the job market is in an unusually dire straits.

How to fix the user interface.

There are good ideas to solve all these problems, starting with better financing: The US has not increased the amount of a worker’s wages, the first $7,000, that can be taxed to fund unemployment since 1983. When the program began in 1933, the taxable wage was about $50,000 in today’s dollars. Increasing the tax base and lowering the rate could generate enough funds to administer the program more effectively and prevent waste and fraud.

Two Democratic senators, Ron Wyden of Oregon and Michael Bennet of Colorado, have Proposed Legislation that addresses most of these flaws and puts a floor of basic standards under the current patchwork system. He has garnered the support of 21 other senators, but none of them are Republicans. The bill is unlikely to pass without at least nine or 10 Republican votes, which in turn suggests that our creaky user interface system won’t change much before the next recession. The measure may have gone through the reconciliation process, which allows certain laws to be enacted by simple majority, but the measures were not included in the Inflation Reduction Act that was signed into law in August.

And while the Wyden-Bennett bill contains common-sense steps to improve the user interface, it doesn’t begin to address the kind of sweeping changes that would bring the system into the 21st century. Kind of like, say, a federally run program that relies on tax data to automatically deliver UI benefits to eligible recipients, perhaps run by the Social Security Administration, rather than creating 50+ redundant bureaucracies in all the country.

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