Unemployment insurance program is unprepared for a recession: experts

Renewed fears of a U.S. recession have put a spotlight on unemployment.

However, the system that workers rely on to collect unemployment benefits is at risk of buckling — as it did during the Covid-19 pandemic — if there’s another economic downturn, experts say.

“It absolutely isn’t” ready for the next recession, said Michele Evermore, senior fellow at The Century Foundation, a progressive think tank, and a former deputy director for policy in the U.S. Labor Department’s Office of Unemployment Insurance Modernization.

“If anything, we’re kind of in worse shape right now,” she said.

Unemployment insurance provides temporary income support to laid-off workers, thereby helping prop up consumer spending and the broader U.S. economy during downturns.

The pandemic exposed “major cracks” in the system, including “massive technology failures” and an administrative structure “ill equipped” to pay benefits quickly and accurately, according to a recent report issued by the National Academy of Social Insurance.

There’s also wide variation among states — which administer the programs — relative to factors like benefit amount, duration and eligibility, according to the report, authored by more than two dozen unemployment insurance experts.

“The pandemic exposed longstanding challenges to the UI program,” Andrew Stettner, the director of the Labor Department’s Office of UI Modernization, said during a recent webinar about the NASI report.

The U.S. unemployment rate, at 4.3% in July, remains a far cry from its pandemic-era peak and is low by historical standards. But it has gradually drifted upward over the past year, fueling rumblings about a potential recession on the horizon.

Policymakers should address the system’s shortcomings when times are good “so it can deliver when times are bad,” Stettner said.

The national unemployment rate neared 15% in April 2020, the highest since the Great Depression, which was the worst downturn in the history of the industrialized world.

Claims for unemployment benefits peaked at more than 6 million in early April 2020, up from roughly 200,000 a week before the pandemic.

States were ill prepared to handle the deluge, experts said.

Meanwhile, state unemployment offices were tasked with implementing a variety of new federal programs enacted by the CARES Act to enhance the system. Those programs raised weekly benefits, extended their duration and offered aid to a larger pool of workers, like those in the gig economy, for example.

Later, states had to adopt stricter fraud prevention measures when it became clear that criminals, attracted by richer benefits, were pilfering funds.

The result of all this: benefits were extremely delayed for thousands of people, putting severe financial stress on many households. Others…