The coronavirus pandemic is quite possibly the worst economic crisis since the
Great Depression. More than 36 million people have claimed unemployment
benefits. That's probably a gross underestimate of the total job loss.
I don't think there was anything that would prepare us for this.
Right. This is just so out of bounds.
This has never happened before in the history of the United States.
Unemployment insurance was established as a countercyclical stimulus for times
like these. However, despite a generous federal stimulus package, many state
systems are failing.
In March, just under 9,000 of the nearly 400,000 applicants in Florida
received initial benefits.
At best, states delivered aid to about half of their applicants.
You know the next paycheck didn't come.
You know? And then the next one didn't come and then the next one didn't come.
I probably called about a thousand times this past week.
I e-mailed probably 40 different state reps.
One mid-April survey estimates that for every 10 claims, three to four tried but
couldn't get through. And an additional two said that the system was too
difficult. If we don't pass underlying unemployment insurance reform
soon, states are going to spend all of their trust funds.
Once those trust funds run out and once states have to borrow from the federal
government, there will be a lot of pressure coming out of this recession to cut
benefits further. So how was this fragile system set up and will it be able to
support Americans during the coronavirus pandemic?
The Great Depression was a catalyst for unemployment insurance, as we know it
today. As part of the Social Security Act of 1935, unemployment insurance,
known as UI, was established to help millions of workers who had fallen through
the cracks. States were able to roll out unemployment insurance laws very
quickly after passage of the original act.
People suddenly didn't have to worry as much about an economic downturn.
The basic UI system is funded by taxes on employers.
That money goes into a trust fund which states then used to pay benefits to
covered workers. The federal government provides the administrative funding,
makes loans to state unemployment insurance funds and half of extended benefits
during high unemployment.
While states are subject to a few federal requirements, they generally set
their own criteria for beneficiaries.
That includes the number of weeks someone can apply, how benefits are
calculated, how much the employer has to pay in taxes, etc..
In Florida and North Carolina, for example, jobless workers can only claim
twelve weeks, while in New York, Virginia and New Jersey, it's 26
weeks. The pay also varies.
Massachusetts, the most generous state, pays five hundred fifty five dollars
per week. In Mississippi, the least generous pays two hundred and thirteen
dollars. Generally, self-employed individuals do not qualify, and neither do
those who leave a job voluntarily.
It also helps individual retain attachment to the workforce by hooking workers
up with employment services and help getting back to work.
It also keeps wages from lowering so that people have a higher
reservation wage when they're getting an unemployment insurance benefit and
they won't go out and take the cheapest job they can find right away.
And maybe most importantly is it's a counter recessionary measure.
The money that goes out during a recession provides a lot of local spending.
That's dollars and cents.
Someone gets money in their hands and spends it on necessities like rent,
groceries, gas and diapers, which stimulates economic activity, something
that's desperately needed during a recession.
UI benefits are helpful in trying to shore up confidence.
It gives people a sense, an understanding that the federal government has their
back. That they're not alone in this.
This is only an excuse.
Despite its successes.
UI has been politicized.
We only needed one more Republican to get this done.
In the aftermath of the Great Recession, some conservative Congress members
didn't believe extending jobless benefits was the right thing to do.
They worried it would disincentivize people to seek employment.
There may be cases, anecdotes where somebody may not go back because we're
getting more unemployment insurance benefits than they would get in wages if
they took that job back.
But my sense is that those folks are few and far between.
The vast, vast majority of people are going to say, oh, you know, this labor
market is pretty bad.
It's going to be pretty tough to get a job.
I'm going to take the job that was in front of me.
Now, having said that, I do think we have to be careful not to offer UI
benefits or very high for extended periods of time because you might have
more negative incentive effects.
Congress ended up extending benefits for a total of 99 weeks d
uring the 2008 recession.
According to one report that kept five million Americans out of poverty and
prevented an estimated one point four million foreclosures.
However, that has been contradicted by the New York Fed.
They argued that the increase in unemployment due to benefit extensions is
similar in magnitude to the decline in employment.
Thank you all very much.
Is a very important day.
I'll sign the single biggest economic relief package.
On March 27, 2020, President Trump signed a historic two trillion dollar
emergency spending bill into law.
The Cars Act. And this will deliver urgently needed relief to our nation's
families, workers and businesses.
The package included an additional six hundred dollars per week and benefits to
self-employed workers until July 31 first.
The Families First Coronavirus Response Act, which took effect in early April,
provided states one billion dollars in administrative funding.
However, the rollout and the sheer volume caused by the economic shutdown has
been anything but smooth.
The surge in activity has caused a backlog, exposed dated computer systems and
made phone lines near impossible to reach.
I've probably put in over ten thousand calls to
unemployment. I had sat on their online chat from ten
thirty a.m.
one day all the way to four a.m.
the next morning before I bumped me out of the system.
And I've gotten nowhere.
In March, one point seven million new applicants received UI checks.
While that is more than three times as many as in February, it only represents
about 14 percent of the nearly twelve million individuals who filed claims for
that month. You know, it's hard to plan system for all possibilities,
particularly a possibility that is, you know, completely on the tail of the
distribution of possible outcomes.
A more optimistic analysis by Pew Research showed that 29 percent of unemployed
Americans receive benefits in the first month of the pandemic.
That's not counting the many who have tried but couldn't get through or the
self-employed who now qualify for the Pandemic Unemployment Assistance under
the CARES Act. Only 16 states have fully modernized their I.T.
system. The rest are running, at least in part, on antiquated
1970s COBOL mainframes.
Florida, for example, did update its system in 2013.
But according to a report by NELP, a series of new filing requirements made it
especially difficult to access.
In 2019, auditors had flagged 17 issues with the website that had gone
unaddressed. However, states are taking steps to catch up.
New York hired hundreds of new staff members and updated its website.
In West Virginia, the governor announced that National Guard members who lost
their jobs due to the pandemic would help process claims.
Michel Evermore says that updating decade old computer systems or staffing up is
a good start, but not nearly enough.
Going into the last recession, states didn't have enough money in their trust
funds to pay benefits for the length of the recession.
Then they borrowed from the federal government and some states weren't able to
pay that federal loan back fast enough.
And so what happens when when that occurs is employers' federal
unemployment tax goes up.
Suddenly, employers are keenly aware that they're paying additional state and
federal unemployment insurance taxes at a time when they're trying to recover.
So that creates pressure, downward pressure on benefit receipt and level of
benefits. So since the last recession, a number of states have reduced
benefits dramatically.
During the Great Recession, 36 states borrowed from the federal government.
As of December 2018, Michigan and Pennsylvania had outstanding bond debts and
the U.S. Virgin Islands was still paying back on loans from the U.S.
Treasury. Heading into 2020, 31 states met the criteria for interest free
borrowing. But even that is costly.
Let's look at Michigan, for example.
For the first month of the shutdown, 27 percent of the state workforce filed for
unemployment. But in March, only four point four percent of applicants received
benefits. We quickly moved to make sure that we had enough
resources in place.
We've contracted with third party call centers to help supplement our call
center staff. And then we're also partnering with the Michigan Works Agency to
train many of their staff who will help be able to supplement us.
Some of the efforts Donofrio is outlined seem to have worked.
As of May 12th, about 90 percent of eligible applicants had received or been
approved to receive money.
It's a lot easier to breathe right now with no hands on your neck.
Austin Stephens is one of them.
He reached out to four state representatives before he finally got his
benefits. Seven weeks after applying.
I woke up and sent a whole bunch of people money.
Michigan started the year with four point six billion dollars in its
unemployment trust fund, the third highest balance in the country.
According to the Upjohn Institute for Employment Research, the state will need
to borrow three point four billion dollars before the year ends.
The question really is how many more people file and then how long the duration
of these layoffs continues to be.
Through the end of July, we think that on a conservative estimate
we would of course, the trust fund would last.
You know, if you kind of have a middle ground estimate, we would probably
expend around half of the trust fund through that period of time.
Then recessions, the states almost invariably run out of funds.
The trust funds become depleted.
And that's when the federal government steps in.
So every single recession, at least everyone I've studied the
federal government will come in and help the states out.
During the Great Recession, the federal government spent around three hundred
and thirty five billion dollars on UI in several rounds of fiscal stimulus.
Whether it's extending benefits, transfers to individuals, or providing loans
to states, the government will likely do so this time around again.
Until then, states will continue to catch up.
Florida is already on its way, as are many others.
As of May 12th, the Sunshine State had paid 36 percent of its claimants.
That's a long way from two percent initially.
We now know that more than half the states are going to start opening.
So I would expect that the job losses will begin to abate by mid-May.
That'll take some of the pressure off these funds.
But having said that, there still will be very high unemployment.
Lots of people who need help.
There will be a lot of pressure coming out of this recession to cut benefits
further to make up for the shortfall.
And I'm just terrified that states are going to completely decimate their
unemployment insurance systems after this.
If there is no underlying federal reform and
help.