Unemployment Insurance: A “Safety Net” With Holes

The enhanced unemployment benefits—like much of the U.S. social “safety net”—did not cover everyone.

By Alejandro Reuss | Web-only

In the immediate wake of the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, ,much was made of the fact that the $600 per week in enhanced federal unemployment benefit brought the total average benefit to about the same level as the average worker’s wage. While the increased unemployment benefits were certainly desirable, there were at least two obvious problems. First, while the capitalist employers and ruling elite may accept expanded social insurance programs during a crisis, they typically insist on keeping them as strictly temporary “emergency” measures. The enhanced unemployment benefit was designed as a time bomb—set to explode at the end of July—and has now been replaced at only half the earlier level. Despite the fact that the official unemployment rate in July remained still higher than at any point since early 1983 and that economists predicted that a substantial portion of “temporary” layoffs (maybe 25%) would in fact become permanent. The cut in benefits will surely be disastrous for many who remain unemployed and will represent a hit to overall demand in the economy (as market incomes remain depressed). Second, the enhanced benefits—like much of the U.S. social “safety net”—did not cover everyone. The U.S. welfare state is rife with barriers preventing people, including some of the most economically vulnerable, from accessing needed benefits. Here are some of the ways that it keeps millions in the cold.

Restrictions Based on Citizenship/Migratory Status

Undocumented immigrants are ineligible for most “safety net” programs, including unemployment insurance. In addition, not only were undocumented immigrants excluded from the one-time federal relief payments (“stimulus checks”) under the CARES Act, but so were the U.S. citizen or documented non-citizen spouses of undocumented immigrants.

Under current federal law, a state can establish a parallel unemployment insurance program administered under the state’s UI system, but only if all funds are sequestered from the federal system. (California has established a coronavirus disaster relief fund to make one-time payments to undocumented workers, as has New York City.) As the situation stands now, however, millions of undocumented workers remain ineligible for unemployment compensation. Even if they were made eligible for state or city relief programs, many undocumented immigrants, afraid to come into contact with government officials, would undoubtedly hesitate to apply for benefits.

Documented immigrants also face restrictions on eligibility for various benefit programs. This is not generally the case for unemployment insurance, for which documented immigrants with work permits are legally eligible. The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996—the bipartisan “welfare reform”—restricted documented immigrants’ access to a whole range of federal programs (including Medicaid, Supplemental Nutrition Assistance (SNAP), Supplemental Security Income (SSI), and Temporary Assistance for Needy Families (TANF)). Even after they become eligible, moreover, documented immigrants can be denied permanent resident status (“green card”) for using such programs. This punitive policy, long the case for SSI and TANF, has been extended to Medicaid and SNAP by the current administration.

Restrictions Based on Circumstances of Unemployment

Unemployment insurance is administered at the state level, and eligibility criteria vary widely between states. In some states, a worker who has been laid off for economic reasons might be eligible while a worker who was fired or quit is ineligible. Even then, there are some exceptions, depending on the reason. Reasons for quitting that may still allow workers to collect UI can be unrelated to their conditions of employment, such as moving due to their spouse’s job or moving to escape domestic violence. They can also be related to conditions of employment, such having one’s legal rights at work violated—including being required to work under unsafe conditions. In practice, however, U.S. employers have extreme discretion to discharge workers (even compared to those in other capitalist countries) and may either fire workers who refuse to come into work or treat them has having voluntarily quit. The U.S. Department of Labor explicitly stated that workers who refuse to work due to coronavirus fears (with some exceptions, such as underlying medical vulnerability) were ineligible for expanded federal unemployment benefits.

Besides the “cause of separation,” the collection of benefits is also affected by whether the worker is fully or partially unemployed. Workers who have lost full-time jobs and only found part-time work, or whose employers have cut their hours, may be eligible for partial unemployment benefits, provided that their actual pay does not exceed the weekly benefit which they would get if fully unemployed. Since the average unemployment benefit is normally a little less than half the average weekly pay, workers whose hours are cut by half or less may not be eligible for any benefits. Under the CARES Act, a worker’s eligibility for the federal $600 weekly benefit depended on their eligibility for regular unemployment benefits—even just $1—based on their state’s UI regulations.

Hurdles to Collecting Benefits

Workers who have lost their jobs face numerous hurdles to collecting benefits. A recent report by National Employment Law Project (NELP) senior policy analyst Michele Evermore explains why many workers who are legally eligible never collect unemployment insurance. Only about half of those who lose or leave their jobs even apply for unemployment insurance—and about half of those who do not apply say the reason is that they believe they are ineligible. Some believe they are ineligible, for example, because they have quit or been fired from their job, are still working part-time, are unemployed due to the end of temporary employment, or are on temporary layoff and expect to be rehired soon—yet they may actually be eligible. Filing an initial unemployment insurance claim or maintaining benefits, in addition, can be a complicated and trying process. Some workers, unsurprisingly, are frustrated by the relentless jumping through hoops and give up, either never collecting benefits at all or stopping before they have been reemployed or benefits have expired.

Between the Great Recession and the coronavirus crisis, the percentage of unemployed workers actually collecting UI benefits went down from a peak of about 40% to a little more than 25%. Part of the reason is that changes in state policies have made it harder to collect. For example, many states reduced the eligibility duration even in the midst of historically high long-term unemployment, so workers saw their eligibility expire. Many states have adopted more onerous work-search requirements for workers to remain eligible, so more workers either fail to meet the requirements and are struck from the rolls or give up trying. Despite low rates of UI fraud, states have increased enforcement (in some cases, generating a high rate of false allegations) and penalties—with a predictable chilling effect on UI claims.

Alejandro Reuss is an economist and historian and former co-editor of Dollars & Sense.

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