When the pandemic led to catastrophic job losses in March 2020, Congress passed a historic expansion of unemployment insurance (UI) to support millions of workers who lost employment and income.
These special pandemic-era programs were a lifeline and essential to stabilizing households and the economy. But because they were created through a legislative process, their initiation, scope, and duration depended on Congress to act, rather than being automatically turned on by real-time economic and labor market indicators. These programs ultimately had to be extended by Congress twice, with state implementation delays and workers experiencing lapses in benefits. All programs expired in September, despite a slow and uneven recovery.
During the Great Recession, there were similar ad hoc extensions of UI benefits because the labor market remained weak even after the recession was officially over. A special federal program created to support long-term unemployed workers who had exhausted their state UI benefits was extended 11 times by Congress, during which multiple breaks in coverage occurred.
Such experiences from the pandemic and Great Recessions have renewed urgency around strengthening automatic triggers in the UI system that are better attuned to local labor market conditions and that provide adequate buffers against prolonged downturns. Triggers turn on and off based on state unemployment measures, but policymakers, advocates, and researchers have raised concerns for years that those built-in triggers are insufficiently responsive.
As a result, emergency unemployment programs created through legislation, such as the pandemic-era programs, are often necessary, but they also create uncertainty for workers and can pose challenges for the state UI programs charged with administering them, hampering their effectiveness. In this post, we explore how the current set of UI automatic triggers work, their limitations, and policy proposals to strengthen them.
How do current triggers turn on and off?
The main set of automatic triggers in the current UI system are those that govern the Extended Benefits (EB) program, which extend the duration of benefits when state labor market conditions deteriorate. Like other aspects of the federal-state UI system, the EB program is jointly funded by states and the federal government, and the terms of the program vary across states.
By default, EB turns on when a state’s insured unemployment rate—the share of workers receiving UI benefits compared with workers covered by UI—over a 13-week period is above 5 percent and 20 percent higher than the same time period over the past two years. By June 2020, all states’ EB programs, except for South Dakota’s, were triggered “on” using this measure.
States decide how many weeks of regular benefits they provide, which affects the number of weeks of EB, leading to variation in benefit duration across states. Most states offer 26 weeks of regular UI benefits so that when EB triggers on, it provides 13 weeks of extended benefits. In some states, this can extend to 20 weeks of EB when unemployment is especially high.
States can also opt into additional triggers that can be easier to meet than the default. One requires the insured unemployment rate to be above 6 percent but not increasing compared with previous years. And another trigger requires the total unemployment rate—the share of a state’s labor force that is unemployed—to be at least 6.5 percent over a three-month period and 10 percent higher than the same period over the past two years.
The total unemployment rate includes a larger pool of workers compared with the insured employment rate—workers who are unemployed versus the subset of workers claiming UI benefits—and its threshold can be easier to meet because it counts the many unemployed workers who aren’t eligible for UI. During the Great Recession, many states opted for the total unemployment rate trigger because the federal government assumed financial responsibility for the EB program.
Current triggers not timely enough, turn off too easily
Despite these different trigger options, experts have observed that the EB program can be slow to turn on and its stabilizing effects too weak because the triggers are set too high. Perhaps a more urgent concern is when EB turns off prematurely, before the labor market has fully recovered and unemployment is still elevated, but not necessarily rising, compared with a recession’s worst period.
For example, during the Great Recession, if Congress had not extended the look-back period for insured and total unemployment rates from two to three years, then EB programs would have likely turned off even though both rates remained high. More recently, only four states—Alaska, Connecticut, New Jersey, and New Mexico—still had extended benefits turned on as of October 31, even though 11 states had September unemployment rates higher than 6 percent.
Program design can also lead to perverse outcomes where EB turns off even when a state’s share of long-term unemployed workers remains the same or increases. This happens when workers exhaust regular UI benefits and transfer to EB or other emergency benefit extension programs, such as the Pandemic Emergency Unemployment Compensation program that ended on September 6. These workers are no longer counted in the insured unemployment rate, which only includes workers receiving benefits through regular UI. Fewer people claiming benefits through regular UI means a falling insured unemployment rate, making it more likely EB gets turned off.
In April, the California Policy Lab found that EB prematurely turned off in 33 states and territories because a significant share of the long-term unemployed—up to 30 percent in certain states—transitioned out of regular UI and into the EB program and were no longer included in the insured unemployment rate. The study estimates 300,000 workers were collecting benefits through their state’s EB program when it turned off.
Current triggers do not raise benefit amounts or extend coverage
Another limitation of these automatic triggers is that they only alter the duration of UI benefits. As discussed in our previous post, a large and important component of the emergency UI response during the COVID-19 recession were programs that also increased benefits amounts and eligibility: Federal Pandemic Unemployment Compensation, which provided a weekly supplement of $600 (later reduced to $300) to everyone receiving benefits, and Pandemic Unemployment Assistance, which expanded eligibility to full-time caregivers and gig, self-employed, and part-time workers.
Legislative efforts in the Great Recession, though much smaller in scale and amount, also sought to expand coverage and raise benefit amounts. Some aspects of these dimensions of the UI program could also, like benefit durations, be governed by effective automatic triggers, with similar potential benefits for workers, state programs, and local economies.
Proposals for more responsive EB triggers
Calls for reforming UI’s automatic triggers to effectively support workers during severe downturns go back several decades (PDF). Before the pandemic-era extension programs ended in September, several proposals for better “off” mechanisms included combining national- and state-based triggers and/or ending benefits through a phased approach rather than a hard cut-off date. A proposal from labor economist and WorkRise board member Arin Dube included tiers of maximum benefits depending the higher of the national or state-level total unemployment rate. And in a 2019 policy proposal, economists Gabriel Chodorow-Reich and John Coglianese observed that the EB program has “played almost no role historically in providing timely, countercyclical stimulus” and that it can’t help workers who lose employment early in a recession since EB won’t be triggered on yet. They recommend:
expanding eligibility for regular UI benefits so more workers are covered,
eliminating look-back provisions that cause EB to turn off too soon,
making extended benefits fully federally financed,
simplifying triggers by extending benefits to 60 weeks if a state’s unemployment rate reaches 9 percent and 73 weeks if it reaches 10 percent, and
adding a $50 per week additional weekly benefit to all UI recipients in a state with EB turned on.
Although the economic recovery is slowly moving in the right direction, now is not the time to hit pause on efforts to strengthen automatic triggers and pursue other high priority UI reforms, including expanding eligibility rules, eliminating racial and state-level disparities, and improving benefit delivery systems. Workers simply can’t afford to wait.