US unemployment system still plagued by delays 3 years after pandemic-era slowdown

US unemployment system still plagued by delays 3 years after pandemic-era slowdown

People line up to attend a job fair at SoFi Stadium on September 9, 2021 in Inglewood, California.

Patrick T. Fallon | AFP | Getty Images

Today, the American unemployment system is somewhat of an anomaly.

Nearly three years after the Covid-19 pandemic caused the worst unemployment crisis in the United States since the Great Depression, unemployment has returned to near historic levels. Unemployment insurance claims have been at or below their pre-pandemic trend for most of the year.

Yet Americans who need unemployment benefits are not getting them quickly — a dynamic at odds with an apparent lack of stress on the system.

The federal government considers a first payment “timely” if states issue funds within 21 days of an initial claim for benefits. In March 2020, 97% of payments were made on time; today, the share is 78%, on average, according to US Department of Labor data.

The Department of Labor considers an 87% share to be the barometer of success for speed of first payment.

The outcome is worse for workers appealing a benefit decision. For example, less than half – 48% – of hearings in a lower appeal circuit are resolved within 120 days. The pre-pandemic share was nearly 100%, according to Labor Department data.

True, the delays are no longer as serious as before. At the nadir of the pandemic era, only 52% received a “timely” first payment from unemployment insurance, for example. They also vary widely between states, which administer benefits to laid-off workers, and the timelines are getting shorter and shorter.

But the delays are still “significant”, the Government Accountability Office said in a June report.

They can have real effects: deferred bills, deferred rent, accumulated credit card debt, plundered retirement savings, loans from family and friends for living expenses, and reliance on community pantries to subsist before the payments do not arrive, the gao said.

Unemployment experts attribute the gap — that is, longer delays despite fewer claims to process — to remnants of the pandemic and state agencies that were already operating on financial fumes before the crisis.

“Even though new claims are weak, states continue to dig into caseloads during the pandemic,” said Nick Gwyn, unemployment insurance consultant for the Center on Budget and Policy Priorities and former staff director of the subcommittee. House Ways and Means overseeing unemployment benefits.

The pandemic disrupts the system

It’s “hard to overstate” the amount of work state unemployment agencies had to do in the months and years after February 2020, Gwyn said.

Unemployment claims rose as businesses closed amid stay-at-home orders to contain the spread of the virus. By early April, workers were filing about 6 million claims in a single week. Prior to this, the previous record was 695,000 applications in 1982. By the end of 2020, 40 million people had received benefits.

Meanwhile, the CARES Act has created new programs to improve the safety net: a $600-a-week increase in typical benefits, an extension of benefits to gig workers and others who aren’t typically eligible for aid, and an increase in the duration of aid.

These programs have been renewed and transformed several times between March 2020 and Labor Day 2021.

States were initially doing all of this work — managing a deluge of applications, answering worried appeals from applicants, implementing and fine-tuning new programs, and awarding unprecedented funding — with rudimentary staff and resources.

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Administrative funding for state unemployment systems fell 21% between fiscal years 2010 and 2019, according to the GAO. (The decline was even greater [32%] taking into account inflation.)

Federal funding for these programs finally hit lows dating back to the 1970s on the eve of the pandemic, said Andy Stettner, deputy policy director in the Labor Department’s Office of Unemployment Insurance Modernization.

Funding has declined 21% over the past fiscal year, from $3.3 billion in 2021 to $2.6 billion in 2022, Stettner said.

The downward trend during this period reflects an underlying tension in the structure of the system. States get funding based on their administrative workload, such as the volume of claims the states are paying.

Right now — as in the years following the “Great Recession” — states are getting lower relative levels of federal funding due to more subdued unemployment claims. About 186,000 people filed an initial claim for benefits in the week ended Jan. 21, according to the Labor Department, fewer than the roughly 200,000 people who filed a weekly claim at the start of the pandemic.

This reduced funding is rushing headlong into a hodgepodge of leftover administrative work, some of which has been shelved as states rush to implement CARES Act programs.

It’s an upside-down situation that’s “off” from the norm, Stettner said.

“States were very threadbare at the start of the pandemic, which left them very unprepared,” Stettner said. “One of the reasons this backlog has built up: [States] had to postpone some work as all the new claims came in, and they’re just trying to catch up now. »

Part of the current administrative burden is a sort of forensic accounting of funding issued during the pandemic, said Michele Evermore, senior researcher and unemployment expert at the Century Foundation.

For example, states assess the extent to which they may have overpaid benefits, she said.

This is especially true for a CARES Act program, Pandemic Unemployment Assistance. Some state agencies were unaware that they had to reassess – on a weekly basis – a worker’s reason for eligibility for benefits, whether it was illness, caring for a sick person, childcare or a break from gig work and self-employment. Now they’re asking PUA recipients to verify that they’ve qualified for any benefits they’ve received, Evermore said.

Criminals ‘got addicted’ to unemployment fraud

Much of this was due to identity theft whereby criminals stole personal data to claim benefits on behalf of others.

According to the GAO, in fiscal year 2021, “inappropriate” benefit payments increased more than nine-fold, to about $78.1 billion, from $8 billion the previous year. The multi-year sum could top $163 billion or more, the Labor Department said.

Criminals are still attacking the system, experts said. They’ve also adopted new tactics, such as “bank account hacking,” in which hackers identify claimants receiving unemployment insurance and funnel their weekly cash injection into a new fraudulent bank account, Evermore said.

“There are criminals who have become addicted to this and they will keep trying,” Stettner said of the fraud.

States have cracked down by implementing various fraud checks like better identity verification. In some cases, these checks have delayed the timely issuance of legitimate requests. A claim reported for any reason should generally be reviewed by a state labor agency human.

It all amounts to a delicate balancing act: keeping funds from flowing to criminals or keeping claimants from getting too much money, while trying to quickly help people in need.

What will happen to the unemployment insurance system if we have another recession? This is a very troubling question.

Nick White

unemployment insurance consultant for the Center on Budget and Policy Priorities

Agencies have also had to shift staff to manage backlogs in the appeals process, for example, cutting resources to ensure early payments are delivered on time, Stettner said.

The Labor Department has worked with states to automate procedures where possible to increase efficiency, Stettner said.

“Many states continue to struggle to achieve this acceptable level of performance,” he added. “It’s not a situation we want to see.”

However, he said he believed “we are moving into the final stages” of the delays.

A system unprepared for a new recession

Gwyn agrees that things are moving in the right direction. But amid fears of another impending economic downturn – accompanied by the threat of higher unemployment – ​​the unemployment system is not in a good position to react if that happens in the short term.

This result is not acquired, of course.

The Federal Reserve is raising borrowing costs for consumers and businesses in an effort to rein in the US economy to bring high inflation under control. The central bank sees a path to a so-called soft landing that avoids recession.

“What will happen to the unemployment insurance system if we have another recession?” said Gwyn. “This is a very troubling question.

“You put it all together and it’s a system that’s nowhere near ready for another recession,” he added.