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America’s Unemployment System Doesn’t Do Its Job

(Bloomberg Opinion) -- An effective unemployment-insurance system plays an essential role in a healthy economy. It helps people get by when they lose jobs. It improves productivity by supporting workers while they find the best match for their skills. It mitigates recessions by maintaining consumers’ spending power. It’s not a handout; it’s something people should be encouraged to use as quickly as possible when trouble hits.

Amid the coronavirus crisis, millions of Americans have encountered something very different. Instead of receiving timely benefits, they’ve spent weeks waiting in epic lines, battling glitchy websites and navigating bureaucracies that in some cases were designed to keep them out. Their struggles demonstrate just how far the U.S. system has fallen, and how overdue it is for reform.

The origins of today’s system can be traced to the New Deal. In a departure from the highly successful Social Security program, however, Congress left the management of unemployment insurance largely to the states. Beyond some general guidelines, such as the minimum amount of income to be taxed, states were — and still are — free to decide crucial details such as who qualifies for benefits, how much they receive and for how long.

The result is a confounding inconsistency, in which benefits depend heavily on where workers happen to live and all too often fall short of what’s needed. Some states provide something close to the support that the system’s creators envisaged: Before the pandemic hit, Washington state’s regular unemployment program replaced an average 48% of wages for a maximum of 26 weeks. Others not so much: Florida’s replaced just 31% for 12 weeks, and even that was hard to get. The state’s daunting claims process ensured that only about 1 in 10 unemployed workers received anything — among the lowest rates in the nation.

When recessions hit, Congress invariably supplements state benefits with emergency federal funds — as it did in March, adding $600 a week for an initial four months and extending coverage to gig workers, the self-employed and others who don’t typically qualify. Even this, though, has been unacceptably slow to reach people, because years of underinvestment have left too many state unemployment offices poorly staffed, ill-equipped and running on computer systems so old that it’s hard to find programmers to work on them (COBOL, anyone?). As of April 25, as many as 8 million of the 28 million people who had filed unemployment claims since mid-March were still waiting to be processed. All too often, breaking through the bureaucracy has become a full-time job.

Such a broken system can’t be fixed overnight. Reducing the immediate backlogs will depend primarily on state efforts to ramp up staffing and find creative ways to loosen bottlenecks — as, for example, Rhode Island and New York have done in partnership with Amazon Web Services and Google. State by state, voters need to hold their governments accountable and demand more competent administration. That said, Congress can help by making more federal funds available in its next relief package, and by tying the money to measurable progress in processing and paying claims.

Reform shouldn’t stop there. The federal government should get more involved — and even consider handing the system over to the Social Security Administration. This would entail a significant investment, but would also improve efficiency, provide more consistent benefits and free workers to move where the jobs are. At the very least, Congress should impose more stringent requirements — for coverage, access, and minimum and extended benefits — on state programs and empower the Labor Department to enforce them.

Granted, any reform will require increasing the taxes that fund unemployment insurance, but not nearly as much as they’ve fallen in the past several decades. And the money will go toward an undeniably desirable end: a more resilient, prosperous and equitable nation.

Editorials are written by the Bloomberg Opinion editorial board.

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