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.
