Layoffs may be on the horizon. Is the unemployment insurance system ready?

Back in the early days of the pandemic, the United States' patchwork of state-run unemployment systems got a real-world stress test — and didn't do very well. Antiquated computer systems crashed, people couldn't get through by phone to ask questions or get information about their applications and there were massive processing delays in many states.

Some states are still dealing with claims and appeals backlogs from 2020 and 2021, when federal pandemic unemployment programs were in place that vastly expanded eligibility and weekly benefits.

The strong job market over the past year, with low unemployment and few layoffs, has given state systems something of a respite from dealing with new claims, which fell to an all-time low of 166,000 in March. But with the economy slowing and layoffs rising, first-time jobless claims have expanded by more than 50% since early spring — to 260,000 in the week that ended Saturday. And the Federal Reserve is predicting that the unemployment rate will rise soon too.

So, how ready is the economy for a further increase in unemployment claims?

There is some good news for unemployment insurance, or UI, systems across the country, said Andrew Stettner, director of workforce policy at the Century Foundation.

"The Biden administration, they've tried to go at low-hanging fruit," he said, "trying to identify the business processes that slowed things down, try[ing] to get the states to fix them."

He said some states have launched tech overhauls, but they won't roll out until the mid-2020s. "We may have a recession before those new programs are put into place."

Congress provided the Labor Department with $2 billion in pandemic relief funds through the American Rescue Plan Act of 2021 to help states upgrade their unemployment programs.

"We've deployed teams of experts now to 24 different states," explained Michele Evermore, deputy director for policy in the Labor Department's office of UI modernization. "They actually get into the system, understand what are the hindrances to paying benefits on time, to paying benefits equally. We've also issued $140 million to states to fight fraud, which will also be a major help during the next crisis."

Pennsylvania has already revamped its unemployment insurance technology, said Julia Simon-Mishel, supervising attorney in the unemployment compensation unit at Philadelphia Legal Assistance. Simon-Mishel also serves as co-chair of the unemployment insurance task force for the National Academy of Social Insurance.

"Things are moving more quickly now than they were during the pandemic," she said. "Unfortunately, that's a pretty low bar."

She added that the new system "tracks people into needing to use the internet and an online portal in order to do anything relative to their benefits," from applying to updating information and appealing denials.

"While I'm sure there are some efficiencies on the agency side — because these technologies were built for the agencies — unfortunately, they were not designed or built with claimants or employers in mind."

The new system creates barriers for low-income and immigrant workers in particular, who may not have easy internet access or proficiency in English, Simon-Mishel said. "For most of the people we see, they are still struggling to navigate the system, to handle new technology, and it's still very difficult to reach the Department of Labor and Industry and get any answers."

Meanwhile, there are widespread staffing shortages at unemployment agencies across the country, said the Labor Department's Evermore.

"They've been working overtime now for a couple of years. They endure a lot of verbal abuse in the course of their work. And so we've lost a lot of trained unemployment insurance workers."

As Evermore told a congressional hearing last week: "Turnover has been very high, further decreasing the limited capacity. Unless we invest in staff and systems, they will be less effective in responding to the next crisis."

Even if states solve their staffing and technology problems, there are still big disparities among them when it comes to which workers are eligible for benefits, how much they get per week and how long they can draw benefits before exhausting their eligibility.

"The pandemic really exposed the long-standing systemic issues in the UI system," said Jenna Gerry, senior staff attorney at the National Employment Law Project. "It leaves far too many workers, particularly our Black and women workers, shut out of the system entirely."

That's because most states disqualify part-time workers, temporary workers, people who earned too little money in previous quarters and independent contractors. And states have been cutting the duration of benefits, Gerry said — which nationwide was 26 weeks going into the pandemic.

"We're actually up to 13 states that now offer less than 26 weeks, with a few offering as little as 12 weeks of benefits."

States have also been reducing eligibility by tightening job-search requirements, for instance, said Stettner of the Century Foundation.

"Less than 3 out of 10 unemployed individuals are receiving an unemployment check," Stettner said, referring to the "recipiency rate" in Labor Department data, which was 28% in the first quarter of 2022. Recipiency was more than twice that at the height of the pandemic — boosted by federal pandemic programs — and nearly 50% back in 1980.

In some states, like Louisiana, New Hampshire and Florida, the recipiency rate in the first quarter of this year was below 15%. That figure was at or below 10% in Tennessee, Alabama, Mississippi and North Carolina.

Average weekly benefit levels also vary widely and are no longer being boosted by across-the-board federal pandemic payments, which ranged from $300 to $600 per week in 2020 and 2021. In the first quarter, the highest benefits were paid in Massachusetts, Washington, New Jersey, Hawaii and North Dakota. The lowest benefits were paid in Puerto Rico, Louisiana, Mississippi, Arizona and Tennessee.

Finally, in spite of recent technology upgrades, most people who file are still waiting a long time before benefits start to flow, said Simon-Mishel of Philadelphia Legal Assistance.

"People are not getting paid right now at the most vital time — which is the first two months after somebody loses a job, the first time that rent payment comes due after you've stopped receiving a paycheck," she said.

According to a UI data dashboard published by the Century Foundation, the federal standard is that state programs determine basic UI eligibility for 80% of benefit claims within three weeks. Only six states — Oregon, Utah, Wyoming, Nebraska, Minnesota and South Carolina — meet that standard right now.