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How to fix unemployment insurance, explained by the Senate’s money man

The Covid-19 crisis led to more generous unemployment benefits. Ron Wyden wants to keep them that way — for good.

A woman looks at a job board in Oakland, California.
Justin Sullivan/Getty Images

Never has the US needed its unemployment insurance (UI) system more than during the Covid-19 pandemic.

Before the coronavirus crisis, the worst week for new unemployment claims in American history was in the fall of 1982. That year, the week ending September 18 saw 680,000 people claim benefits for the first time.

Fast-forward to the pandemic: The week ending March 21, 2020, saw 2.9 million first-time unemployment claims, more than four times the previous record. The weekly tally stayed above 1 million for months.

Luckily, the unprecedented surge in demand for unemployment benefits was met with an unprecedented surge in congressional support for the UI system. From March through July 2020, the federal government added an extra $600 to weekly checks for Americans out of work. And while that provision expired, $300 weekly bonuses were eventually brought back — first by Donald Trump and again as part of President Joe Biden’s American Rescue Plan — and will continue through September. Meanwhile, the Pandemic Unemployment Assistance (PUA) program has offered generous UI benefits to gig workers and freelance workers who didn’t qualify for traditional unemployment.

But robust as the response was, the crisis exposed the fragility of the UI system. Technically, America’s process for handling unemployment claims was built on antiquated computer systems (some written in COBOL, a language largely abandoned in the 1980s), and millions of workers endured weeks of delays in getting their benefits.

So a major priority for Congress in 2021 has to be reforming the UI system: improving its functionality and making it more generous. Just this week, the Biden administration included a call for UI reform in its American Families Plan.

Sen. Ron Wyden (D-OR), who as chair of the Senate Finance Committee has huge influence in shaping American tax and spending policy, will likely be one of the lawmakers taking the lead in shaping what such reforms will look like. Recently, he and Sen. Michael Bennet (D-CO) unveiled a plan to completely overhaul the UI system, including creating a new, unified federal website where workers can apply, updating the back end to work faster and more efficiently, and, most importantly, creating more generous benefits on a permanent basis. While this specific plan isn’t formally part of Biden’s package, it’s likely to influence the legislation Biden and congressional Democrats ultimately pursue.

Under Wyden and Bennet’s scheme, states would be required to offer at least 26 weeks of regular UI benefits (some now provide as few as 14) and to replace 75 percent of workers’ wages (before Covid-19, the average was closer to 50 percent). If they don’t, employers in the state will get dinged on their federal unemployment taxes.

Gig and self-employed workers, those entering the labor force for the first time, and others who don’t qualify for traditional UI would get a “Jobseeker Allowance” of $250 a week for up to half a year. The plan would also resuscitate a mostly moribund provision of the UI system called “Extended Benefits,” which offers up to 13 additional weeks of benefits for the long-term unemployed and is meant to kick in during recessions but historically has been barely helpful. The plan would make the Extended Benefits program more generous, finance it in full using federal dollars, and have it automatically kick in when state or national unemployment goes above 5.5 percent.

I talked to Wyden about his experiences crafting unemployment policy during the Covid-19 crisis, his new UI reform plan, and why this Congress could see the biggest permanent changes to the US unemployment system in 40 years. A transcript of our conversation, lightly edited for length and clarity, follows.

Dylan Matthews

You were deeply involved in getting the $600 weekly supplements added to unemployment insurance in March 2020. Tell me a bit about that history and what you learned from it about how the UI system needs to change.

Ron Wyden

I learned how broken the system is and how urgent it is to come up with ways to actually help people.

I remember being in these meetings and [Secretary of Treasury Steven] Mnuchin kept advancing approaches that [Labor Secretary] Eugene Scalia said would not work, like wage replacement.

So, there we are with gridlock. And finally I said, “Look, I want to make sure that when the government is telling people they got to go home in order for people to beat the pandemic, that Americans are gonna have enough money to make rent, pay groceries, buy their kids medicine.” They said, “So what’s your bottom line?” I said, “My bottom line is $600 extra per week, each week.” We started off [proposing it] for the first few months.

They said, “It can’t be done, can’t be done. It’s way out of the budget.” I took out my iPhone [calculator], and we were able to show that it was within the budget limit. The point really was that, at that particular time, it was the only way to get help to people in anything resembling a timetable where they can meet needs. We averaged it out so that people got the average [American’s] wages and benefits, and it came to $600 per week.

I consider it one of the most important things I’ve done in public service.

Dylan Matthews

One thing that’s new in the plan is the Jobseeker’s Allowance you include in there. Tell me a bit about that and why it’s a necessary addition to the system as it’s currently set up.

Ron Wyden

Gig workers, of course, never got into the traditional system. I said, “Let’s establish a Jobseeker’s Allowance, $250 per week available to any unemployed worker not covered by traditional UI.” We’re talking about the self-employed, new entrants to the workforce, part-timers. This struck me as a realistic way to make the transition in a challenging Congress. It’s a way to cover self-employed people without changing the insurance nature of UI.

I might as well take the next Dylan question, which is why not just federalize unemployment insurance. Were you planning to ask that?

Dylan Matthews

You know me well.

Ron Wyden

So, if you’re building a system from the ground up, I think that makes sense. If you’re in a 50-50 Senate and you want to start from scratch, it’s gonna be years before you can make the kinds of improvements that really make a big difference to the jobless.

There are a lot of complicating factors. The unemployment system is based in state law. The workforce that runs the program is employed by the states. The offices that administer the program are based in the states. What we’re doing here is as much reform as we possibly can. There’s 53 different systems [the 50 states, DC, Puerto Rico, and the Virgin Islands]. We come up with a uniform baseline, and I think we get close to a federal system.

Dylan Matthews

I hear that, but let me press you a bit. The last time the US did a big welfare-state overhaul, with the Affordable Care Act, Congress relied heavily on state cooperation through Medicaid expansion. We all saw how certain states were willing to turn down free money being offered to them to expand access to health care for their citizens.

So, I have a concern that some governors who are averse to making UI more generous might not do so in response to your plan, even though your plan denies a big tax credit to employers in states that don’t adopt your plan’s new generous provisions. What’s your thinking about that? How do you make sure this new system actually reaches 53 different systems in the states and territories?

Ron Wyden

Every senator has heard these nightmare stories about their constituents trying to get access to benefits. There is going to be some awareness that you just can’t let this broken system continue. We do think that businesses and Republican states that would lose a tax benefit [are] gonna find it hard to just go it alone and try to ride that out. There’s going to be a lot of pressure to actually come up with a system that makes sense for the longer term because people have really been through a lot.

Even now, I hear about people who still can’t get the phone answered [at the UI office]. There’s going to be a lot of pressure to address these issues.

I also think the opposition is having problems making the case they want to make. They want to say businesses are having problems finding workers because of unemployment benefits. Now there’s been report after report saying it’s much more complicated than that.

The Republicans are going to say, you know, you’re hiking taxes. [Wyden’s plan would reform the tax that funds unemployment insurance.] Well, the last time the basic financial structure, the wage base, was touched was [in] 1983. You can’t run a modern economy with [an] unemployment system based on 38-year-old numbers.

Dylan Matthews

Let’s go into that a bit more. Right now the unemployment system is financed at the federal level by a 6 percent payroll tax on wages up to $7,000, and then state taxes that can be deducted against the federal tax. As you say, the $7,000 figure was set in 1983 and is … not a large amount of money. How are you envisioning changing the financing to shore up funding for the program?

Ron Wyden

At the federal level, we’re proposing to broaden the base but lower the actual rate. Last time I looked, that was supposedly a Republican principle. States would need to adjust their UI rates to pay for new benefits.

Dylan Matthews

Would lowering the 6 percent rate but extending it to higher incomes (up to $50,000 or $100,000, or what have you) violate Joe Biden’s pledge to not raise taxes on couples earning under $400,000? The tax is formally paid by businesses; does that make the individual tax pledge by Biden not applicable?

Ron Wyden

Yeah, we don’t think that’s applicable, because [the] $400,000 [pledge] is on the individual side.

Dylan Matthews

How do you see this fitting in with the rest of the Biden/Democratic agenda, from infrastructure to caretaking, this Congress? Is your hope to include UI reform as a component? [After this interview, Biden indicated his desire to reform UI as part of the American Families Plan.]

Ron Wyden

If Congress doesn’t step up now, this unemployment system will be even more broken at the next recession. Democrats have a long priority list. And I think this is going to make the cut. I’m not going to speak for the Biden administration, but we’ve had many conversations with them. A lot of them remember the [2008] recession.

I’m going to use my position as the head of the Finance Committee to say this is the time when you’re going to have real reforms.