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Sunday, September 20, 2020

Fixing unemployment insurance shouldn’t be so hard

One of the underlying issues that surfaced during our nation’s response to this economic crisis is the need to overhaul our outdated unemployment insurance systems. Given the central role that state-run systems play in providing aid to families and the economy during downturns, these changes cannot come soon enough.

When crafting the original CARES Act in March, lawmakers wanted to provide the unemployed with 100% of their pre-coronavirus wages, since the massive job loss was the result of our purposely putting much of the economy into a deep freeze as a necessary means of fighting the pandemic. But this proved much more complicated than expected due to decades-old unemployment insurance systems and varying state benefit formulas. Thus, the CARES Act included a weekly $600 bonus as a means of jury-rigging a fix to try to bring benefits up to 100% of lost wages.

The gridlock over the next economic relief package rests in large part over the issue of whether to reinstate the weekly bump of $600 in benefits, which expired at the end of July. Democrats want to continue the benefit at this level, while Republicans want to scale it down to $200.

There is a case to be made for each. With the economic recovery still a long way off, it’s important to recognize the role that the $600-per-week bonus played in keeping the economy afloat. Personal incomes rose, even though the economy contracted — likely keeping the economic damage from being even worse.

However, with the $600 bonus, one study found that two-thirds of recipients were actually making more than 100% of their normal wages, and the median worker on unemployment was making 34% more than they did on the job. This clearly can lead to the incentive not to work, a perverse incentive that will grow as the economy recovers if changes aren’t made.

The most sensible solution would be to compromise on a number between those two figures and develop a plan to scale down the bonus gradually as the economy recovers. But even when a compromise is finally reached, it will just be a flimsy Band-Aid until we truly overhaul these antiquated systems.

Improving the IT systems of state unemployment insurance programs has to be a top priority in the near-term. Despite the experiences of past recessions, many state systems still use COBOL, a computing language that predates the modern Internet by decades, and state unemployment insurance websites frequently crashed when claims surged.

Both the House-adopted HEROES Act ($925 million) and the Senate’s HEALS Act ($2 billion) include funds for administrative upgrades, so hopefully, the two sides can agree upon including modernization funds in the next COVID-19 relief package. States need to migrate their unemployment insurance programs toward more modern, scalable systems that can handle an influx of applications, accurately distribute benefits in a timely manner, and make precise changes to benefit levels when economic needs change.

These upfront costs should be viewed against the potential long-term benefits and savings. The longer households wait for these benefits, the more likely they are to fall behind on housing payments and other necessities, potentially harming economic recovery efforts.

More modern IT infrastructure should also help states combat fraud and carefully monitor how taxpayer dollars are used. States across the country are uncovering questionable unemployment insurance claims. Maryland is currently investigating $500 million worth of potentially fraudulent claims, while Nevada is reviewing more than 100,000 questionable applications. Just as people promised benefits should receive them in a timely manner, state and federal officials ought to have the tools necessary to stop bad actors from taking advantage of a surge in fiscal aid.

With the technology we have at our disposal, there is no excuse for relying on antiquated, error-prone networks of obsolete computer code. It prevents aid from getting where it’s most needed and is hampering Congress’s ability to tailor benefits to our evolving economic situation. While we live in a technological age of self-driving cars, artificial intelligence, and virtual reality headsets, our state unemployment systems operate in the dark ages. It’s time to ditch decades-old unemployment insurance technology and build the capacity for the next crisis so we can use our tax dollars in a smarter way.

Maya MacGuineas (@MayaMacGuineas) is the president of the Committee for a Responsible Federal Budget.



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