US jobless system still plagued by delays three years after

US jobless system still plagued by delays three years after downturn during pandemic

People queue to attend a job fair at SoFi Stadium on September 9, 2021 in Inglewood, California.

Patrick T Fallon | AFP | Getty Images

Today the US unemployment system is something of an anomaly.

Almost three years after the Covid-19 pandemic caused the worst US unemployment crisis since the Great Depression, unemployment has recovered to near historic lows. Jobless insurance claims have been at or below their pre-pandemic trend for almost a year.

Yet Americans who need unemployment benefits aren’t getting them quickly — a dynamic that’s at odds with an apparent lack of stress on the system.

The federal government considers an initial payment “timely” if states spend funds within 21 days of an initial claim for benefits. In March 2020, 97% of payments were on time; today, according to the US Department of Labor, the average is 78%.

The Department of Labor considers a rate of 87% to be a success barometer for getting the first payment on time.

The outcome is worse for workers who appeal a benefit decision. For example, less than half – 48% – of hearings in a lower appeal are completed within 120 days. The rate before the pandemic was nearly 100%, according to the Department of Labor.

Of course, delays aren’t as bad as they used to be. At the nadir of the pandemic, for example, only 52% received a “timely” first unemployment insurance payment. They also differ significantly between the states that provide benefits for laid-off workers, and the delays are getting shorter.

But the delays are still “significant,” the Government Accountability Office said in a June report.

They can have real-world implications: deferred bills, deferred rent, accrued credit card debt, pillaged retirement plans, loans from family and friends for living expenses, and reliance on community food supplies to survive before payments arrive, GAO said.

Unemployment experts attribute the discrepancy – ie longer delays despite fewer applications for processing – to traces of the pandemic and government agencies that were already heading into the crisis with financial fumes.

“Even though the number of new claims is low, states are still digging out of the workload during the pandemic,” said Nick Gwyn, unemployment insurance adviser for the Center on Budget and Policy Priorities and former staff director of the House Ways and Means unemployment benefits subcommittee.

Pandemic throws system “off balance”

It’s “hard to exaggerate” how much work government employment agencies had to do in the months and years after February 2020, Gwyn said.

Jobless claims soared as businesses shut down due to stay-at-home orders to curb the spread of the virus. By early April, workers submitted about 6 million applications in a single week. Before that, the previous record was 695,000 applications in 1982. By the end of 2020, 40 million people had received benefits.

Meanwhile, the CARES Act created new safety-net programs: a $600-per-week increase in typical benefits, an extension of benefits to gig workers and others not normally eligible for assistance, and an extension of the duration of the support.

These programs were renewed and changed many times between March 2020 and Labor Day 2021.

Initially, states did all of this work—managing a deluge of applications, handling worried calls from applicants, implementing and optimizing new programs, and allocating an unprecedented amount of funding—with mere manpower and resources.

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Administrative funds for state unemployment schemes fell 21% between fiscal years 2010 and 2019, according to the GAO. (The decline was even greater [32%] after accounting for inflation.)

Federal funding for these programs eventually hit 1970s lows in the run-up to the pandemic, said Andy Stettner, deputy director for policy at the Labor Department’s Office of Unemployment Insurance Modernization.

Funding fell 21% last fiscal year to $2.6 billion in 2022 from $3.3 billion in 2021, Stettner said.

The downtrend during this period reflects an underlying tension in the structure of the system. States receive funding based on their administrative burden, as well as the volume of claims that states pay.

Currently, as in the years following the “Great Recession,” states are receiving lower relative federal funding due to subdued jobless claims. According to the Labor Department, about 186,000 people filed initial claims for benefits in the week ended Jan. 21, fewer than the about 200,000 who filed weekly claims early in the pandemic.

This reduced funding is running headlong into a morass of leftover administrative work, some of which was pushed aside as states rushed to implement CARES Act programs.

It’s a wrong situation that’s “out of balance,” Stettner said.

“States went into the pandemic very flimsy, which left them very unprepared,” Stettner said. “One reason for this deficit: [States] Had to put off certain work when all the new claims came in and they’re just trying to catch up now.”

Part of the current administrative burden is a kind of forensic accounting of funds spent during the pandemic, said Michele Evermore, senior fellow and unemployment expert at the Century Foundation.

For example, states are evaluating the extent to which they may have overpaid benefits, she said.

This is particularly true of a CARES Act program, Pandemic Unemployment Assistance. Some government agencies were unaware that they had to reevaluate a worker’s eligibility for benefits on a weekly basis, whether it be illness, caring for a sick person, childcare, or a break from gig work and self-employment. Now they’re asking PUA recipients to verify that they actually qualify for all the benefits they’ve received, Evermore said.

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There were other complicating factors, experts said.

States have also encountered historic levels of fraud. Organized crime rings and scammers hacked state systems to take advantage of the chaos, hoping to gain access to relatively large amounts of federal aid.

“Cheaters played a big part in making things harder and slower,” Evermore said.

Much of this was done via identity theft, where criminals stole personal information to claim benefits on behalf of others.

In fiscal 2021, GAO estimated that “improper” benefit payments would increase more than nine-fold to about $78.1 billion, from $8 billion the previous year. The multi-year total could top $163 billion or more, the Labor Department said.

Criminals are still attacking the system, experts said. They’ve also introduced new tactics, such as “bank account theft,” in which hackers identify unemployment insurance claimants and funnel their weekly cash injection into a new, fraudulent bank account, Evermore said.

“There are some criminals who have been hooked on this and will keep trying,” Stettner said of the scam.

States have cracked down by introducing various fraud controls like better identity verification. In some cases, these controls have resulted in legitimate claims not being issued in a timely manner. A claim reported for any reason generally needs to be verified by a human at the state employment agencies.

It all boils down to a delicate balancing act: protecting funds from being siphoned off to criminals or preventing applicants from being overfunded, while trying to quickly help people who need it.

What happens to the UI system if we have another recession? It’s a very disturbing question.

Nick Gwyn

Unemployment Insurance Advisor for the Center on Budget and Policy Priorities

Agencies have also had to shift staff to deal with appeals backlogs, such as reducing resources to ensure initial payments are delivered on time, Stettner said.

The Labor Department has been working with states to automate procedures where possible to increase efficiency, Stettner said.

“There are many states that continue to struggle to reach this acceptable level of performance,” he added. “It’s not a situation we want to see.”

However, he said he believes “we are moving into the final stages” of the delays.

A system unprepared for another recession

Gwyn agrees that things are moving in the right direction. But with concerns that a further economic downturn is looming – accompanied by the risk of higher unemployment – the unemployment system is not in a good position to react should that happen in the short term.

Of course, the result cannot be taken for granted.

The Federal Reserve is raising the cost of borrowing for consumers and businesses to slow the US economy to curb high inflation. The central bank sees a path to a so-called soft landing that will avert a recession.

“What happens to the UI system if we have another recession?” said Gwyn. “That is a very disturbing question.

“You put all of that together and it’s a system that’s far from ready for another recession,” he added.