Establishing Unemployment Insurance as a True Worker Benefit


The American unemployment insurance (UI) system is a mess.

Benefits are difficult to access, stingy, and short-lived. To make matters worse, workers receive almost no assistance in their job-seeking efforts. This weak coverage turns unemployment into more than a bump in the road: For many Americans, a layoff stunts career advancement and shrinks future earnings prospects. Our patchwork of programs is constantly failing working families.

A perpetual flow of workers requires UI, even when the unemployment rate is low.

Unfortunately, policymakers tend to overlook issues with UI until there is a recession, even though hundreds of thousands of people cycle into and out of jobs every month. In fact, U.S. workers experience over 15 million unemployment spells per year. Across the span of an entire career, individuals are unemployed around six times. Each disruption of income can have serious consequences for one’s livelihood; temporary job loss can lead to permanent disasters such as home foreclosure.

Yet, few in the labor force are guaranteed proper protections.

Around one in four unemployed workers receive benefits, a much lower proportion than in other countries, and those who do see less than half of their prior wages replaced on average. A number of states enforce harsh restrictions on benefit sizes, which particularly hurt middle-class workers. In addition, one of every five unemployed jobseekers is out of work longer than benefits usually last. The government could help speed up the time between jobs, but relative to the size of the American economy, U.S. spending on employment programs is one-fifth the amount in other rich countries.

Benefits function as bare-bones welfare when we need true social insurance.

Eligible workers who overcome the various administrative hurdles to claim UI are less likely to live in poverty. Nevertheless, many recipients still cannot afford essential living expenses, such as mortgage payments, which are largely locked in. Unemployment insurance worthy of the name must do more than merely prevent destitution; it must ensure that workers can finance their everyday lives during the transition between jobs.

Without adequate coverage, workers are stripped of the freedom to make life decisions.

Individuals often feel forced to take the first offer that comes their way, even if they suspect the workplace is unsuited or unsafe for them. Meanwhile, families may lack the requisite financial stability to adopt their preferred household arrangements. For instance, couples wishing to have a parent at home to raise the kids can be prevented from doing so. The UI system effectively penalizes that option by making it too risky to rely on one income.

The path forward is clear: It’s time to revamp unemployment insurance.

Congress cannot continue to leave UI reforms on the backburner. Workers require more robust unemployment coverage so the career ladder does not collapse under them as they climb it. Other countries provide more generous unemployment benefits while holding higher employment rates than here in the United States. We are capable of reaching those standards. We can turn UI into a true worker benefit that ensures American families have the security they need to thrive in a dynamic economy. To do it, we must tackle three problems.

Major problem no. 1

The Cash Crunch Problem

The cash crunch problem is that unemployed workers need time to secure a quality job, but inadequate UI benefits prevent extensive searches. Without reliable coverage, workers are bargaining with potential employers from a position of weakness. They are then forced to accept lower salaries and subpar labor conditions.

Consider: The average UI beneficiary has just 40 percent of their prior wages replaced. Benefits do reduce the recipient poverty rate by anywhere from 24 to 48 percent depending on economic conditions. But less than half your prior wages is seldom enough to cover all essential costs. As shown on the right, if an independent worker with average income receives the typical UI replacement rate and decides to cover housing and transportation costs, then food, healthcare, and utilities cannot be. If housing and food are financed, then transportation, healthcare, and utilities are left out. Key items cannot be afforded regardless of how you divide up the dollars, even if the recipient opts to delay paying income tax on the weekly benefits until tax filing time.

At the same time, a worker’s location matters a lot.

Each state has distinct rules for calculating benefits, including a maximum weekly amount, which can be quite low. People with identical jobs can receive very different benefit coverage in different states. Consider two UI recipients, one in Arizona and the other in neighboring Nevada (seen below). Each was previously earning a $50,000 annual salary. The Arizona worker and the Nevada worker would have 33 percent and 52 percent of their respective weekly wages replaced while they search for new jobs. What is the main reason for this disparity? Arizona’s maximum weekly benefit is $320, while Nevada’s is $562.

Benefit caps have hampered middle-class workers for decades. Soon after unemployment insurance was established by the Social Security Act, the average weekly benefit limit across the United States was around 60 percent of the average weekly wage among covered workers. States have increased their statutory weekly maximum amounts over time, but the increases have largely not kept pace with the average wages of insured workers. Last year, the average benefit cap was just under 40 percent of the average weekly wage in total covered employment nationally. And because that’s just an average, many states replace wages at a lower rate.

Things look even bleaker when we factor in the difficulty of receiving benefits. Many gig workers and recent entrants to the workforce are outright ineligible. Administrative dysfunction keeps workers from efficiently obtaining support. Some applicants are rejected despite having legitimate claims because the burden of proof is too high. Others aren’t informed they qualify or give up on applying due to the burdensome process. As a result, those most in need of income support are less likely to access it: The poorer you are, the less likely you are to get UI when you lose work. And those who do jump these hurdles may find little respite at the finish line, as states have slashed benefit durations in recent years.

In all, about three-quarters of unemployed individuals in the U.S. do not receive UI benefits. The average benefit level shrivels to around 10 percent of prior income when taking that low recipiency rate into account. Statistically, that’s the wage-replacement rate the typical unemployed worker can expect. It may cover basic food costs, but nothing else.

Program cuts and restrictions in recent years have compounded these chronic shortcomings.

After the Great Recession, policymakers enacted permanent benefit reductions in some states, shrinking benefits and making them harder to access. The cuts were most profound in North Carolina, where the top weekly benefit was lowered by a third, from $535 to $350. More unemployed individuals began experiencing severe drops in income. Listed and starting salaries dropped as jobless workers suffered a decline in their bargaining power.

Better benefits would go a long way to change these dynamics.

Greater UI generosity elevates wages by affording recipients the time to find higher-caliber jobs. The improved match leads workers to remain in their jobs for longer. Absent a major change in course, though, millions of unemployed workers will continue settling for less than they are worth each year.

Major problem no. 2

The Single Income Penalty

The second major problem, the single-income penalty, is that unemployment causes a more severe financial shock to households with one worker than to households with multiple workers. Weak unemployment benefits are at the root of the disparity.

This can be shown most clearly with an example. Let’s consider two nearly identical families: the Andrews and the Billups. Both families consist of a married couple in their late 20s with a newborn. Each couple has a total income of $70,000. Where the households differ is that the Andrews family prefers a traditional family structure — one worker, one caretaker to raise the child — whereas the Billups parents are both in the formal labor force.

As seen below, the salaried worker in the Andrews family (on the left side) earns $70,000 annually and the caretaker has no official income. Both Billups adults (on the right side) earn $35,000 per year.

Individuals are unemployed an average of 2.4 times between the ages of 25 and 44. That means each worker in the Andrews and Billups families can expect to become unemployed around two times before their children graduate from high school.

If a worker in each family loses their job, the households will struggle to cover basic expenses because unemployment insurance programs provide limited coverage. However, because the Andrews got all of their income from the laid-off worker, they are in a worse financial bind. With an average UI replacement rate of 40 percent, the Andrews’ annualized pre-tax income drops from $70,000 to $28,000, while the Billups’ income goes from $70,000 to $49,000.

A couple of factors complicate the hypothetical. For one, benefit caps limit the potential replacement rates for middle-class workers. Only about half of states offer benefit sizes that could possibly insure 40 percent of a $70,000 salary. Second, this scenario assumes that both workers qualify and receive benefits.

As discussed in the previous section, the actual amount of UI coverage the families can expect is much lower when factoring in that three-quarters of unemployed workers receive nothing. If each family received statistically average benefit coverage, the Andrews’ annualized pre-tax income would fall from $70,000 to $7,700 when their one salaried worker was laid off, while the Billups’ income would descend to $38,850. Although the worker in the Andrews family had an initial salary double that of a Billups’ adult, the Andrews family’s annualized income is around $31,000 below that of the Billups. The Andrews are penalized for preferring to have a parent raise their child at home, and substantially worse off as a result. Separate family-benefit programs such as the Child Tax Credit don’t even come close to resolving this disparity.

Single-worker households are at a clear disadvantage without more robust unemployment insurance protections. Those wanting a one-worker, one-caretaker household structure may feel unable to do so. Access to more generous UI would give households the security and flexibility to adopt their ideal work arrangements.

Major problem no. 3

The Castaway Problem

The third major problem, the castaway problem, is twofold: unemployed individuals frequently have their benefits expire before finding new positions, yet insufficient assistance is provided to speed up the job-seeking process and prevent unnecessary job loss. Opportunities to maximize employment levels with labor market programs are foregone or wasted as unemployed workers are subjected to avoidable economic scarring.

Since 2000, nearly 4 million UI recipients per year have still been unemployed when their benefits expired. The total has varied based on the strength of the labor market — it takes more time to land new positions during recessions — but a sizable fraction of UI recipients is jobless beyond their benefit eligibility even when economic growth is robust. In the strong economy of 2019, for example, a third of beneficiaries were without jobs after losing access to regular benefits.

The primary obstacle is a lack of offers, not a lack of effort. Job searches get progressively harder the longer someone is unemployed, as employers are less likely to consider applicants without a job for an extended period. Among those unemployed for six months or less, the probability of securing a new job is generally 30 percent in a given month. In contrast, long-term unemployed workers — those jobless for over six months — face about 13 percent odds. Many face serious drops in their consumption levels and well-being as their UI coverage ends and long-term labor market prospects fade.

A long job tenure, notably, does not preclude you from extended bouts of unemployment. During recessions, a greater number of workers are displaced from jobs they like and have held for years, exposing them to significant and sustained earnings losses. Prior to the COVID-19 pandemic, 15 percent of displaced workers had lost jobs they held for three or more years. The 2020-21 period pushed that rate up to 42 percent. A third of the long-tenured workers displaced over the previous three years were still unemployed in January 2022.

Supervised job training at a grocery store.

Work Incentive (WIN) Job Training, 1971. Trikosko, Marion S. / Library of Congress.

Instead of efficient matching of workers and employers, there are a whole lot of missed opportunities. More than a million long-term unemployed workers are ready to work but languishing each month. The dearth of well-functioning active labor market policies (ALMPs), such as job search services, retraining programs, and employment subsidies, makes it harder for workers to escape unemployment and hinders the nation’s employment rate. More used to be spent on ALMPs, but national expenditures as a percent of GDP have drifted downward as American dominance in employment has faltered. The United States would need to spend almost an additional $100 billion per year on ALMPs just to catch up to other nations.

Exactly how additional dollars would get spent matters a lot, though. Some of the existing schemes meant to connect workers with businesses have proven to be ineffective due to haphazard design. The Work Opportunity Tax Credit is supposed to incentivize businesses to take chances on long-term unemployed workers and others thought to be riskier hires, but the complexity of claiming the credit hampers its impact. Similarly, over half of states run work-share programs that enable employers to keep their workers on payroll during downturns at a reduced salary while the government replaces some lost wages, but these policies are also difficult to access and maneuver.

In short, the government must become more involved, and in less clunky ways than it is now.

Federal policymakers cannot simply throw money at flawed employment policies nor expect pop-up emergency programs to be an overwhelming success. We need smarter investments modeled on what has worked well abroad and at a smaller scale here.

Policymakers may fret that more generous benefits will disincentivize work, but in practice, we have the opposite problem: Meager support is keeping workers from finding quality job options and leaving too many stuck on the sidelines. Unemployment traps are better countered by programmatic assistance, not by slashing support. Additional weeks of benefits would allow long-term unemployed workers to maintain necessary spending levels with only modest implications for the average time spent receiving UI, while expanded, centralized employment services can minimize the difficulty of unemployment spells. Americans, quite literally some of the hardest-working people in the world, deserve better.

The Solutions

National economic problems require nationwide solutions. Workers in all states utilize unemployment insurance. It is essential that UI coverage, both the cash benefits and re-employment assistance, meet a high standard regardless of location. Policymakers should implement and finance a comprehensive list of reforms at the federal level, which states can choose to supplement. A set of recommendations are listed below in four buckets: benefit generosity, benefit eligibility, benefit duration, and employment support.

U.S. Treasury check

Benefit Generosity

  1. The minimum weekly benefit amount should be set equal to at least 35 percent of the state median household income, and updated in accordance with it. For example, the median weekly income in Mississippi from 2016–2020 was approximately $894. A minimum weekly benefit at 35 percent of that wage level equals $313. Only one state, Washington, has a guaranteed benefit above that rate currently.
  2. Workers with prior annual income exceeding 35 percent of the state median wage should have unemployment benefits replace 75 percent of each additional dollar earned. This would ensure that core expenditures for the average household – housing, transportation, food, utilities, and health care – can continue to be covered with room to spare for other costs like school supplies.
  3. Annual income levels applied to the benefit calculation should be calculated using earnings from the first four of the last five calendar quarters or the most recent four quarters, whichever produces a higher benefit amount.
  4. The maximum weekly benefit amount should be set equal to at least the state median household income. To use the Mississippi example once again, this recommendation would raise the state’s maximum benefit level above the largest weekly amounts currently offered in all but three states.
A young man applying for a job

Benefit Eligibility

  1. Policymakers should make it much more straightforward for workers, including those who make their living in the gig economy, to access unemployment benefits when they are laid off or quit for justified reasons (hazardous work conditions, inconsistent scheduling that is difficult to plan for, harassment, relocating to escape domestic violence, and so forth).
  2. Unemployed workers with a recent employment history — that is, work in the previous five calendar quarters — should be eligible for weekly payments calculated by the regular benefit scheme listed above.
  3. Jobseekers without work experience in the previous five quarters — family caretakers returning to the labor force, recent high school graduates, and so forth — should qualify for the minimum weekly benefit amount specified above.
  4. Program information should be provided anytime workers depart jobs. Whenever workers experience job separations, they should receive information on their prospective eligibility for UI and how to apply.
  5. The user interface for the benefit applications should be updated and simplified. Currently, state benefit sites can look outdated and be cumbersome to maneuver. Policymakers should ensure it is easy to set up an account and straightforward to complete the application process.
  6. While a set recipiency rate cannot be mandated, the proportion of unemployed workers accessing UI nationally should be at least twice current levels.
A personal calendar

Benefit Duration

  1. The regular unemployment benefit duration should be at least 39 weeks. Relative to the typical standards seen today, recipients would gain access to another 13+ weeks of benefits. This recommendation can be found in proposals as far back as the early 1980s.
  2. Extended Benefits (EB), additional weeks of UI that activate when the unemployment rate is elevated, should be shifted to begin after the 39 weeks of regular UI. The EB activation statutes require reforms to make the supplemental program more reactive to rising unemployment levels.
Three construction workers together at a work site

Employment Support

  1. The amount spent on employment and re-employment services should be at least $100 billion more per year. This includes funding to keep workers connected to jobs they like during recessions (short-term compensation programs), incentivize employers to take chances on workers with weaker labor force connections (employment subsidies), job retraining, and search support.
  2. All of these employment services should be centralized and administered alongside unemployment insurance compensation. Administrative burdens that are limiting use of existing active labor market problems should be eliminated.
  3. All workers should have access to these employment programs, even if they do not manage to qualify for unemployment benefit compensation.


American workers are facing a significant but solvable set of roadblocks when it comes to unemployment.

Unemployment is unavoidable but poorly insured against; meanwhile insufficient spending goes towards maximizing and solidifying job connections. Even when workers qualify for benefits, accessing that assistance is a challenge. These shortcomings prevent workers from searching for and finding jobs they are well-suited for, limit the household arrangements that working families can feasibly pursue, and leave millions of eager jobseekers stuck on the outside of employment and without support for far too much time.

Unemployment programs need to be stronger but also simpler. UI compensation must reach more people between jobs and replace a greater proportion of prior income. Those insurance payments must last for more weeks while workers access the employment programs that make it easier to secure quality jobs. Unemployment insurance must be transformed into a source of meaningful economic security for all workers.

In the worker’s employed life, “taxes” include:

  • Medicare
  • Social Security
  • Income tax
  • What the BLS calls “pensions”

The tax obligations are different as a UI recipient. FICA taxes are not levied against UI benefits, and while income taxes are imposed, they could be $0 in some cases.