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How to flatten the jobless curve by revisiting unemployment benefits

How to flatten the jobless curve by revisiting unemployment benefits
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The social distancing and stay home orders that have begun to flatten the curve of coronavirus infections have imposed great costs on workers. The unemployment that began as a service sector phenomenon is spreading to every corner of the economy. Even “recession proof” fields such as law, medicine, and information technology are seeing business dry up with the downward spiral of recession. Unemployment is projected to reach levels exceeding those of a decade ago and perhaps rising to levels seen in the Great Depression. News stories that show cars waiting in line for miles to make it to food banks demonstrate the gravity of what people are facing.

Congress and the administration have responded with relief legislation that has boosted and expanded economic support programs, including unemployment insurance, in an effort to help these people cope with job losses. What Congress and the administration could not do, however, was expand the capacity of state unemployment insurance systems to manage this vast influx of newly unemployed workers. As anyone waiting for hours on hold or seeing their applications repeatedly rejected by overwhelmed online systems can tell you, the very antiquated unemployment insurance system, which was first conceived back in the New Deal era, is crumbling under the current pressure of processing millions and millions of claims.

The coronavirus challenge calls for rethinking both the purpose and the administration of unemployment benefits as well as modernizing the way these benefits are delivered. We propose moving away from the notion of unemployment insurance and toward the model that promotes workforce attachment and retention. We call this concept employment stabilization. Its core ideas are relatively simple. Employment stabilization would build on existing program structures in ways that will prevent layoffs, maintain relationships between employers and workers amid sudden shocks, and lay the groundwork for quick restarts when economic activity resumes.

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Structural changes over the long term are needed to fully implement an employment stabilization system, but in the current pandemic, Congress can use it to help workers now. The Cares Act gives unemployed workers $600 weekly on top of the regular amount and extends benefits for up to 39 weeks. Employment stabilization would beat this process by skipping the layoff process, reducing the administrative chaos with consolidated employer filings rather than hundreds of thousands of individual filings, and allowing workers to immediately begin receiving all their benefits.

Using the average weekly benefit amount of $378, we propose providing coronavirus employment stabilization assistance to workers who remain on employer payrolls but are not able to work due to stay home orders or declines in economic activity. Rather than filing individually for benefits, employers would certify a temporary layoff to the state unemployment insurance system and benefits would automatically begin to flow. This would use the state unemployment insurance systems to issue weekly payments to workers making up to $50,850 each year. This avoids the process of individual filing, keeps money in the hands of workers, and promotes continued labor force attachment. Employment stabilization payments would not be taxed, thus adding more dollars to the market.

If employees saw their hours reduced but not eliminated, employment stabilization payments can be used to make up the difference between current and previous wages, like the existing unemployment insurance work share program. As the economy finally resumes to normal levels, employees would be transitioned back to regular payrolls. Any costs to employers of managing the employment stabilization benefits, such as calculating income losses or other administrative activities, would be reimbursed through a fully refundable federal tax credit. Moreover, an advantage of an employment stabilization system is that Congress can easily increase benefits for short periods, as was done under the Cares Act, and ratchet supplementary benefits down as conditions improve.

We believe that revamping existing systems to adapt to rapidly changing economic conditions is a better approach than creating more programs that layer on additional categories of benefits. Employment stabilization modernizes the approaches to unemployment assistance by promoting the connection between employers and workers, sending money quickly to those who need it, and laying the foundation for a fast return to work.

Mason Bishop is an adjunct fellow with the American Enterprise Institute and Brent Orrell is a resident fellow at the American Enterprise Institute. Both authors served as former senior officials at the Labor Department.