The Great Recession: Lessons Learned for the Unemployment Insurance System

• The Unemployment Insurance System in Two Recent Economic Downturns: Lessons from the Great Recession and the COVID-19 Recession (Final Report, August 2022)
  • Summary
• Extending Unemployment Insurance Benefits in Recessions: Lessons from the Great Recession
  (Issue Brief, March 2021)
  • Summary
• Covering More Workers with Unemployment Insurance: Lessons from the Great Recession
  (Issue Brief, March 2021)
  • Summary

• How did States rapidly “ramp up” staffing at the start of the recession and “ramp down” as the economy recovered? How did approaches vary by state? How did administrative funding formulas and relative funding levels affect staff levels? What lessons have been learned to help in addressing future rapid changes in staff workload?
• How did trigger mechanisms work in the extended benefit (EB) and extended unemployment compensations (EUC) programs? What might be improved in the process in case of mass unemployment events in future?
• How have services changed within UI and from partner programs in state and local workforce systems, including better coordination with educational programs and new opportunities for work-based learning or apprenticeships? How might these changes be used in addressing new mass unemployment shocks?

The Unemployment Insurance System in Two Recent Economic Downturns

• Unemployment Insurance is an important source of financial stability for households and plays a substantial role in macroeconomic stabilization.
• A rapid and substantial rise in UI claims was observed to pose substantial challenges for state UI operations. In both the Great Recession and COVID-19recession, state programs were substantially challenged by the rapid rise in claims.
• To play an important role, UI benefit extensions have required ad hoc federal intervention. Benefit extensions played an important role in both the Great Recession and the COVID-19 recession, but in both cases this support required emergency federal intervention.
• Federal incentives for states to improve access and expand eligibility show promise. Short-Time Compensation, however, remains somewhat lightly used despite federal incentives.
• Unemployment Insurance was extended to cover new classes of workers but doing so poses challenges within the current system. The experience of the Pandemic Unemployment Assistance (PUA) program in the COVID-19recession demonstrated that the system could provide benefits to individuals not eligible for regular UI, including self-employed, gig workers and workers with limited work histories or earnings. However, challenges arose associated with self-certification and income verification for workers whose earnings are outside of state UI wages records.
• Substantial supplementation to weekly UI benefits in recessions effectively reached workers, but there are limits in the current system. The Federal Pandemic Unemployment Compensation (FPUC) program, which added to weekly benefits in the COVID-19 recession, demonstrated that counter cyclical adjustments to benefits can be achieved in practice. However, the structure of this adjustment as a flat weekly amount was in part associated with limitations in the capabilities of state systems to make more flexible adjustments.
• States adjusted their programs in innovative ways that could have implications for the effectiveness of the system. States demonstrated the ability to make their own emergency changes to UI programs in the COVID-19recession.
• Error and fraud in emergency programs emerged as challenges in new ways. Evidence from the COVID-19 recession suggests challenges in balancing the competing demands of making timely payments to large numbers of workers and new classes of workers while guarding against fraud and error.
• Active steps are required to ensure equity and access in the UI system. New research and data have emerged in the context of the COVID-19 recession that emphasizes the ways in which barriers to access diminish the effectiveness of the system.

Extending Unemployment Insurance Benefits in Recessions

• UI benefit extensions were central to the program’s effectiveness in meeting the needs of both workers and the economy but also posed program administration challenges. 
• UI benefit extensions played an important role in the overall macroeconomic stabilization effects of UI spending in the Great Recession. 
• The EB program required a set of ad hoc adjustments to perform effectively in the Great Recession. EUC created challenges because of the programs the program’s complexity and because it was not automatic.  

Covering More Workers with Unemployment Insurance 

• Although some efforts to expand coverage in the last recession were successful where adopted, researchers found the longer-term trends in UI recipiency have been downward due to countervailing policy and economic factors.
• The incentives for expanding coverage included in the ARRA UI modernization provisions successfully spurred states’ adoption of these expansions, and these provisions were largely maintained by state UI programs in the recovery following the Great Recession. 
  • The majority of state UI programs now cover part-time workers and have an alternative base period.
  • Allowing separations for compelling family reasons, which was relatively uncommon before the Great Recession, is now included in about half of UI programs. 
  • The empirical literature generally finds these provisions modestly increase UI coverage and payments.  
• STC programs were expanded during and following the Great Recession across and within states, as a result of both federal and state policy efforts. 
  • At the start of the COVID-19 pandemic and related economic downturn, 27 states and the District of Columbia had STC programs.
  • Overall, however, STC remains relatively uncommon in the United States, especially when compared with other countries such as Germany. Research identifies that important barriers to STC use appear related to employer knowledge of the program and frictions associated with employer participation. Estimates suggests that, where employed and adopted, STC may prevent layoffs. 

Final Report

Congdon, W. J., Vroman, W. (2022). Urban Institute. The Unemployment Insurance System in Two Recent Economic Downturns: Lessons from the Great Recession and the COVID-19 Recession. Chief Evaluation Office, U.S. Department of Labor.

Brief

Congdon, W.J., Vroman, W. (2021). Urban Institute. Extending Unemployment Insurance Benefits in Recessions. Chief Evaluation Office, U.S. Department of Labor.

Brief

Congdon, W.J., Vroman, W. (2021). Urban Institute. Covering More Workers with Unemployment Insurance. Chief Evaluation Office, U.S. Department of Labor.