FACT SHEET: Improving Economic Security by Strengthening and Modernizing the Unemployment Insurance System
Say a hardworking American loses his job — we shouldn’t just make sure he can get unemployment insurance; we should make sure that program encourages him to retrain for a business that’s ready to hire him. If that new job doesn’t pay as much, there should be a system of wage insurance in place so that he can still pay his bills.President Obama, State of the Union 2016
Building on his remarks in his State of the Union, today the President used his Weekly Address to announce new proposals to provide workers with wage insurance, stronger Unemployment Insurance protections, and support for retraining to get the next job. These proposals are part of the Administration’s broader push to strengthen and modernize our Unemployment Insurance system by closing holes in coverage and strengthening connections to work.
After the worst economic crisis of our lifetimes, the United States is in the midst of the longest streak of private-sector job growth in our history, with more than 14 million new jobs created during the past 70 months. Yet even as the unemployment rate has had its fastest two-year decline in thirty years – and has been cut in half overall - we have further work to do to strengthen our safety net and modernize it for a changing economy. Unfortunately, even as the economy has strengthened, fewer than one in three unemployed Americans receive unemployment insurance benefits today.
The President has always been committed to ensuring that if Americans work hard they are able to get ahead. Through his efforts to raise the minimum wage, modernize overtime rules and secure paid leave for American workers, the President has advanced the principle that a hard day’s work should be rewarded by good pay, decent benefits, and the ability for workers to care for their loved ones. In this era of rapid change, we need to modernize our policies that offer workers opportunity and security through health care, retirement, and an opportunity to advance in their careers. The proposal the President announced in his Weekly Address today is designed to ensure that if a worker loses her job, she has essential protections against economic insecurity that also help her retool and find a new job.
The President’s proposal contains three core elements:
- Protecting Workers with Wage Insurance: The President’s plan would ensure workers have access to wage insurance that would replace half of lost wages, up to $10,000 over two years. Displaced workers making less than $50,000 who were with their prior employer for at least three years would be able to leverage these resources to help them get back on their feet and on the way to a new career.
- Strengthening Unemployment Insurance (UI): The President’s plan would address holes in our UI system – including by expanding coverage to part-time, many low-income, and intermittent workers, and workers who leave work for compelling family reasons. It would also ensure that states provide at minimum 26 weeks of coverage.
- Making it Easier for Workers to Retool and Retrain: The President’s plan would make it easier for companies to avoid lay-offs through work-sharing, while incentivizing states to offer and allow retraining for workers on UI or to provide relocation vouchers or subsidized employment. In addition, it would expand intensive career counseling to the long-term unemployed, discouraged, and part-time workers.
More detail on these proposals – which are paid for and will be described further in the President’s forthcoming budget – is below.
1. Protecting Workers with Wage Insurance
The President has put forward an agenda that grows middle-class jobs, fights to lift the minimum wage, and invests in jobs-driven skills training to improve all Americans’ ability to secure a well-paying job. But the challenge for experienced workers who lose their jobs is particularly stark, as they may struggle to find work that pays as much as their prior job – both making it harder to make ends meet and leading them to stay on the sidelines.
Experienced workers who lose their jobs through no fault of their own can face lasting consequences – as many of the same skills and experience that may have earned them higher salaries and raises at their previous job may no longer count when they are required to look for work again. On average, experienced workers starting over find themselves earning wages 10 percent or more below what they took home in the jobs they lost, and workers with more than twenty years of experience in their prior job face wages that are nearly a quarter less than what they made before.
Under the President’s proposal, a modern system of wage insurance would help experienced workers make ends meet as they transition into a new job and start moving back up the ladder.
Providing wage insurance to help displaced workers get back in the game. The President’s proposal would require states to provide wage insurance for workers displaced through no fault of their own from jobs they had held for at least three years. Wage insurance would encourage workers to put their skills back to work quickly so that experienced workers do not join the ranks of the long-term unemployed or leave the workforce entirely.
Replacing half of lost wages for experienced workers. Under the President’s proposal, wage insurance would replace up to half of lost wages for workers who had worked three years or more at their previous employment and make less than $50,000 in their new job. Workers could receive up to $10,000 over two years to help make ends meet through a Federally-funded program administered directly through state unemployment insurance programs. This proposal would be fully paid-for as part of the President’s broader unemployment insurance package described below.
2. Strengthening Unemployment Insurance (UI)
Unemployment Insurance is one of our most important protections for workers for who fall on tough times - last year alone over seven million workers relied on UI to get by in tough times – and during the Great Recession, UI was one of the most important policies for combatting further economic downturn. But changing times have weakened these protections.
UI coverage is at its lowest levels in at least half a century. Today, fewer than one in three unemployed Americans receive UI benefits even though over 90 percent of employees have some taxes paid on their wages that support the UI system.
Our economy has changed since 1935 when UI was first introduced – for example, women today are twice as likely to work, new industries have emerged, and businesses have created new ways of organizing work. As a result of all of these changes, many workers fall through cracks in our UI system. In addition, UI benefits now replace a smaller percentage of wages than before – making it harder for unemployed workers to make ends meet while looking for a new job.
The President’s proposals would modernize the Unemployment Insurance System to protect more working families, restore system solvency, and help the Nation weather future economic crises.
The President’s proposals, which are paid-for, would ensure Americans can rely on UI to provide basic support during difficult times by expanding coverage and ensuring states have the resources to provide benefits. In addition, the President’s proposals would restore state UI program solvency, ensure each state has sufficient reserves to withstand future economic downturns, and provide a robust program that supports families and helps spur economic recovery in communities.
The President’s proposals build on the track-record of success from the $7 billion made available through the American Recovery and Reinvestment Act to encourage states to expand coverage. With those resources, more than thirty states have implemented and sustained important UI reforms. The proposals put forward below, paid for in the President’s Fiscal Year 2017 Budget, would go further by making many of those reforms the national standard.
Expand coverage to protect low-income and vulnerable workers. The President’s proposal would require that state UI programs cover workers that currently fall through the cracks, including part-time workers, newer labor market entrants, certain low-income and intermittent earners, and workers who leave work for compelling family reasons such as to move with a spouse, escape domestic violence, or care for an ill family member. States could receive incentives for improving benefit levels and extending coverage to workers in growing non-traditional forms of employment, like temporary employment services workers.
Restore standard UI maximum benefit duration to 26 weeks. For the first time in over 50 years, nine states have cut their maximum UI benefit duration to less than 26 weeks – some, such as North Carolina now provide only up to 13 weeks. Even during the current economic recovery, an historically high 38 percent of workers exhaust their state-provided UI benefits. The President’s proposals would reverse this damaging erosion of state UI benefit duration by requiring that all state programs provide at least 26 weeks of coverage, consistent with the historic norm.
Automatically extend benefits in the face of economic recessions. Unemployment insurance is one of the most effective tools to increase economic resilience. During the Great Recession, UI is credited with saving 1.75 million jobs and replacing one-fifth of the economy’s lost demand. From 2008 to 2013, extended unemployment insurance benefits helped nearly 24 million workers, lifting 2.5 million people out of poverty in 2012 alone. However, Congress has to enact extended benefits each time a recession hits, and often fails to act quickly enough for first-hit states or to extend benefits long enough for those hardest hit. The President’s proposal would create a permanent program of extended UI benefits that would automatically provide up to 52 additional weeks of federally-funded benefits for states experiencing rapid job-losses or high unemployment.
Restore solvency and ensure unemployment insurance for the long-term. Three out of five state UI programs are insolvent. Thirty-six states exited the Great Recession having relied on emergency federal loans. More than $7 billion in loans are outstanding today and even more is being borrowed through the private markets. Currently only 20 states have sufficient reserves to weather a single year of recession. Low state reserves remain a serious threat to unemployment insurance for working Americans. The President’s proposal would put state unemployment insurance programs on a path to permanent solvency while insuring they have sufficient reserves to weather the next economic crisis. The proposal would modernize federal unemployment insurance taxes and hold states accountable for maintaining sufficient reserves to provide benefits for at least six months of an average economic recession.
3. Making It Easier for Workers To Retool and Retrain
Unemployment Insurance should be as much about facilitating re-employment as about providing support to make ends meet while looking for a new job. As our economy continues to change and evolve, getting that next job may require preparing for new opportunities in new industries and new fields. The President’s proposals encourage states to make it easier for workers to retool and retrain and provide workers with the guidance and support they need to gain new, relevant skills. These proposals build on the successes of the President’s job-driven training agenda, which has aligned over $1 billion in annual job training grants with job-driven training best practices and put the most new apprentices into training in nearly a decade, among other accomplishments.
The President’s proposals would help employers avoid lay-offs in the first place and provide unemployed workers with more opportunities and advice to train for the skills that will land them their next job.
Prevent lay-offs before they happen. Work-sharing, also known as short-time compensation, can help employers hold onto their workers and avoid mass layoffs that can lead to long-term unemployment and hardship for working families and their communities. The President’s proposal would provide implementation grants and additional incentives to states for work-sharing programs that help employers reduce hours instead of laying off workers while providing partial unemployment benefits to workers whose hours are cut.
Strategies to help unemployed workers reconnect to the workplace. The President’s proposals would provide states with incentives to directly link jobseekers to work as a reemployment strategy by providing states with incentives to adopt work and training-related reforms. For example, states would receive incentives to create temporary work-based training programs to help workers get back on the job and to allow workers to continue receiving UI benefits while participating in an apprenticeship or on-the-job training. States could also receive funds for relocation assistance programs to help workers pursue new opportunities in a different community based coupled with expert guidance on there might be new possibilities.
Providing 21st Century Career Navigation. The President’s Budget will propose to provide new resources to states for Career Navigators who instead will proactively reach out to every worker who is most at risk of not being able to reset their careers after being unemployed: (1) the long-term unemployed who have been unemployed for approximately six months or more; (2) discouraged workers who have dropped out of the labor force altogether; and (3) people who are only able to find part time work. Career Navigators will help them find a job, match with an appropriate training program, and connect to federal support services. This proposal will expand intensive counseling services to more than 1 million people annually. The President is also proposing the expansion of in-person reemployment services to the one-third of UI beneficiaries most at risk of exhausting their benefits, as well as all returning veterans who are receiving UI.
Building on a Track Record of Success
The President’s proposals for strengthening and modernizing the UI system build on the success of important reforms incentivized through the American Recovery and Reinvestment Act and additional modernization efforts launched through the Middle Class Tax Relief and Job Creation Act of 2012.
The Recovery Act provided states an opportunity to receive up to $7 billion in incentives for expanding coverage and improving benefits. With those resources, well-over thirty states have implemented and sustained important UI reforms – from Maryland which introduced the alternative base period to cover workers with shorter work histories and provided benefits to part-time workers to Oklahoma which also reformed its system to protect workers who have to leave work for compelling family reasons. In addition, through the Middle Class Tax Relief and Job Creation Act of 2012, 28 states now have work-sharing programs, also known as short-time compensation, that conform with federal standards. In addition to the states that updated their laws to create model work-sharing programs, six of these states used incentives provided in the Act to create new programs within the past few years.. From 2008 to 2013, extended unemployment insurance benefits helped nearly 24 million workers, lifting 2.5 million people out of poverty in 2012 alone. The experience of so many states with these reforms has helped lay the groundwork for making these policies the national standard.