GAO-22-106159: Unemployment Insurance: Opportunities to Address Long-Standing Challenges and Risks

Summary

GAO testimony GAO-22-106159, "Unemployment Insurance: Opportunities to Address Long-Standing Challenges and Risks," a statement of Thomas Costa, Director, Education, Workforce, and Income Security, before the Subcommittee on Health, Employment, Labor and Pensions, Committee on Education and Labor, House of Representatives, dated September 21, 2022. It states that long-standing challenges with UI administration worsened during the COVID-19 pandemic and that GAO has added the UI system to its High-Risk List. It reports that estimated UI improper payments, some due to fraud, increased from approximately $8.0 billion in fiscal year 2020 to approximately $78.1 billion in fiscal year 2021. The testimony also covers options for transforming the UI system and the economic effects of expanding benefits during adverse times.

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“GAO-22-106159: Unemployment Insurance: Opportunities to Address Long-Standing Challenges and Risks.” Original at www.gao.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/gao-22-106159-unemployment-insurance-opportunities-to-address-long-sta-766950e4b2/, SHA-256 42a6868fb2b08620680bde9a54634ab6ca60aa9f2d09803fe8f3dd2fbdd069fc.

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United States Government Accountability Office
Testimony
Before the Subcommittee on Health,
Employment, Labor and Pensions,
Committee on Education and Labor,
House of Representatives
UNEMPLOYMENT
For Release on Delivery
Expected at 10:15 a.m. ET
Wednesday, September 21, 2022

INSURANCE
Opportunities to Address
Long-Standing Challenges
and Risks
Statement of Thomas Costa, Director, Education,
Workforce, and Income Security

GAO-22-106159
September 21, 2022

UNEMPLOYMENT INSURANCE
Opportunities to Address Long-Standing Challenges
and Risks
Highlights of GAO-22-106159, a testimony
before the Subcommittee on Health,
Employment, Labor and Pensions, Committee
on Education and Labor, House of
Representatives

Why GAO Did This Study What GAO Found
The UI system has faced long-standing In June 2022, GAO reported that long-standing challenges with Unemployment
challenges with effective service Insurance (UI) administration have affected states’ ability to effectively meet the
delivery, which worsened during the needs of unemployed workers. These challenges have been identified in prior
pandemic because of historic levels of GAO reports, in other audits, and by stakeholder panelists with UI expertise.
job loss. In a June 2022 report (GAO- They have persisted over time and worsened during times of economic
22-105162), GAO found that these downturn—such as the COVID-19 pandemic. Reported challenges with program
challenges pose significant risks to design and variation in how states administer UI—such as differences in
effectively delivering benefits to minimum and maximum UI benefit amounts, duration of benefit periods, and
unemployed workers. Due to these and
eligibility rules—have contributed to declining access, inconsistent levels of
other financial risks, GAO has added
support across states, and disparities in benefit distribution. Other reported
the UI system to its High-Risk List.
challenges for states include providing customer service, delivering timely
This testimony discusses (1) benefits, implementing new programs, and using and modernizing legacy IT
challenges related to the UI system’s systems. For example, during the pandemic, some unemployed workers
ability to respond to the needs of experienced long waits for benefit payments, which sometimes caused financial
unemployed workers and to changing and other hardships.
economic conditions; (2) actions
needed to address key risks for the UI GAO designated the UI system as high risk because its administrative and
system; (3) potential options for program integrity challenges pose significant risks to service delivery and expose
transforming the UI system; and (4) the the system to significant financial losses. For example, estimated UI improper
economic effects of expanding UI payments—some of which were due to fraud—increased from approximately
benefits during adverse times. $8.0 billion in fiscal year 2020 to approximately $78.1 billion in fiscal year 2021.
In June 2022, GAO reported that the Department of Labor (DOL) has some
This testimony is based on two June
2022 reports. For GAO-22-105162, activities planned and underway that may address the risks GAO identified, but
GAO reviewed audit products; additional action is needed. GAO recommended that DOL develop and execute a
reviewed relevant literature; convened transformation plan that outlines actions to address issues related to providing
a panel of stakeholders with UI effective service and mitigating financial risk, including ways to demonstrate
expertise; and compared findings improvements. GAO also noted that DOL will need to work closely with states,
against GAO criteria for designating and potentially with the Congress, to make progress. DOL agreed with the
programs as high risk. For GAO-22- recommendation and noted that it has a variety of efforts underway. These
104251, GAO conducted a literature include efforts to enhance equity in program access and benefit distribution;
review to identify relevant studies on reach worker populations reflective of the modern economy; and rebuild program
the effects of expanded UI benefits for performance, efficiency in claims processing, and payment timeliness.
individuals and the economy during
adverse times. Participants in stakeholder panels GAO convened identified various options for
transforming the UI system. Options include changes to program design to better
What GAO Recommends target support, such as broadening eligibility, reducing administrative barriers to
access, and standardizing requirements across states. Other options include
In GAO-22-105162, GAO
strategies to help improve UI IT systems, such as establishing well-defined
recommended that DOL develop and
implement a plan for transforming UI modernization outcome goals, and enhancing system integrity, such as
that meets GAO’s high-risk criteria. maintaining employer verification and improving identity verification.
DOL agreed with the recommendation. Although the UI system faces challenges, GAO’s June 2022 review of empirical
GAO has 21 open recommendations to studies found that the expansion of UI programs during adverse times—such as
DOL on UI, including several related to the 2007-2009 recession and the COVID-19 pandemic—helped to stabilize the
managing fraud risk. economy, prevented detrimental outcomes from worsening, and had a limited
View GAO-22-106159. For more information,
effect on workers’ incentives to return to work. Some of the studies also showed
contact Thomas Costa at (202) 512-4769 or that UI expansion had other positive benefits such as an improved labor market.
costat@gao.gov.

United States Government Accountability Office
Letter Letter

Chairman DeSaulnier, Republican Leader Allen, and Members of the
Subcommittee:

Thank you for the opportunity to discuss our work on the challenges and
risks facing the Unemployment Insurance (UI) system. The UI system has
faced long-standing challenges with effective service delivery and
program integrity, which worsened during the COVID-19 pandemic
because of historic levels of job loss. For example, in recent years, some
UI claimants experienced long waits for benefits, and there was a steep
increase in estimated UI improper payments, some of which were due to
fraud. 1 In June 2022, we added the UI system to our High-Risk list
because we found that these and other challenges pose significant risk to
UI service delivery and expose the UI system to significant financial
losses. 2 The Department of Labor (DOL) has taken some steps to
address these challenges. Moving forward, it will be important for DOL to
take a coordinated and sustained approach—involving state and federal
stakeholders, as appropriate—to ensure significant progress in improving
the UI system’s performance and integrity. 3

This testimony is based on our June 2022 reports, which examined
issues including (1) challenges related to the UI system’s ability to
respond to the needs of unemployed workers and to changing economic
conditions; (2) actions needed to address key risks for the UI system; (3)

1The Department of Labor estimated that UI improper payments increased over ninefold
from fiscal year 2020 to fiscal year 2021, from approximately $8.0 billion to approximately
$78.1 billion. Some, but not all, improper payments are due to fraud. Fraud involves
obtaining something of value through willful misrepresentation. Whether an act is
fraudulent is determined through the judicial or other adjudicative systems.
2The High-Risk List highlights federal programs and operations that we have determined
are in need of transformation, and also names federal programs and operations that are
vulnerable to waste, fraud, abuse, and mismanagement. See GAO, High-Risk Series: Key
Practices to Successfully Address High-Risk Areas and Remove Them from the List,
GAO-22-105184 (Washington, D.C.: Mar. 3, 2022).
3For the purposes of this testimony, the UI system includes UI programs that were
established prior to the COVID-19 pandemic (including the regular UI program and
Extended Benefits), and programs established in response to the COVID-19 pandemic
(such as Pandemic Unemployment Assistance and Federal Pandemic Unemployment
Compensation, among others).

Page 1 GAO-22-106159
potential options for transforming the UI system; and (4) the economic
effects of expanding UI benefits during adverse times. 4

For the June 2022 report on which this testimony is primarily based, to
determine the challenges that DOL and states face in responding to
unemployed workers’ needs and to changing economic conditions, we
reviewed audit products by GAO, the DOL Office of Inspector General
(OIG), and state audit agencies, as well as relevant literature. To identify
risks facing the UI system and actions needed to address those risks, we
also reviewed GAO and DOL OIG reports on UI-related issues. To
determine whether UI should be on the High-Risk List, we compared our
findings from prior reports, DOL OIG reports, and our June 2022 reports
against the GAO criteria for determining whether a government program
or function is high risk. 5 We also met with DOL officials to discuss
ongoing and planned activities to address challenges. To obtain
stakeholder views on the challenges facing the UI system, and options for
how it could be transformed, we convened a 2-day virtual roundtable
composed of 16 stakeholder panelists with UI-related academic research
experience, experience running or assessing the UI system, or both. 6
Furthermore, for the other June 2022 report discussed in this testimony,
we conducted a literature review to identify key government, industry, and
academic studies examining the effects of expanded UI benefits for

4The first three objectives of this testimony are based on GAO, Unemployment Insurance:
Transformation Needed to Address Program Design, Infrastructure, and Program Integrity
Risks, GAO-22-105162 (Washington, D.C.: June 7, 2022). The fourth objective is based
on Unemployment Insurance: Pandemic Programs Posed Challenges, and DOL Could
Better Address Customer Service and Emergency Planning, GAO-22-104251
(Washington, D.C.: June 7, 2022). Both reports address additional topics that are not
included in this testimony. We also issued a report in June 2022 focused on the Pandemic
Unemployment Assistance program, one of the four UI programs established in response
to the COVID-19 pandemic. See Pandemic Unemployment Assistance: Federal Program
Supported Contingent Workers amid Historic Demand, but DOL Should Examine Racial
Disparities in Benefit Receipt, GAO-22-104438 (Washington, D.C.: June 7, 2022).
5GAO, Determining Performance and Accountability Challenges and High Risks,
GAO-01-159SP (Washington, D.C.: Nov. 1, 2000).
6We selected potential panelists from government, the private sector, public–private
partnerships, and academia to obtain educated views on topics related to transforming the
UI system. The inclusion in this testimony of individual options that stakeholders provided
for transforming the UI system is meant to be illustrative and should not be interpreted as
an endorsement by GAO or any federal agency or department.

Page 2 GAO-22-106159
individuals and the economy during adverse times. 7 Detailed information
on our objectives, scope, and methodology can be found in the issued
reports.

We conducted the work on which this testimony is based in accordance
with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on
our audit objectives.

Background

UI Program Administration The federal government and states work together to administer UI
and Funding programs. States design and administer their own UI programs within
federal parameters, while DOL oversees states’ compliance with federal
requirements, such as by reviewing state laws to confirm they are
designed to ensure payment of benefits when due. According to DOL,
state statutes establish specific benefit structures, eligibility provisions,
benefit amounts, and other aspects of the program. Regular UI benefits—
those provided by state UI programs before the CARES Act was
enacted—are funded primarily through state taxes levied on employers
and are intended to replace a portion of a claimant’s previous
employment earnings, according to DOL. 8

7We searched relevant databases to identify scholarly and peer-reviewed research,
working papers, government reports, trade and industry articles, as well as association
and non-profit publications published in the last 20 years. We determined that 30 studies
fulfilled our criteria for inclusion in our literature review. For more information on our
literature review methodology, see GAO-22-104251.
8To be eligible for regular UI benefits, applicants must generally demonstrate workforce
attachment, be able and available to work, and be actively seeking work. 42 U.S.C. §
503(a)(12). Administration of the regular UI program is financed by a federal tax on
employers, according to DOL.

Page 3 GAO-22-106159
The CARES Act created three federally funded temporary UI programs—
Pandemic Unemployment Assistance (PUA), 9 Federal Pandemic
Unemployment Compensation (FPUC), 10 and Pandemic Emergency
Unemployment Compensation (PEUC) 11—that expanded benefit eligibility
and enhanced benefit amounts. These programs were amended by the
Consolidated Appropriations Act, 2021, and the American Rescue Plan
Act of 2021. In addition, the Consolidated Appropriations Act, 2021,
created the Mixed Earner Unemployment Compensation (MEUC)
program, which was extended by the American Rescue Plan Act of
2021. 12 The federal government directly funded the administration of, and
benefits for, these pandemic UI programs and relied on states to ensure
benefits reached unemployed workers. These programs expired on
September 6, 2021, although some states ended their participation before
that date.

States’ UI IT Environment State workforce agencies rely extensively on IT systems to carry out their
program functions, including benefit eligibility determinations and
calculating benefit amounts. However, many states continue to rely on
aging, or legacy, IT systems developed in the 1970s and 1980s. 13 Legacy
systems run on outdated or unsupported hardware and software that are
expensive to maintain and may use older programming languages. As a

9PUA authorized UI benefits for individuals not otherwise eligible for UI benefits, such as
self-employed and certain gig economy workers, who were unable to work as a result of
specified COVID-19-related reasons. Pub. L. No. 117-2, § 9011(a), (b), 135 Stat. 4, 118
(2021); Pub. L. No. 116-260, div. N, tit. II, § 201(a), (b), 134 Stat. 1182, 1950-1951 (2020);
Pub. L. No. 116-136, § 2102, 134 Stat. 281, 313 (2020).
10FPUC generally authorized an additional weekly benefit for individuals who were eligible
for weekly benefits under the permanent UI programs—e.g. regular UI—and the
temporary CARES Act UI programs. Pub. L. No. 117-2, § 9013, 135 Stat. 4, 119; Pub. L.
No. 116-260, div. N, tit. II, § 203, 134 Stat. 1182, 1953; Pub. L. No. 116-136, § 2104, 134
Stat. 281, 318.
11PEUC generally authorized additional weeks of UI benefits for those who had exhausted
their regular UI benefits. Pub. L. No. 117-2, § 9016(a), (b), 135 Stat. 4, 119-120; Pub. L.
No. 116-260, div. N, tit. II, § 206(a), (b), 134 Stat. 1182, 1954; Pub. L. No. 116-136, §
2107, 134 Stat. 281, 323.
12The MEUC program authorized an additional $100 weekly benefit for certain UI
claimants who received at least $5,000 of self-employment income in the most recent tax
year prior to their application for UI benefits. Pub. L. No. 117-2, § 9013(a), 135 Stat. 4,
119; Pub. L. No. 116-260, div. N, tit. II, § 261(a)(1), 134 Stat. 1182, 1961.
13The National Defense Authorization Act for Fiscal Year 2018 defines a legacy IT system
as an IT system that is outdated or obsolete. Pub. L. No. 115-91, § 1076(8), 131 Stat.
1283, 1586-87 (2017).

Page 4 GAO-22-106159
result, state workforce agencies may not be able to ensure these systems
have effective internal controls to address current security vulnerabilities
and other IT risks. Furthermore, in May 2021, the DOL OIG found that
legacy IT systems were one of the causes of states’ inability to detect and
recover UI improper payments, including those as a result of fraudulent
activity. 14 According to the National Association of State Workforce
Agencies (NASWA), as of July 2022, 32 of the 53 states and territories
were still using legacy IT systems to support their UI benefits system, tax
system, or both. We previously reported that modernizing legacy IT
systems allowed agencies to leverage IT to successfully address their
missions and achieve a wide range of benefits. 15

Our June 2022 report on UI transformation highlighted the long-standing
Reported Challenges challenges with UI administration and outdated IT systems that have
with State UI affected states’ ability to effectively meet the needs of unemployed
workers. These challenges have occurred both historically and during
Administration and times of economic downturn—particularly the COVID-19 pandemic.
Outdated IT Systems According to our past work and that of the DOL OIG, and the views of our
stakeholder panelists, challenges that have affected the responsiveness
Affect UI of the UI system include those related to (1) program design; (2)
Responsiveness

14Department of Labor Office of Inspector General, Report No. 19-21-004-03-315. The
Payment Integrity Information Act of 2019 (PIIA) defines an improper payment as any
payment that should not have been made or that was made in an incorrect amount
(including overpayments and underpayments) under statutory, contractual, administrative,
or other legally applicable requirements. It includes any payment to an ineligible recipient,
any payment for an ineligible good or service, any duplicate payment, any payment for a
good or service not received (except for such payments where authorized by law), and
any payment that does not account for credit for applicable discounts. 31 U.S.C. §
3351(4). Further, when an executive agency’s review is unable to discern, because of
lacking or insufficient documentation, whether a payment was proper, the agency must
treat the payment as improper in producing an improper payment estimate. 31 U.S.C. §
3352(c)(2).
15IT modernization can include transforming legacy code into a more modern
programming language, migrating legacy services to cloud computing solutions, and re-
designing mainframe applications to cloud-based applications. The benefits of a
successful IT modernization effort can include cost savings, improved customer service,
enhanced security, and reduced amount of labor needed to maintain legacy systems and
software. See GAO, Information Technology: Agencies Need to Develop Modernization
Plans for Critical Legacy Systems, GAO-19-471 (Washington, D.C.: June 11, 2019).

Page 5 GAO-22-106159
customer service, payment timeliness, and implementing new programs;
and (3) states’ ability to use and modernize legacy IT systems. 16

UI Program Design Has Decline in workers’ participation in UI. Prior to the COVID-19
Led to Challenges pandemic, the proportion of unemployed workers filing for UI benefits—
referred to as the recipiency rate—was near a historic low. According to
DOL, the recipiency rate was 54.6 percent in 1958 and declined to 28.1
percent in 2019. 17 Program design is among the factors contributing to
the decline in the recipiency rate, including states tightening requirements
for participation in UI, according to DOL and participants in our
stakeholder panels. In addition, some stakeholder panelists noted that, as
an employer-based structure, the regular UI program does not cover
contingent workers for whom payroll taxes are not paid, such as
independent contractors or self-employed workers, who are estimated to
number in the millions. 18 Also, contingent workers, who may have
irregular work and earnings histories, may be more likely to face
difficulties in qualifying for regular UI. 19

Differing UI administration across states and territories. The regular
UI program was designed as a federal-state partnership that gives states
considerable flexibility, resulting in essentially 53 different UI programs
across the states and territories. Stakeholder panelists noted that
minimum and maximum UI benefit amounts, duration of benefit periods,

16There are currently 21 open GAO recommendations related to UI. We identified five of
these recommendations as priorities for the Department of Labor. Priority open
recommendations are the GAO recommendations that warrant priority attention from
heads of key departments or agencies because their implementation could save large
amounts of money; improve congressional and/or executive branch decision-making on
major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs
comply with laws and funds are legally spent, among other benefits. See appendix I for a
detailed list of the open recommendations.
17In 2019, recipiency rates varied widely by state, from 9.5 percent (North Carolina) to
59.0 percent (New Jersey), according to DOL. In 2020, the recipiency rate increased
sharply to 78.0 percent. According to DOL officials, this was due to the large number of UI
continued claims during the pandemic.
18We use the term “contingent workers” to refer broadly to workers without traditional
employment arrangements, such as those with temporary or gig employment,
independent contractors, and self-employed workers.
19During the COVID-19 pandemic, the temporary PUA program was the first nationwide
program to provide contingent workers with access to UI benefits, provided they met
program eligibility criteria. For more information about the PUA program and the
experiences of contingent workers during the pandemic, see GAO-22-104438.

Page 6 GAO-22-106159
and eligibility rules are substantially different by state, resulting in
inconsistent levels of support for workers. In our 2015 report, we found
that reductions in state benefit durations resulted in some individuals
receiving substantially less in total UI benefits. 20

In addition, DOL, panelists, and we have identified concerns about racial
and other disparities in accessing and receiving UI benefits. Specifically,
in our June 2022 report, we found substantial racial and ethnic disparities
in PUA benefit receipt in three of four selected states. For example, in two
states, the percentage of Black applicants who received PUA was about
half that of White applicants. 21 Panelists noted that there is a correlation
between states with low UI recipiency rates and states with a high
percentage of African American residents, as compared to other states.
Moreover, states take different approaches to monitoring ongoing UI
claimant eligibility, including compliance with work search requirements. 22

Limited effectiveness of Extended Benefits program. Stakeholder
panelists noted limitations with the Extended Benefits (EB) program’s
effectiveness amid changing national economic conditions. The EB
program responds to recessions by extending the duration of UI benefits

20GAO, Unemployment Insurance: States’ Reductions in Maximum Benefit Durations
Have Implications for Federal Costs, GAO-15-281 (Washington, D.C.: Apr. 22, 2015).
21Results from two national surveys show similar disparities in UI receipt. Various factors
could explain these disparities, such as how states reviewed claims or whether fraudsters
more frequently used certain demographics when filing. See GAO-22-104438 and GAO,
Management Report: Preliminary Information on Potential Racial and Ethnic Disparities in
the Receipt of Unemployment Insurance Benefits during the COVID-19 Pandemic,
GAO-21-599R (Washington, D.C.: June 17, 2021). As we have previously reported, DOL
has taken a variety of steps to address equity in the UI program, including making grant
funds available to states to address equity issues and deploying equity experts to states to
identify challenges to UI benefit access and best practices for addressing them. In April
2022, DOL released an Equity Action Plan, which among other things summarized DOL’s
ongoing and planned actions to advance equity in the UI system.
22In our 2018 report, we made four recommendations related to monitoring ongoing
claimant eligibility—two of which we designated as high priority—that remain
unaddressed. For example, we recommended that DOL clarify and monitor states’
compliance with work-search verification requirements. GAO, Unemployment Insurance:
Actions Needed to Ensure Consistent Reporting of Overpayments and Claimants’
Compliance with Work Search Requirements, GAO-18-486 (Washington, D.C.: Aug. 22,
2018).

Page 7 GAO-22-106159
if certain economic criteria, known as triggers, are met. 23 According to
DOL, the program provides, depending on state law, up to an additional
13 or 20 weeks of benefits during periods of high unemployment. 24 Also,
an important part of the mission of UI is to stabilize the U.S. economy
during recessions by helping individuals maintain their purchasing power
by replacing a portion of income lost through unemployment, according to
DOL. However, panelists highlighted various issues with the EB program,
including questions about the statistical validity of the specific triggers that
are used to activate the program. Panelists also noted that in recent
recessions, Congress created temporary programs to expand UI because
the EB program could not respond adequately to national recessions. In
addition, panelists noted that in prior recessions, most workers were re-
employed before their regular UI benefits ran out, and therefore, the EB
program was not relevant for those workers.

State agencies’ struggles to fund UI. States’ benefit amounts and
approaches to UI financing risk the viability of the program. The regular UI
program is generally funded through a combination of federal and state
taxes on employers. 25 When a state exhausts the funds available for
regular UI benefits, it may borrow from the federal government. As we
previously reported, during the 2007–2009 recession, many states took
out federal loans to pay for UI benefits. 26 This also occurred during the

23Specifically, the EB program uses triggers based on the unemployment rate of people
covered by UI (the insured unemployment rate), and the unemployment rate based on the
wider population (the total unemployment rate). Pub. L. No. 91-373, Title II, 84 Stat. 695,
708-13 (codified as amended at 26 U.S.C. § 3304, note).
24During the pandemic, regular UI claimants who exhausted their regular UI and PEUC
benefits also had access to the EB program if their claim was in a state that triggered the
program. The EB program was activated in all states except South Dakota at some point
during the pandemic, according to DOL.
25According to DOL, three states also require employee contributions under certain
conditions.
26For example, in 2010, after the 2007–2009 recession, 30 states and territories held
approximately $40.2 billion in federal loans. See GAO, COVID-19: Additional Actions
Needed to Improve Accountability and Program Effectiveness of Federal Response,
GAO-22-105051 (Washington, D.C.: Oct. 27, 2021). We did not adjust this 2010 loan
balance amount for inflation. In 2015, we found that states that had reduced UI benefit
durations after the 2007–2009 recession had weaker pre-recession trust funds, among
other factors. See GAO-15-281.

Page 8 GAO-22-106159
pandemic. 27 In addition, participants in our stakeholder panels noted that
funding for UI administration has been a historical challenge. From fiscal
years 2010 to 2019, funding for state UI administration declined by about
32 percent, after adjusting for inflation. 28 Several panelists commented
that insufficient federal funding for UI administration has resulted in state
agencies being understaffed or having outdated technology. 29

State UI Programs Have We and others have reported on administrative challenges that states
Faced Administrative encountered as they implemented both the regular and pandemic UI
programs, in the areas of providing customer service, delivering timely
Challenges with Customer
benefits, and implementing new programs.
Service, Payment
Timeliness, and Customer service. States reported facing ongoing administrative
Implementing New challenges in providing effective customer service to UI claimants, even
Programs outside of economic downturns. In our 2016 report, we found that during
the 2007–2009 recession many states reported facing challenges in
processing record numbers of UI claims, including staff turnover and
insufficient call center staff, as well as delays in claimants receiving
benefits. 30 Furthermore, many states reported that insufficient call center
staff was still a challenge in 2014 and 2015. Also, in our focus groups,
regular UI claimants who applied for benefits by phone between July
2014 and July 2015 reported experiencing long call wait times or having
to call multiple times to reach program representatives. During the

27For example, as of April 23, 2021, 20 states and territories held loans with a combined
total balance of $55.1 billion. By September 7, 2022, the number of states and territories
holding federal loans had dropped to six with a total combined balance of about $27.6
billion.
28Before adjusting for inflation, administrative funding declined by about 21 percent. We
adjusted for inflation using the gross domestic product price index.
29In its official comments on GAO-22-105162, DOL stated that funding constraints for the
UI system have historically posed ongoing threats to states’ ability to administer UI
programs with efficiency and integrity.
30GAO, Unemployment Insurance: States’ Customer Service Challenges and DOL’s
Related Assistance, GAO-16-430 (Washington, D.C.: May 12, 2016).

Page 9 GAO-22-106159
COVID-19 pandemic, similar challenges were again cited by states and
claimants. 31

Payment timeliness. Stakeholder panelists noted the importance of
delivering timely UI benefits to unemployed workers who need
assistance. The long waits for payments during the pandemic caused
financial and other hardships for some workers. For example, some PUA
claimants we spoke with as part of our work examining that program said
they needed to negotiate rent payment delays, defer bills, or accrue credit
card debt while they were waiting for their first PUA payment. 32 Claimants
we spoke with as a part of our work examining CARES Act UI programs
told us that they used funds from their retirement accounts and other
savings, relied on family and friends for loans to meet living expenses,
and accepted assistance from community-based food pantries and other
organizations to get help with food and utilities amidst payment delays. 33

As we previously reported, extensive claims-processing backlogs led to
substantial delays in first payments of regular UI benefits early in the
pandemic, and those delays continued for some states later in the
pandemic. The nationwide percentage of regular UI first benefits paid
within 21 days of a claimant’s initial eligibility fell from about 97 percent in
March 2020 to about 52 percent in June 2020. 34 Since then, the

31GAO-22-104251. In addition, our work examining the PUA program identified a variety
of challenges for PUA claimants. For example, PUA claimants we spoke with faced some
difficulties navigating how to verify their eligibility, including gathering and providing the
appropriate documentation. A few of these workers said these challenges were in part due
to being new to the UI system and unfamiliar with the process and its requirements.
Worker advocacy groups we spoke with in several states also reported various challenges
for PUA claimants, including that non-English speaking claimants had difficulty accessing
translated information in a timely manner. See GAO-22-104438.
32A few PUA claimants we spoke with who were victims of identity theft said they
experienced long delays before receiving benefits as the fraud was investigated. They
also told us they invested substantial time investigating their own cases. See
GAO-22-104438.
33GAO-22-104438 and GAO-22-104251.

34GAO-22-105051 and GAO, COVID-19: Significant Improvements Are Needed for
Overseeing Relief Funds and Leading Responses to Public Health Emergencies,
GAO-22-105291 (Washington D.C.: Jan. 27, 2022). One of DOL’s core performance
measures is the percentage of all regular UI first payments made within either 14 or 21
days of the first week of benefits for which claimants are eligible; DOL considers 87
percent to be an acceptable level of performance. DOL uses 14 days as the timeliness
goal for states with a waiting week requirement and uses 21 days for states without a
waiting week requirement.

Page 10 GAO-22-106159
timeliness of these first payments has fluctuated, and in June 2022, about
75 percent of first payments were paid within 21 days. 35

Implementing new programs. Prior to the pandemic, the DOL OIG had
noted concerns with DOL and states’ ability to deploy program benefits
quickly and efficiently while ensuring program integrity and adequate
oversight, particularly in response to national emergencies and disasters.
During the pandemic, states were overwhelmed by record levels of UI
claims as they simultaneously implemented the new CARES Act UI
programs. Initial claims for regular UI benefits nationwide reached a
historic peak of more than 6 million per week in late March and early April
2020, and states reported receiving more than 1.3 million weekly PUA
initial claims in late May 2020. We and the DOL OIG have reported that
selected states struggled to implement the CARES Act UI programs due
to insufficient staffing and unclear guidance from DOL, among other
issues. 36 The DOL OIG also reported that states had to develop new
systems to implement the CARES Act UI programs, resulting in backlogs
in processing claims for weeks, and in some cases, months. 37

State IT Challenges As discussed in our June 2022 report on UI transformation, many states
Include Using and rely on legacy systems for their UI programs. The DOL OIG and we have
reported on the risks and challenges that legacy systems pose for state
Modernizing Legacy UI
UI programs, which have led to, among other things, reduced efficiency
Systems and effectiveness. 38 For example:

• Inefficient system performance. Prior to the COVID-19 pandemic, in
May 2016, we reported that legacy IT systems were a challenge for

35We analyzed first-payment timeliness data that states had reported to DOL as of August
10, 2022. At that point, all 53 states had reported data for June 2022 and prior months.
36GAO-22-104251. Also see Department of Labor Office of Inspector General, COVID-19:
States Struggled to Implement CARES Act Unemployment Insurance Programs, Report
No. 19-21-004-03-315 (Washington, D.C.: May 28, 2021).
37Department of Labor Office of Inspector General, Report No. 19-21-004-03-315.

34We have ongoing work looking at state UI IT system modernization efforts, including

successes and challenges, as well as DOL’s management and oversight of its efforts to
assist state agencies with their modernization efforts.

Page 11 GAO-22-106159
many states, according to our survey. 39 After the start of the
pandemic, in June 2020, we reported that the unprecedented number
of UI claims posed challenges for states’ capacity to process them. 40
Specifically, state UI programs faced system performance issues with
legacy data systems.
• Slower processing of payments. In May 2021, the DOL OIG
reported that states with legacy systems started the PEUC program
15 days slower than states with modernized systems, and the PUA
program 8 days slower on average. 41 Further, the DOL OIG reported
that officials from 17 of 50 states and territories (34 percent) stated
their IT systems were unable to implement provisions of the CARES
Act, such as those creating the PUA program. 42
• Inability to detect improper payments (including from fraud). Also
in the May 2021 DOL OIG report, state officials mentioned that their IT
systems did not have the capability to perform cross-matches—a
method used to detect improper payments, including those as a result
of fraudulent activity—for such a large volume of claims.
• Difficulty reporting UI program activities to DOL. The May 2021
DOL OIG report also identified legacy IT systems as one of the
causes of states being unable to report their CARES Act UI program
activities to DOL. For example, state officials noted that they were
unable to program the newly required reports in their IT systems.
More generally, we have previously reported that the use of legacy
systems can contribute to additional risks, including security
vulnerabilities, staffing issues, and increased cost. 43

39Specifically, 29 of 48 states (60 percent) reported that their IT systems had significant
limitations, which had implications for the ability of state programs to efficiently process UI
claims and serve claimants. We did not receive survey responses from UI programs in the
District of Columbia, North Carolina, and Vermont. Our review did not include UI programs
in Puerto Rico and the U.S. Virgin Islands. See GAO-16-430.
40GAO, COVID-19: Opportunities to Improve Federal Response and Recovery Efforts,
GAO-20-625 (Washington, D.C.: June 25, 2020).
41Department of Labor Office of Inspector General, Report No. 19-21-004-03-315.

42Arkansas, Idaho, and Vermont were not included among the states.

43GAO, Information Technology: Agencies Need to Develop Modernization Plans for
Critical Legacy Systems, GAO-19-471 (Washington, D.C.: June 11, 2019).

Page 12 GAO-22-106159
Additionally, our work has identified challenges that states face in
modernizing their legacy UI systems. 44 For example:

• Funding uncertainty. In our prior reporting, we identified challenges
that states reported regarding declining or inconsistent federal and
state funding for UI IT modernization, leading to difficulties in project
planning, among other difficulties. 45
• Staffing and vendor limitations. We also found that UI IT system
development can be hindered by a shortage of staff with technical and
project management expertise to manage IT modernizations efforts.
We identified challenges that states reported related to using vendors
for UI modernization efforts, such as having too few vendors for
selection and lacking sufficient staff expertise to maintain systems
once vendor staff left.
• System capacity and scaling limitations. We previously reported
that states faced challenges in ensuring sufficient system capacity to
process the unprecedented number of UI claims during the COVID-19
pandemic. According to NASWA officials, this challenge was due to
states not sufficiently load testing their systems to handle large
volumes of claims prior to the pandemic.

As a result of the many challenges facing the UI system that we and
Transformation Plan others have identified, we added the UI system to our High-Risk List in
and Sustained Action June 2022. In designating a program as high risk, we consider: (1)
qualitative factors such as whether risks could result in significantly
Are Critical to impaired service delivery; (2) exposure to financial loss; and (3)
Address Risks to UI effectiveness of corrective actions that are planned or underway. We
determined that the administrative and program integrity challenges
System facing the UI system pose significant risks to service delivery and expose
the system to significant financial losses. For example, there was a steep
increase in estimated UI improper payments—some of which were due to
fraud—from fiscal year 2020 to 2021. To address these risks to the UI
system, we also recommended that DOL develop and implement a

44GAO-20-625, GAO-16-430, and GAO, Information Technology: Department of Labor
Could Further Facilitate Modernization of States’ Unemployment Insurance Systems,
GAO-12-957 (Washington, D.C.: Sept. 26, 2012).
45GAO-16-430 and GAO-12-957.

Page 13 GAO-22-106159
transformation plan that meets factors in GAO’s criteria for high-risk list
removal. 46

Risk to service delivery. The chronic management and resource
challenges we and others have identified are extensive enough to pose
significant risk to UI service delivery. During the pandemic, historic and
urgent demand for services and the need to implement new and
expanded UI benefits overwhelmed states, causing benefit payment
timeliness to plummet and significantly straining customer service. These
challenges exacerbated inherent risks in the program that challenge its
ability to respond effectively to economic downturns and to ensure equity
in service delivery across states and workers.

Risk of financial loss. Prior to the pandemic, DOL regularly estimated
that improper payments in the regular UI program totaled billions of
dollars annually. During the pandemic, DOL’s estimated amount of
improper payments for a portion of the UI programs increased over
ninefold, from approximately $8.0 billion in fiscal year 2020 to
approximately $78.1 billion in fiscal year 2021. 47 This increase in
estimated improper payments resulted from (1) the doubling of the
estimated improper payment rate from approximately 9.2 percent in fiscal
year 2020 to approximately 18.9 percent in fiscal year 2021; and (2) the
increase of reported outlays in the UI program from approximately $86.9
billion in fiscal year 2020 to approximately $413.0 billion in fiscal year
2021. 48 DOL expects this elevated estimated improper payment rate to
continue for fiscal year 2022. Some, but not all, improper payments are
due to fraud. 49 We have previously reported that the amount of fraudulent
and potentially fraudulent activity in UI programs increased substantially
after the three CARES Act UI programs were enacted, relative to the
amount of such activity in the regular UI program before the pandemic. 50

46GAO-22-105162.

47The estimated improper payments for the 2021 UI program includes improper payment
estimations for the FPUC and PEUC programs, but does not include PUA and MEUC
improper payment estimations.
48The source for these outlays is www.paymentaccuracy.gov. The sampling period covers
outlays from July 1, 2020 to June 30, 2021.
49Fraud involves obtaining something of value through willful misrepresentation. Whether
an act is fraudulent is determined through the judicial or other adjudicative systems.
50GAO-22-105051.

Page 14 GAO-22-106159
Federal and state entities continue to investigate and report on high levels
of fraud, potential fraud, and fraud risks in the UI programs. 51

Effectiveness of corrective actions. In designating the UI system as
high risk, we also considered actions—in the areas of leadership
commitment, capacity, action plan, monitoring, and demonstrating
progress—that DOL could take to help address challenges. DOL has
some activities planned and underway that may address the risks we
have identified. For example, DOL has sent teams of experts to states to
provide technical assistance and make recommendations related to
payment timeliness, equity, technology, and fraud. DOL has also offered
grant opportunities to states to implement the expert teams’
recommendations, address equity issues, and improve program access.
However, further action is needed. In June 2022, we recommended that
DOL develop and execute a transformation plan that outlines coordinated
and sustained actions to address issues related to providing effective
service and mitigating financial risk, including ways to demonstrate
improvements. 52 In addition, we noted that DOL will need to work closely
with states to make progress in these areas, and that if DOL determines
that legislative action is needed, providing technical assistance to
Congress could also be helpful.

We reported in June 2022 that action in each of these areas is important
to address the significant risks facing the UI system. For example:

• Leadership commitment. We and the DOL OIG have identified the
need for DOL to improve its leadership and coordination of actions to
address risks to UI service delivery and program integrity. DOL
leadership has acknowledged the need for significant reform of the UI
system. In August 2021, DOL announced the establishment of the
Office of Unemployment Insurance Modernization within the Office of
the Secretary to provide strategic leadership as the department

51We have ongoing work reviewing the extent of fraud in the UI system.

52GAO-22-105162. DOL agreed with the recommendation and noted that it has related
efforts underway, which we discuss later in this testimony.

Page 15 GAO-22-106159
implements its UI modernization plan. 53 While this is promising, the
office is temporary, consists of a small leadership team, and does not
have long-term timelines for planned activities due to the temporary
nature of its role. 54 A long-term strategic plan and sustained
leadership are critical to fulfill the vision outlined in DOL’s UI
modernization plan.
• Capacity. Limitations in state and federal capacity have been
recurring findings in our UI reports and those of the DOL OIG,
especially related to ensuring the UI system responds effectively to
economic downturns. Our June 2022 report identified staffing
limitations, outdated IT infrastructure, and the limited effectiveness of
benefit triggers during economic downturns as some of the capacity
challenges faced by the UI system. 55 DOL has used funding from the
American Rescue Plan Act of 2021 to support states in modernizing
their IT systems, including beginning to develop modular technology
solutions that can be integrated with state IT systems and a blueprint
for the UI customer experience. However, lasting and system-wide
solutions are important to meet the vision for infrastructure
improvements outlined in DOL’s UI modernization plan.
• Action plan. DOL outlined several principles for reform of the UI
system in its fiscal year 2022 and 2023 congressional budget
justifications. 56 In addition, in April 2022, DOL released an Equity
Action Plan, which outlined existing barriers to equitable outcomes in
the UI system and summarized DOL’s ongoing and planned actions to
advance equity. However, we reported in June 2022 that DOL has not
yet conducted comprehensive analyses of the extent of or potential
causes of system-wide disparities in benefit receipt or options for

53See Department of Labor, Fact Sheet: Unemployment Insurance Modernization:
American Rescue Plan Act Funding for Timely, Accurate and Equitable Payment in
Unemployment Compensation Programs (Washington, D.C.: Aug. 11, 2021). The office is
also providing oversight and management of $2 billion in funds from the American Rescue
Plan Act of 2021 to prevent and detect fraud, promote equitable access, and ensure timely
benefits payments, according to DOL.
54DOL officials said they expected that the longer-term modernization effort would
eventually be led by the Employment and Training Administration’s Office of
Unemployment Insurance.
55GAO-22-105162.

56These principles included the need for a modern system to provide adequate benefits in
every state, be easily scalable and respond automatically to economic downturns, reflect
the modern economy and labor force, and ensure access and integrity before the next
crisis.

Page 16 GAO-22-106159
supporting nontraditional workers and reflecting a modern economy. 57
In addition, we found that DOL has not comprehensively assessed UI
fraud risks in alignment with leading practices as provided in our
Fraud Risk Framework. 58 Additionally, as noted above, in our June
report we recommended that DOL develop and execute planned
actions as part of meeting GAO’s high risk criteria for transformation.
Clear plans to identify root causes and potential solutions to the
challenges underlying DOL’s reform principles are necessary for long-
term progress. Action plans can also support DOL’s monitoring efforts
and help ensure progress.
• Monitoring. Understanding the effectiveness of DOL’s efforts is
important to ensuring progress. DOL collects data from states
including data on UI claims, compensation, payment timeliness, and
overpayments. However, we have identified some limitations in the
completeness and accuracy of these data. 59 For example, we have
made several recommendations related to obtaining more accurate
and complete data on the number of people who receive benefits and
the amount of PUA overpayments that were recovered and waived. 60
We have also recommended that DOL obtain information about
customer service challenges during the pandemic to identify best
practices for helping claimants. 61 Monitoring the effectiveness of

57GAO-22-104438.

58To help managers combat fraud and preserve integrity in government agencies and
programs, GAO identified leading practices for managing fraud risks and organized them
into a conceptual framework called the Fraud Risk Framework. The Fraud Risk
Framework encompasses control activities to prevent, detect, and respond to fraud, with
an emphasis on prevention, as well as structures and environmental factors that influence
or help managers achieve their objective to mitigate fraud risks. In addition, the framework
highlights the importance of monitoring and incorporating feedback. For more information
on the Fraud Risk Framework, see GAO, A Framework for Managing Fraud Risks in
Federal Programs, GAO-15-593SP (Washington, D.C.: Jul. 28, 2015) and
GAO-22-105051.
59GAO, COVID-19: Current and Future Federal Preparedness Requires Fixes to Improve
Health Data and Address Improper Payments, GAO-22-105397 (Washington, D.C.: Apr.
27, 2022) and GAO-22-104438.
60GAO, COVID-19: Urgent Actions Needed to Better Ensure an Effective Federal
Response, GAO-21-191 (Washington, D.C.: Nov. 30, 2020), GAO, COVID-19: Critical
Vaccine Distribution, Supply Chain, Program Integrity, and Other Challenges Require
Focused Federal Attention, GAO-21-265 (Washington, D.C.: Jan. 28, 2021), and GAO,
COVID-19: Sustained Federal Action Is Crucial as Pandemic Enters Its Second Year,
GAO-21-387 (Washington, D.C.: Mar. 31, 2021).
61GAO-22-104251.

Page 17 GAO-22-106159
DOL’s UI modernization activities will need high-quality and potentially
new data.
• Demonstrated progress. Areas where progress is needed include
reducing the improper payment rate; advancing equity in the UI
system, including across racial and ethnic groups and states; better
reaching current worker populations and reflecting the modern
economy; restoring pre-pandemic payment timeliness levels; and
improving the UI system’s response to economic downturns.
Implementing our UI-related recommendations and those of the DOL
OIG can help demonstrate progress in these areas, which align with
DOL’s principles and vision for UI reform and are critical for resolving
the significant risks in the UI system.

Stakeholders participating in our panel discussion identified specific
Panelists Offered options for transforming the UI system, including changes to program
Options to Transform design to better target UI support, improvements to UI IT systems, and
enhancing system integrity. 62 We discussed these options in our June
UI Program Design, 2022 report on UI transformation.
IT Systems, and
Changes to program design to better target UI support. Panelists
System Integrity identified a variety of potential changes to better target UI support,
including: broadening eligibility and reducing administrative barriers;
changing how benefits are calculated; standardizing certain UI
requirements and operations across states; and increasing federal
funding for UI administration and certain UI benefits (see table 1).

62We identified options for UI transformation based on our analysis of the stakeholder
panel discussions. These options for transformation are not listed in any specific rank or
order and their inclusion in this testimony should not be interpreted as GAO endorsing any
of them. Implementing any one transformation option or a combination of options might
require additional efforts to address program design or legal issues. We did not assess
how effective the potential transformation options may be or the extent to which legal
changes and federal financial support would be needed to implement them. Options
presented do not represent a consensus among panelists but instead represent
discussion by the group as a whole. For further discussion of options for UI transformation
identified by stakeholder panelists see GAO-22-105162.

Page 18 GAO-22-106159
Table 1: Potential Transformation Options Stakeholder Panelists Identified Related
to Changing Unemployment Insurance (UI) Program Design

Potential transformation options identified by
Transformation objective stakeholder panelists
Increase • Create a new program specifically to cover workers
access to UI not currently covered by regular UI, such as
independent contractors and self-employed
workers, to broaden eligibility
• Narrow the classification of independent
contractors to increase UI coverage
• Streamline UI application and employment
verification processes, thus reducing administrative
barriers to access
Better target UI benefit • Use a flexible wage-replacement rate to adjust
amounts benefits based on economic conditions and income
level
Increase consistency of UI • Federalize the UI system
support • Tighten federal standards for state UI programs
• Revise triggers for the Extended Benefits program
and set parameters for other recessionary
expansions to make UI expansions more automatic
and consistent across states
Ensure sufficient UI funding • Increase federal funding for UI administrationa
• Provide federal funding for certain UI benefits
• Require employee contributions to UI
Source: GAO analysis of stakeholder statements. | GAO-22-106159

Note: We identified transformation objectives based on our analysis of the stakeholder panelists’
proposed transformation options. These potential transformation options are not listed in any specific
rank or order and their inclusion in this report should not be interpreted as GAO endorsing any of
them. We did not assess how effective the potential transformation options may be or the extent to
which program design modifications, legal changes, and federal financial support would be needed to
implement any given transformation option or combination of transformation options. Options
presented do not represent a consensus among panelists but instead represent options presented by
at least one panelist and then, in most cases, discussion by the group as a whole.
a
The Department of Labor’s (DOL) fiscal year 2023 budget justification noted that the factors included
in DOL’s formula for estimating state administrative funding had not been updated in decades, and
proposed updates to two of these factors. Specifically, the budget justification stated that outdated
measures of claims processing rates and staff salary rates had resulted in state administrative
funding estimates that were not reflective of current administrative costs. According to DOL, the use
of these outdated factors consistently left states underfunded, which contributed to them not being
prepared for the surge in claims from the pandemic.

Improving and modernizing IT systems. We and others have reported
that states have faced challenges in modernizing their UI IT systems.
Stakeholder panelists identified strategies to help improve UI systems
and overcome challenges associated with modernizing them (see table
2).

Page 19 GAO-22-106159
Table 2: Potential Transformation Options Stakeholder Panelists Identified Related
to Improving Unemployment Insurance (UI) System Infrastructure

Potential transformation options identified by
Transformation objective stakeholder panelists
Improving and modernizing IT • Increase the focus on the user experience in state
systems UI IT systemsa
• Ensure that staff have project and product
management expertiseb
• Use incremental or modular development and
implementation practicesc
• Establish well-defined modernization outcome
goals
Source: GAO analysis of stakeholder statements. | GAO-22-106159

Note: We identified transformation objectives based on our analysis of the stakeholders’ proposed
transformation options. These potential transformation options are not listed in any specific rank or
order and their inclusion in this report should not be interpreted as GAO endorsing any of them. We
did not assess how effective the potential transformation options may be or the extent to which
program design modifications, legal changes, and federal financial support would be needed to
implement any given transformation option or combination of transformation options. Options
presented do not represent a consensus among panelists but instead represent options presented by
at least one panelist and then, in most cases, discussion by the group as a whole.
a
User experience testing can occur as part of usability testing. Usability testing refers to evaluating a
product or service by testing it with representative users. Typically, during a test, participants will try
to complete typical tasks while observers watch, listen, and take notes. The goal is to identify any
usability problems, collect qualitative and quantitative data, and determine the participant’s
satisfaction with the product.
b
Product management is the practice of identifying customer requirements, prioritizing those
requirements, and interfacing with product owners to confirm alignment between the software
components and enterprise goals.
c
Incremental or modular development is where an investment may be broken down into discrete
projects, increments, or useful segments, each of which are undertaken to develop and implement
the products and capabilities that the larger investment must deliver. Dividing investments into
smaller parts helps to reduce investment risk, deliver capabilities more rapidly, and permit easier
adoption of newer and emerging technologies.

Enhancing Program Integrity. Stakeholder panelists identified
strategies to help strengthen internal controls and improve the use of
resources to address fraud (see table 3).

Page 20 GAO-22-106159
Table 3: Potential Transformation Options Stakeholders Identified Related to
Enhancing Unemployment Insurance (UI) System Integrity

Potential transformation options identified by
Transformation objective stakeholder panelists
Strengthening existing internal • Improve communication and guidance
controls • Maintain employer verification requirements
Identifying and improving the use of • Improve identity verification
resources to address fraud • Obtain additional data sources for analytics
• Obtain additional information on fraud
schemes
• Encourage states’ use of UI Integrity Center’s
Integrity Data Hub
• Provide additional training
• Improve workforce planning
• Provide additional resources to investigate and
prosecute fraud
Source: GAO analysis of stakeholder statements. | GAO-22-106159

Our June 2022 report on UI pandemic programs reviewed studies on the
Studies Show UI economic effects of expanding UI benefits. 63 Although UI administration
Expansion in Adverse has had a challenged history, the 30 empirical studies included in our
literature review showed that an expansion of UI programs during
Times Created adverse times, such as the recession of 2007-2009 and the COVID-19
Economic Stability, pandemic, created overall economic stability, prevented detrimental
outcomes from worsening, and had a limited effect on workers’ incentives
with Limited Negative to return to work. 64
Effects on Workers’
Stabilized economy overall. UI expansion during economic crises
Return to helped create overall economic stability by helping to maintain consumer
Employment spending and may even have increased aggregate spending during the

63GAO-22-104251.

64Among the 30 empirical studies included in our literature review, six measured the
benefits of UI expansion, and 13 empirically analyzed the relationship between UI
expansion and workers’ incentives to return to work.

Page 21 GAO-22-106159
pandemic. 65 The studies in our review explained that by maintaining
aggregate demand in the economy, expanded benefits acted as an
automatic stabilizer by limiting reductions in expected revenue of firms
and further reductions in jobs offered. In addition, according to the
authors, the extra income from expanded UI benefits was particularly
important for families who did not have alternative income sources or
personal savings during periods of high unemployment or sufficient
access to other income transfer programs. 66

Prevented worsening of detrimental outcomes. A few of these
selected studies demonstrated how expanded UI prevented worsening of
detrimental outcomes in families’ consumption and financial insecurity.
For example, studies conducted during the pandemic noted that specific
occupations, such as service-oriented or low-paying occupations in the
restaurant industry, experienced more layoffs and reductions in hours
than occupations in other industries. The studies added that because
these low-wage occupations disproportionately employ people of color or
women, UI expansion likely also prevented existing inequities among this
group from getting worse. Studies also showed that in the absence of
expanded UI, poverty levels would have been higher during the 2007-
2009 recession and the pandemic.

Limited negative effects on workers’ incentives to return to work.
The studies we reviewed either found that expanded UI had no
disincentive effects or, if they found some effect, it was limited to a small
group of workers. Specifically, eight studies we reviewed found that
expanded UI benefits either during the 2007-2009 recession or the
pandemic had no effect on workers’ incentives to return to work. Four
studies found some disincentive effects but these were limited to a certain
group of workers. For example, one of the studies found that the $600
FPUC benefit had moderate disincentive effects on job-finding rates, but

65Aggregate spending refers to total spending on all goods and services in the economy.
Aggregate demand shows the quantity demanded for all goods and services at the
existing price levels.
66See Jesse Rothstein and Robert G. Valletta, “Scraping By: Income and Program
Participation after the Loss of Extended Unemployment Benefits,” Journal of Policy
Analysis and Management 36, no. 4 (2017).

Page 22 GAO-22-106159
only for a small share of job seekers, such as janitors or workers in food
service occupations. 67

Other factors affecting employment. Some studies included in our
review explored factors other than disincentive effects that could be
influencing the relationship between expansion of UI and high
unemployment observed during the 2007-2009 recession and the
pandemic. These studies found that factors such as longer labor force
attachment; reduced demand for labor; fear of risk of illness; as well as
loss of childcare could have been responsible for high levels of
unemployment observed during these adverse times. 68

The studies included in our review also found that UI expansion may
enable people to wait longer or search more and potentially find jobs
better matched to their skill level. For example, one study found that
increasing the generosity of UI improved the quality of employee-
employer matches because it allowed workers to search longer and
eventually find jobs better suited to their skills and level of education. 69
The authors state that this could potentially increase the general welfare
by improving the functioning of the labor markets.

67See N. Petrosky-Nadeau and R. G. Valletta, UI Generosity and Job Acceptance: Effects
of the 2020 CARES Act, Federal Reserve Bank of San Francisco Working Paper 2021-13
(San Francisco, CA: Federal Reserve Bank of San Francisco, 2021).
68Longer labor force attachment can be a factor in high unemployment levels primarily due
to more workers staying attached to the labor force longer because of UI expansion rather
than refusing employment or reducing their job search efforts. The Bureau of Labor
Statistics defines the ‘‘labor force” to include all people age 16 and older who are
classified as either employed or unemployed. Thus the labor force level is the number of
people who are either working or actively looking for work. Farber, Rothstein, and Valletta,
“The Effect of Extended Unemployment Insurance Benefits”; Farber and Valletta, “Do
Extended Unemployment Benefits Lengthen Unemployment Spells?”; Jesse Rothstein,
“Unemployment Insurance and Job Search in the Great Recession,” Brookings Papers on
Economic Activity (Fall 2011) and Robert G. Valletta, “Recent Extensions of U.S.
Unemployment Benefits: Search Responses in Alternative Labor Market States,” IZA
Journal of Labor Policy 3, no. 18 (2014). Three of the seven studies did not explore the
labor market exits. Figura and Ratner, How Large were the Effects; Gabriel Chodorow-
Reich, John Coglianese, and Loukas Karabarbounis, “Macro Effects of Unemployment
Benefit Extensions: A Measurement Error Approach,” The Quarterly Journal of Economics
(2019) and Makoto Nakajima, “A Quantitative Analysis of Unemployment Benefit
Extensions,” Journal of Monetary Economics 59 (2012).
69A.Farooq, D. Kugler, and U. Muratori, Do Unemployment Insurance Benefits Improve
Match Quality? Evidence from Recent U.S. Recession, NBER Working Paper Series
Working Paper 27574 (Cambridge, MA: Federal Reserve Bank, July 2020).

Page 23 GAO-22-106159
In conclusion, it is critical to address the challenges and risks facing the
UI system, given the important role it plays in supporting unemployed
workers and stabilizing the economy during economic downturns.
Research shows that expanding UI benefits during adverse times has
created overall economic stability and provided needed income support,
with limited negative effects on workers’ incentives to return to work.
However, the UI system has struggled to meet the needs of unemployed
workers efficiently and effectively, and these historical service delivery
challenges have worsened during downturns such as the pandemic.
Similarly, DOL regularly estimated high levels of improper payments for
the regular UI program prior to the pandemic, and the risk of improper
payments—including those due to fraud—greatly increased across all UI
programs during the pandemic.

Our work has identified actions needed to transform the UI system so that
it is better positioned to fulfill its purpose. As noted above, we
recommended that DOL develop and execute a transformation plan that
outlines coordinated and sustained actions to address issues related to
providing effective service and mitigating financial risk, including ways to
demonstrate improvements. DOL agreed with the recommendation and
described efforts underway to enhance equity in program access and
benefit distribution; reach worker populations reflective of the modern
economy; rebuild program performance, efficiency in claims processing,
and payment timeliness; reduce improper payment rates; and improve
responsiveness to economic downturns. Further, DOL recognized that
modernizing the UI system to address these challenges will also require
congressional action.

Additionally, we have identified actions that are needed in the areas of
leadership commitment, capacity, action planning, monitoring, and
demonstrating progress. Implementing the recommendation discussed
above and our other recommendations, as well as taking action in these
areas, will help ensure DOL’s progress in improving the performance of
the UI system. Such actions will also be crucial in responding to future
economic disruptions. We will continue to monitor DOL’s efforts.

Chairman DeSaulnier, Republican Leader Allen, and Members of the
Subcommittee, this concludes my prepared statement. I would be
pleased to respond to any questions that you may have at this time.

Page 24 GAO-22-106159
If you or your staff have any questions about this testimony, please
GAO Contact and contact Thomas Costa, Director, Education, Workforce, and Income
Staff Security at (202) 512-4769 or costat@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
Acknowledgments the last page of this statement. GAO staff who made key contributions to
this testimony are Seto Bagdoyan (Director), M. Hannah Padilla
(Director), Danielle Giese (Assistant Director), Cole Haase (Analyst in
Charge), and Caitlin Croake. In addition, key support was provided by
Lawrance Evans, Gabrielle Fagan, Alex Galuten, Carol Harris, Lee Hinga,
Lauren Kirkpatrick, Anne Thomas, Jon Ticehurst, and Adam Wendel.
Contributors to the reports on which this statement is based can be found
in those reports.

Page 25 GAO-22-106159
Appendix I: Open Unemployment Insurance-
Appendix I: Open Unemployment Insurance-
Related Recommendations to the Department

Related Recommendations to the
of Labor

Department of Labor
As shown in table 4, GAO has 21 open recommendations to the
Department of Labor (DOL) to improve the Unemployment Insurance
system. Of these 21 recommendations, GAO currently considers five of
these recommendations to be priority recommendations. 1

Table 4: Unemployment Insurance (UI) System Recommendations to the Department of Labor (DOL) That Are Open as of
September 14, 2022

Source report and
No. recommendation number Priority Recommendation
1. GAO-22-105162, #1 - The Secretary of Labor should develop and execute a transformation plan
that meets GAO’s high risk criteria for transformation; the plan should
outline coordinated and sustained actions to address known issues related
to providing effective service and mitigating financial risk, including ways to
demonstrate improvements. Planned actions may include addressing audit
recommendations, and determining whether legislative changes are
needed, as appropriate. Planned actions may also include achieving
quantifiable results in reducing improper payment rates, including those
related to fraud; improving efficiency in claims processing and restoring
pre-pandemic payment timeliness levels; better reaching current worker
populations; and enhancing equity in benefit distribution.
2. GAO-22-104438, #1 - The Secretary of Labor should study and advise the Congress and other
policymakers on the costs, benefits, and risks of various options to
systematically support self-employed and contingent workers during
periods of involuntary unemployment outside of declared disasters,
including considering options’ feasibility and approach to fraud prevention.
3. GAO-22-104438, #2 √ The Secretary of Labor should ensure the Office of Unemployment
Insurance examines and publicly reports on the extent of and potential
causes of racial and ethnic inequities in the receipt of Pandemic
Unemployment Assistance benefits, as part of the agency’s efforts to
modernize UI and improve equity in the system. The report should also
address whether there is a need to examine racial, ethnic, or other
inequities in regular UI benefit receipt, based on the PUA findings.
4. GAO-22-104251, #1 - The Secretary of Labor should ensure that the Office of Unemployment
Insurance review the customer service challenges that states faced during
the pandemic, identify comprehensive information on customer service
best practices, and provide states with this information to assist them in
improving service delivery.
5. GAO-22-104251, #2 - The Secretary of Labor should ensure the Office of Unemployment
Insurance assesses lessons learned from the pandemic to inform its future
disaster response efforts and support the Congress on ways to address
future emergencies.

1Priority recommendations are the GAO recommendations that warrant priority attention
from heads of key departments or agencies because their implementation could save
large amounts of money; improve congressional and executive branch decision making on
major issues; eliminate mismanagement, fraud, and abuse; or ensure that programs
comply with laws and funds are legally spent, among other benefits.

Page 26 GAO-22-106159
Appendix I: Open Unemployment Insurance-
Related Recommendations to the Department
of Labor

Source report and
No. recommendation number Priority Recommendation
6. GAO-22-105051, - The Secretary of Labor should designate a dedicated entity and document
#4 its responsibilities for managing the process of assessing fraud risks to the
unemployment insurance program, consistent with leading practices as
provided in our Fraud Risk Framework. This entity should have, among
other things, clearly defined and documented responsibilities and authority
for managing fraud risk assessments and for facilitating communication
among stakeholders regarding fraud-related issues.
7. GAO-22-105051, - The Secretary of Labor should identify inherent fraud risks facing the
#5 unemployment insurance program.
8. GAO-22-105051, - The Secretary of Labor should assess the likelihood and impact of inherent
#6 fraud risks facing the unemployment insurance program.
9. GAO-22-105051, - The Secretary of Labor should determine fraud risk tolerance for the
#7 unemployment insurance program.
10. GAO-22-105051, √ The Secretary of Labor should examine the suitability of existing fraud
#8 controls in the unemployment insurance program and prioritize residual
fraud risks.
11. GAO-22-105051, - The Secretary of Labor should document the fraud risk profile for the
#9 unemployment insurance program.
12. GAO-21-387, #15 - The Secretary of Labor should ensure the Office of Unemployment
Insurance collects data from states on the amount of overpayments waived
in the Pandemic Unemployment Assistance program, similar to the regular
unemployment insurance program.
13. GAO-21-265, #12 - The Secretary of Labor should ensure the Office of Unemployment
Insurance collects data from states on the amount of overpayments
recovered in the Pandemic Unemployment Assistance program, similar to
the regular unemployment insurance program.
14. GAO-21-191, #8 √ The Secretary of Labor should ensure the Office of Unemployment
Insurance pursues options to report the actual number of distinct
individuals claiming benefits, such as by collecting these already available
data from states, starting from January 2020 onward.
15. GAO-18-633, #1 - The Secretary of Labor should systematically collect sufficient information
on state profiling systems, possibly through DOL’s new UI state self-
assessment process, to identify states at risk of poor profiling system
performance. For instance, DOL could collect information on challenges
states have experienced using and maintaining their profiling systems,
planned changes to the systems, or state processes for assessing the
systems’ performance.
16. GAO-18-633, #2 - The Secretary of Labor should develop a process to use information on
state risks of poor profiling system performance to provide technical
assistance to states that need to improve their systems. DOL may also
wish to tailor its technical assistance based on state service delivery goals
and technical capacity.
17. GAO-18-633, #3 - The Secretary of Labor should update agency guidance to ensure that it
clearly informs states about the range of allowable profiling approaches.

Page 27 GAO-22-106159
Appendix I: Open Unemployment Insurance-
Related Recommendations to the Department
of Labor

Source report and
No. recommendation number Priority Recommendation
18. GAO-18-486, #1 √ The Assistant Secretary of DOL’s Employment and Training Administration
should provide states with information about its determination that the use
of state formal warning policies is no longer permissible under federal law.
19. GAO-18-486, #2 - The Assistant Secretary of DOL’s Employment and Training Administration
should monitor states’ efforts to discontinue the use of formal warning
policies.
20. GAO-18-486, #3 √ The Assistant Secretary of DOL’s Employment and Training Administration
should clarify information on work search verification requirements in its
revised Benefit Accuracy Measurement procedures. The revised
procedures should include an explanation of what DOL considers to be
sufficient verification of claimants’ work search activities.
21. GAO-18-486, #4 - The Assistant Secretary of DOL’s Employment and Training Administration
should monitor states’ compliance with the clarified work search verification
requirements.
Source: GAO analysis. | GAO-22-106159

(106159)
Page 28 GAO-22-106159
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