Economic Security Programs Supporting American Livelihood
Summary
Statement of Michele Evermore, Deputy Director of Policy, Office of Unemployment Insurance Modernization, U.S. Department of Labor, before the United States House of Representatives Select Committee on Economic Disparity and Fairness in Growth, titled Economic Security Programs Supporting American Livelihood, July 28, 2022. The statement says the unemployment insurance system helped 53 million workers and put over $870 billion into the economy, but that benefits sometimes reached the wrong people, including organized criminal enterprises, and that lack of access disproportionately affects workers of color. It notes that Congress provided $2 billion to the Department of Labor to improve UI systems, calls for comprehensive UI reform and sustained administrative funding, and describes Tiger Team assessments of state systems. The text has gaps marked [...].
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“Economic Security Programs Supporting American Livelihood.”
Original at docs.house.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/hhrg-117-ef00-wstate-evermorem-20220728-daaf96232e53-8e46de0373/
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STATEMENT OF
MICHELE EVERMORE
DEPUTY DIRECTOR OF POLICY
OFFICE OF UNEMPLOYMENT INSURANCE MODERNIZATION
U.S. DEPARTMENT OF LABOR
BEFORE THE
UNITED STATES HOUSE OF REPRESENTATIVES
SELECT COMMITTEE ON ECONOMIC DISPARITY AND FAIRNESS IN GROWTH
“Economic Security Programs Supporting American Livelihood”
July 28, 2022
Introduction
Thank you Chairman Himes, Ranking Member Steil, and members of this committee for the
opportunity to testify today.
Just prior to the pandemic, unemployment insurance experts were concerned that the
Unemployment Insurance (UI) system had dwindled to the point where it would not serve
claimants appropriately during a downturn and serve the countercyclical function
(macroeconomic stabilization) that it is intended to play. Fortunately, pandemic era benefits
expanded access, sufficiency, and duration, so the economic calamity tied to the health crisis
remained contained. The UI system has served as a critical lifeline to workers, helping 53 million
workers stay afloat during a pandemic and economic crisis and putting over $870 billion into the
economy – and staving off an even deeper recession. However, benefits did not always reach
people on time and sometimes reached the wrong people, including organized criminal
enterprises, in shockingly high numbers. Critically, lack of access disproportionately affects
workers of color, people with disabilities, poorly paid individuals, and people on the other side of
the digital divide.
During the pandemic, as states struggled to get the right benefits to the right people at the right
time, heroic civil servants sacrificed tremendously. They worked significant overtime hours
while under tremendous scrutiny, enduring verbal abuse and threats, and dealing with claimants
who were at wits’ end and sometimes suicidal. The career civil servants at the Department of
Labor similarly have quietly and competently kept this program running despite their limited
resources. But those resources are depleted. Particularly in state agencies, turnover has been very
high, further decreasing the limited capacity. Unless we invest in these systems, they will be
even less effective in responding to the next crisis.
Congress provided $2 billion to the Department of Labor to improve unemployment insurance
systems to ensure timely payment of benefits, promote equitable access, and detect and prevent
fraud. While we have made considerable progress with these funds, a one-time infusion of
funding will not provide the lasting change needed to ensure that UI continues to accomplish
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what it was designed to do. Passing comprehensive UI reform and providing sustained, sufficient
administrative funding that the Administration has proposed are necessary for the system to
function appropriately in normal economic times and be prepared to counter the next recession.
Looking back at two key past bipartisan commissions on unemployment compensation reform,
the 1980 National Commission on Unemployment Compensation final report and the 1996
Advisory Council on Unemployment Compensation (ACUC) recommendations, the reform
principles laid out in the FY 2023 President’s Budget neatly line up with past findings. This
document will discuss how the vast majority of reforms promoted today by advocates and
Members of Congress also line up with recommendations that these two commissions spent
years deliberating and putting forth in a bipartisan manner.
Key purposes of unemployment insurance
Unemployment Insurance was included in the Social Security Act in 1935. On the heels of the
Great Depression, the Roosevelt Administration and Congress were keenly aware of the hardship
that involuntary unemployment places on people, families, communities, and the economy. This
program was intended not just to alleviate individual suffering but provide wage stabilization by
making sure that individuals have time to seek a suitable replacement for their old job so that
wages would not be driven down as a result of mass layoffs. The method of employer taxation,
referred to as “experience rating,” charges employers more as they lay off more workers. This is
intended to serve as a means of layoff aversion. The program was also intended to provide
macroeconomic stimulus during times of economic downturn. This is particularly important to
keep in mind when we consider groups excluded from UI eligibility – it is not just individuals
that suffer, it is their entire community. People who have never been involuntarily unemployed
can still thank the UI program for preventing the contagion of economic suffering, particularly
during the pandemic. This means there is also a cost to communities when claimants cannot
access benefits. Finally, the program keeps workers attached to the workforce by requiring that
claimants are able to work, available for work, and actively seeking employment. An
individual’s connection to UI benefits also facilitates connection to Employment Services and re-
employment and retraining opportunities.
This macroeconomic stabilization effect has serious implications for the program’s capacity to
facilitate equitable recovery from lulls in the economic cycle. Throughout the business cycle,
Black workers remain twice as likely to be unemployed as white workers and bear the brunt of
the insufficiency of regular UI benefits. In addition, states with the lowest unemployment benefit
levels available under state law generally have the largest Black populations. According to the
Bureau of Labor Statistics, while Black workers were far more likely to apply for benefits during
the pandemic, they had a far lower success rate at receiving benefits than white workers (72.8%
versus 78.2%) and Hispanic workers had a lower success rate than non-Hispanic applicants
(75.6% versus 77.6%). The fact that some states with disproportionately large Black populations
offer fewer than 26 weeks of benefits has an especially pernicious racial impact, since Black
unemployed workers were more likely to be unemployed for over 26 weeks than any other group
before the crisis. Lower recipiency rates also correlate with states with more diverse populations,
and states with low recipiency prior to the pandemic carried those characteristics over into the
COVID-19 crisis, which resulted in lower application success rates across programs for
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claimants in states that had poor access to benefits prior to the pandemic. The General
Accountability Office recently noted this significant concern in their report titled Pandemic
Unemployment Assistance: Federal Program Supported Contingent Workers Amid Historic
Demand, but DOL Should Examine Racial Disparities in Benefit Receipt | U.S. GAO
That lack of access has a multiplier effect when considering both the wage stabilization effect of
UI recipiency as well as the macroeconomic stabilization effect. When whole categories of
workers cannot access an unemployment benefit, an economic downturn means that a whole
community loses the macroeconomic stabilizer effect. Additionally, the economic downturn and
lack of an income replacement makes workers more desperate to accept a significantly worse
replacement job, which can drive down workers’ earning potential for years. Lack of access to
UI means that every economic downturn sets communities of color back.
Pre-pandemic groundwork
As of February 2020, unemployment systems were particularly unprepared for any recession,
much less a catastrophic global pandemic, the intentional shut down of the economy, and
standing up three entirely new federal unemployment programs with new eligibility guidelines.
Administrative funding for states was at a fifty-year low. In 2020, administrative funding
flowing to states was $2.14 billion. Twenty years earlier, in 2000, that same funding was $2.2
billion not adjusted for inflation. Taking into account inflation and population growth, states
were asked to do a great deal more work with already greatly diminished resources. Similarly,
insufficient resources were provided for federal staff to support the Office of Unemployment
Insurance, the group tasked with doing a tremendous amount of guidance, enforcement,
assistance, and problem solving during the pandemic. The enacted levels of funding for program
administration in the area of Workforce Security, which funds UI program staff in the
Department’s national and regional offices, declined significantly from a level of 419 full time
positions in FY 2006 to 168 in FY 2021.
That lack of resources made the states’ development of appropriate, modern, technology entirely
unfeasible. The most cited metric is that fewer than 20 states had fully “modernized” IT systems
entering the pandemic, but upgraded technology alone was not necessarily a predictor of the state
system’s resilience. That only paints a small part of the picture. The reality is that while state
systems that had upgraded from antiquated COBOL mainframes often were more agile and
adaptable, some states on those mainframes were able to adapt. At the same time, many states
that had transferred their systems to the cloud still struggled. Due to chronic under-resourcing, it
is fair to say that there is not a single system in the nation that was sufficiently resourced to take
on the kind of surges experienced during the pandemic, as well as the implementation of new
programs that were required. While many states are performing quite admirably considering the
level of funds available, they all need the kind of improved enhanced, reliable annual funding
requested in the 2023 Budget, in addition to the policy improvements that are discussed later in
this document, to avoid catastrophic failures in the next economic crisis.
Further, administrative funding and improvements alone will not make UI systems recession
ready – setting meaningful floors for benefit accessibility with UI reform is key to the program’s
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future success. As observed in the 1996 ACUC commission’s findings, minimum eligibility and
benefit standards are necessary to preserve the program’s ability to effectively serve as a
countercyclical stabilizer for the 53 states and territories. Absent this baseline, other reform
measures would likely create a race to the bottom across states to reduce taxes, and that
competition would “adversely and disproportionately affect low-wage workers.” In the absence
of such a floor, states have, as predicted, enacted increasingly punitive eligibility standards and
lowered benefit levels, particularly in the wake of the Great Recession. This is not just a function
of natural state competition for low taxes, but also a function of financing mechanisms that levy
the greatest tax burden on employers right at the tail of economic downturns. Additionally, as
involuntary unemployment is a temporary state, people who identified as unemployed during a
downturn will return to employment and formerly unemployed workers tend to lose the focus of
UI policymakers just as employer taxes are increasing. Therefore, at the state level, the main
focus around the unemployment system tends to tip toward employers over claimants between
recessions.
States have reduced benefit amounts in several ways. Some states continue to enact laws to
reduce the duration of benefits below what had been considered the standard of 26 weeks. States
have reduced benefit amounts. Some states have also lowered standards for what constitutes
“suitable work” so that claimants will have to accept jobs that replace less of their former
income, eroding the wage stabilization goals of the program. Some states have increased the
difficulty to achieve continuing eligibility by adding requirements such as increasing work
search expectations. Absent overt qualification standards, some states have also increased
administrative hurdles to access the system. Some of those administrative hurdles created the
greatest friction during the pandemic.
What happened during the pandemic
On the first week of March 2020, seasonally adjusted initial claims for unemployment were
211,000. By the last week of March, that number jumped to 6.6 million new claims—a 3,000
percent increase. Initial claims for all programs remained at over 1 million every week for the
next year. The highest week on record prior to the pandemic was 695,000 in October 1982. In
March 2020, Congress passed emergency legislation, the Coronavirus Aid, Relief and Economic
Security Act (CARES) Act, setting up three new benefit programs: one to increase benefit levels
by $600 per week called Federal Pandemic Unemployment Compensation (FPUC), one to
extend duration of current benefit programs by 13 weeks called Pandemic Emergency
Unemployment Compensation (PEUC), and one to establish an entirely new program called
Pandemic Unemployment Assistance (PUA) meant to cover workers affected by COVID-19 that
regular benefit programs did not cover. Because states had reduced benefit eligibility, prior wage
replacement, and duration in the regular unemployment compensation (UC) program in recent
years, these additional federal programs were especially necessary for the unemployment system
to achieve its intended goals.
These three programs did help the UI system to achieve one of its primary goals –
countercyclical stabilization. The recession following widespread shutdowns is dramatically “v-
shaped.” However, due to historic underfunding and inattention to systems between recessions,
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millions of Americans – including workers at unemployment agencies – suffered. First, many
claimants waited months for benefits and had difficulties even filing an initial claim as
technology failed – sometimes shutting entire systems down - and a combination of high call
volumes and limited state agency staffing resources kept applicants on the phone for hours.
Then, around May 2020, major fraud rings began to use stolen identities and other criminal
tactics to apply for unemployment benefits, shutting down systems again as states worked to
identify the criminals in their queues. Because it took time to fully understand the rules of brand-
new programs, including the unprecedented PUA program, states began to identify claims that
had been paid incorrectly and issue overpayment notices. Until the Continued Assistance for
Unemployed Workers Act of 2020 (Continued Assistance Act) was enacted in December 2020,
states could not waive any overpayment in the PUA program even when it was the result of
agency error and would cause massive hardship. Nor could states request documentation
substantiating the individual’s employment or self-employment status, relying instead on self-
certification as required by the CARES Act. As two last minute extensions of the CARES Act
UC programs were added with the Continued Assistance Act in December 2020 and the
American Rescue Plan Act (ARPA) in March 2021, as well as additional eligibility
requirements, states then faced lag times in paying timely benefits as reprogramming systems
and training staff cannot happen overnight.
Largely as a result of the impact of the pandemic on UI systems, and the additional attention that
brought to the programs, the General Accountability Office recently issued a thoughtful analysis
of the myriad of challenges that this program faces. With this report, entitled Unemployment
Insurance:Transformation Needed to Address Program Design, Infrastructure, and Integrity
Risks, the GAO put this program on their “high risk list.” It correctly identifies challenges that
can be addressed administratively at the state and federal level, as well as the need for
comprehensive UI reform, which we stand ready to work with Congress to achieve.
While a deadly global pandemic was certainly not anticipated, this level of chaos was
unnecessary. Passing the President’s Budget Request to appropriately fund state agencies, along
with UI reform, are the most important steps that Congress can take to ready states for future
crises. The technical assistance, direct grant funding to states, and technology modernization
work that the Department of Labor is undertaking with the $2.0 billion appropriation under
ARPA will create a foundation to prepare state systems for the challenges they face. In addition,
states are taking their own initiative in many cases to make their systems more resilient, and it is
important to recognize their efforts.
The need for UI reform
While the benefits that Congress passed to support unemployed workers during the pandemic
were critical, and saved lives, communities, and the economy as a whole, they were a temporary
stopgap that masked deficiencies in payment sufficiency, access, and duration for the permanent
UI program under state laws. The need for additional reform is urgent, and the Administration is
eager to work with Congress on broad changes to modernize the program as well as advance
racial, geographic, and gender equity in the UI system. A more sufficient and well-resourced
underlying UI program would have prevented the chaos that left too many workers stranded
during the pandemic.
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The President’s Budget includes specific principles for reform:
• A reformed UI system must provide adequate benefits in every state. Induced by
financial strain after the last recession, a number of states reduced UI benefit duration or
cut benefit levels below a sustainable living income in an attempt to keep low taxes on
employers. In 2020, these cutbacks were disproportionately felt by people of color,
women, and low-wage workers, particularly in southern and western states. This was
compounded by the fact that these same groups are also overrepresented in the service
industries that were most affected by pandemic-related shutdowns, namely education,
health care, leisure, hospitality, and retail. UI reform must improve benefits across states
by ensuring that benefit levels and benefit duration are adequate to allow unemployed
workers—particularly those who have historically been excluded from or struggled to
access UI benefits—to receive the income support and job placement services they need
to find their next job. This will prevent states from racing to the bottom by cutting
benefits in an attempt to keep employers’ taxes low.
• A modern UI system must be easily scalable and respond automatically to economic
downturns. This would allow UI benefits to ramp up quickly and automatically when the
economy weakens and would tie the expiration of these benefits to improvements in the
economy, rather than arbitrary deadlines. Restructuring the existing Extended Benefits
program so it responds better to recessions and increases in long-term unemployment
would provide certainty for workers and avoid the scenarios in which political
dysfunction leads to delays in benefits when people need them most. This would also
make it easier for states to prepare for extensions in advance.
• The UI system must reflect the modern economy and labor force. This starts with a
federal floor on states’ eligibility rules, so they no longer use formulas that unnecessarily
penalize workers with limited work histories and requiring states to allow workers
seeking part-time employment or who lost work for family-related reasons to claim
benefits. Additionally, workers currently incorrectly classified as independent
contractors, but who should be considered employees, need adequate coverage.
The Administration also supports ensuring that more struggling employers take
advantage of Short-Time Compensation (also called work-sharing, a layoff aversion
program) in order to avoid layoffs, something that happened too rarely during the COVID
crisis. In addition, the Administration supports finding a way to address the lack of
support in the existing UI system for many workers, including independent contractors,
low-income and part-time workers, and workers with nontraditional work histories.
• The pandemic severely drained state unemployment trust funds, and comprehensive UI
reform must improve state and federal solvency and ensure more equitable and
progressive financing mechanisms.
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• Strengthen the UI program’s role in helping workers find a job that is a good match with
investments that expand reemployment services for unemployed workers receiving
benefits.
• Any reform should ensure the UI program’s access and integrity before the next
crisis. The pandemic revealed deficiencies in states’ ability to administer their UI
programs and illuminated inadequate staffing levels, incomplete performance measures,
and poor IT infrastructure. In the span of a few weeks, states were inundated with
millions of claims, leading to crashing websites and inaccessible, overloaded call centers.
Sophisticated criminal networks also targeted the UI system using stolen and fabricated
identities to siphon off benefits. These factors led to unprecedented delays in processing
for legitimate claimants and potentially significant monetary losses for both the states and
the federal government.
• Comprehensive UI reform should include additional authority for the Department to help
states combat improper payments, including fraud. To further address the difficulties that
many states face, the federal government should develop and maintain a modern, user-
friendly system that is accessible to all workers and eases the burden on states. The
Department should also have direct access to all claim and wage data used by state
agencies to conduct research, evaluation, and performance assessments of state UI
programs. Finally, the Department needs improved enforcement mechanisms to ensure
that states are equitably paying benefits in a timely manner to all eligible applicants. The
American Rescue Plan contains a vital down payment on this effort by giving the
Department the funding necessary to combat fraud, improve equitable access, and begin
creating a federal benefits delivery system that states can adopt instead of developing
their own.
Examples of Bipartisan Reform Proposals
To help to illustrate potential reform components in line with these broad principles, below are
proposals that have been recommended by prior Administrations, proposed in the current
Congress, recommended by past bipartisan commissions, or proposed by economic and policy
experts outside government. These policy levers are all interconnected, so it is important to
consider how addressing one plank could create pressure to reduce benefits through other levers.
Establishing a benefit duration floor for example, in a vacuum, could simply result in states
finding another mechanism to reduce access or benefit levels.
The two bipartisan commissions cited here are the 1996 ACUC and the 1980 National
Commission on Unemployment Compensation (NCUC). The main UI reform proposal in the
current Congress cited in this document is The Unemployment Insurance Improvement Act
proposed by Senators Wyden, Bennett, and Brown.
The reforms proposed by these commissions underscore that a modern UI system must:
(1) Provide adequate benefits in every state;
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(2) Be easily scalable and respond automatically to economic downturns;
(3) Reflect the modern economy and labor force; and
(4) Ensure more equitable and progressive financing mechanisms.
(1) A reformed UI system must provide adequate benefits in every state. The bipartisan
commissions and other experts have offered several proposals on how to ensure benefit
adequacy, including:
• Set a standard on benefit duration. Until 2011, all states offered at least 26 weeks
as a maximum duration, but trust fund shortfalls after the Great Recession caused
states to cut the number of weeks of benefits. Currently ten states provide fewer than
26 weeks, with at least two more states enacting reforms to reduce benefits by next
year.
• Consider increasing the maximum benefit. This would improve the replacement
rate – the percent of prior income replaced – in many states to a more livable weekly
benefit amount.
• Consider minimum replacement rate formulas. Experts recommend replacement
rates varying from 50 percent to 80 percent, all of which would be a vast
improvement over the status quo in which some states average around a third of
income replaced.
• Consider a minimum weekly benefit. The above policies would result in much
higher replacement rates for workers, but low-wage workers with sporadic work
histories or unstable schedule would still receive low benefit amounts. Ensuring that
all eligible workers get access to benefits by establishing a minimum weekly benefit
amount can help them remain afloat during a period of unemployment and find
suitable work.
• Consider adding minimum dependent allowances. Thirteen states provide
dependent allowances where benefits are increased per dependent, recognizing that
workers whose families depend on them require more resources. The allowances
typically range between $5 and $25 per dependent.
• Establishing an operational Alternate Base Period (ABP). States determine UI
benefit eligibility using a Base Period (i.e., look-back period for prior wages earned),
typically the first four of the last five completed quarters. Some states provide for an
ABP, such as the last four completed quarters, which specifically helps the lowest
income workers with the most unsteady work to qualify for benefits. Additionally,
some have an ABP but are not properly utilizing it.
• Expand coverage to more agricultural workers, domestic workers, and seasonal
workers. Agricultural workers and domestic workers were left out of UI coverage in
1935. While they were broadly included in the 1970’s reforms, agricultural employers
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with fewer than 10 employees are still exempted. No other small employers are
exempted except those employing domestic workers paid less than $1,000 per year.
Given that both agricultural and domestic workers, both at that time and today are
largely workers of color, further improving on these policies would promote equity.
Similarly, states are permitted to exclude wages from seasonal workers under certain
conditions.
• Eliminate exemptions added during the 1970’s amendments. The 1970s
amendments to the Social Security Act established restrictions such as taxation of
unemployment benefits, excluding certain wages from the base period for educational
employees “between and within terms” of school sessions, and establishing a
mandatory pension offset. These changes have the impact of limiting benefits for
workers, particularly low-wage workers and workers of color, and making it more
difficult for unemployed workers to achieve sufficient wage replacement.
• Improve Short-Time Compensation (STC). STC, or work-sharing, allows
businesses to reduce workers’ hours and supplement their reduced earnings with UI
benefits instead of laying them off. This program was underutilized during the
pandemic. Improvements to make the program easier to use are a priority for claimant
advocates and the businesses that would like to be better able to utilize this workforce
retention tool.
(2) A modern UI system must be easily scalable and respond automatically to economic
downturns.
• Improved Triggers for the Next Recession with 100 percent federal funding. The
Extended Benefits (EB) program is a permanent program that provides up to an
additional 13 or 20 weeks of benefits when states are experiencing periods of elevated
unemployment and after an individual exhausts regular UI benefits. Stakeholders
have noted the inadequacy of the EB program in recessions for over 40 years,
including by both the NCUC and ACUC. Reforming the EB program is the proposal
favored by economic experts where—in theory—Congress would not be required to
enact discretionary UI legislation in downturns. Additionally, it would provide a
reliable extension program that states can prepare for in advance, avoiding expedited
and inaccurate implementation of new temporary programs that may be enacted.
(3) The UI system must reflect the modern economy and labor force.
• Consider a more expansive definition of employee. To be considered a non-
employee, the ABC test requires that a worker must: (A) be free from control or
direction; (B) the work is performed outside the usual course of business for an
employer; and (C) the individual is customarily engaged in an independent trade.
Thirty-five states use an employee definition that is some version of ABC or A+B,
with twenty-three states having all of A+B+C in their laws. After the success of PUA
in keeping workers who were otherwise disqualified from receiving regular UI
benefits afloat, it seems worth considering covering more workers going forward.
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• Allow workers seeking part-time work to receive benefits. Many states do not
allow workers seeking part-time work to receive benefits, which is especially
detrimental to racial and gender equity.
• Improve qualifications standards for partial UI. Part-time work can often lead to
full-time work, and we should encourage workers to accept part-time work as a
means to re-enter the work force. Currently, many states only allow for an individual
to earn up to 100 percent of the weekly benefit amount to still qualify for a partial
unemployment benefit, with a de minimis amount of earnings disregarded before the
individual’s benefit amount is reduced. Encouraging individuals to work part-time
while collecting UI benefits helps to maintain attachment to the workforce and
enhances equity. One state had great success during the pandemic by increasing their
threshold to $300 of earnings disregarded (i.e., an individual could earn up to $300 in
part-time work before their UI benefit was reduced).
• Consider expanding good causes to quit. Mandatory good personal causes could
include moving to follow a spouse whose job moved, quitting to escape domestic
violence, harassment, or stalking, as well as quitting to accommodate caregiving
options. Mandatory work-related causes to quit should include health and safety risks,
being asked to violate the law, being asked to engage in strikebreaking, erratic
scheduling, the jobsite moved and would create an unreasonable commute, as well as
being subject to harassment or a hostile work environment.
• Consider a ceiling on minimum earnings required to establish eligibility.
Monetary eligibility is the minimum amount of earnings a worker is required to have
earned in a period to receive UI benefits. During the pandemic, there was a
correlation between states with the highest monetary eligibility standards and states
with the highest proportion of PUA claims (i.e., individuals who were disqualified
from receiving regular UI benefits and were either separated from their job or
unable/unavailable to work because of the pandemic). Lowering the monetary
eligibility threshold would help include more part-time and low-wage workers in the
regular UI program.
• Consider eligibility of workers completing a temporary work assignment. UI
coverage could be provided to workers who complete a temporary assignment. Some
states require workers to report back to a temp agency after completing an assignment
or else the separation is considered a voluntary quit, oftentimes without good cause,
and results in benefits being denied.
• Consider eliminating waiting weeks. The practice of not paying claimants for their
first week of unemployment is a relic of the past, when mail played a greater role in
confirming prior income. Every state eliminated waiting weeks for at least some
period of the pandemic, and this helps workers the most who need benefits for every
week as quickly as possible.
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• Consider permitting states to allow claimants to receive UI for some period after
commencing new work. States are currently prohibited by federal law from letting
recipients who do not meet the definition of “unemployed” receive any benefits. It is
understandable that workers would need a benefit for the first week of new
employment, as most jobs do not pay the first check for anywhere from two weeks to
a month. If given permission and states adopted this change, it would make the
transition from unemployment to employment far easier for claimants and help
reduce improper payments in the UI program.
• Study a Jobseekers Allowance (JSA) and PUA-like Emergency Program. The
reforms outlined above, while impactful, would still not result in more universal
coverage for unemployed workers. Some UI reform proposals have proposed a
federally funded Jobseekers Allowance (JSA) that would help cover additional
workers, including graduating students and bona-fide independent contractors.
Similarly, the NCUC advised both the “establishment of a program of income-tested
benefits, administered completely separately from unemployment insurance, to
provide some minimum protection for all unemployed persons exhausting or not
eligible for” UI and even a separate non-UI program for “homemakers” displaced.
The PUA program helped cover these workers during the pandemic and Congress
could also consider standing up a PUA-like program to cover more workers in
emergencies. The GAO made a similar recommendation in the recent report cited
earlier.
(4) Ensuring more equitable and progressive financing mechanisms.
• Indexing the federal wage base while reducing the effective rate. Expanding the
federal wage base has been at the core of several UI reform proposals and would
spread out the tax liability for employers over more months.
• Consider improving DOL’s enforcement authority. Currently, the federal
government has two enforcement authorities that are so draconian they are never
used. If a state does not conform or is substantially non-compliant with federal UC
law, the Department has the authority to not certify the state’s UC laws. By not
certifying the state’s UC laws, the state can lose access to their federal administrative
funding, and employers in that state can lose the up to 5.4 percent tax credit against
federal unemployment taxes owed (resulting in employers paying up to $420 per
employee per year instead of up to $42). This denial is mostly all or nothing—the
state’s employers either get the full credit or none at all, making it a difficult tool to
use.
• Impose stricter solvency requirements to receive the federal UI tax credit. Many
states entered the COVID crisis with trust funds that were not prepared for a normal
recession and currently states have over $30 billion of outstanding loans. One
recommendation in the FY2017 Obama Budget would reduce the FUTA tax credit of
up to 5.4 percent for employers in a state which has an unemployment trust fund with
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an Average High Cost Multiple less than 0.5 for two or more consecutive January
firsts (a value of 1.0 indicates that a state has sufficient funds in its account to pay
benefits for one year of an average recession). This would address the long-term issue
of insufficient trust funds, though this proposal runs the risk that states may try to
meet this solvency standard by reducing unemployment benefits instead of raising
taxes. Both historic bipartisan commissions had recommendations to push better
forward funding of UI.
• Consider Experimenting with Experience Rating. States are currently required to
use “experience rating,” which generally requires UI taxes increasing for an employer
when more of their workers use the UI system. The 1996 ACUC included discussion
about whether experience rating was more of a net positive in layoff prevention or a
negative in inhibiting access as employers work to limit tax liability. This encourages
employers to challenge benefits and turns them into a political constituency that
opposes efforts to boost UI recipiency. On the other hand, it is proven to reduce
layoffs so it may be inadvisable to entirely eliminate the requirement. In keeping with
past bipartisan interest in wanting to learn more about incentives, it might make sense
to allow for experimentation on the state level to explore alternatives.
What we are doing in the Administration
A great deal of our work is funded by ARPA. This included an appropriation of $2 billion to
DOL which was designated to promote equitable access; detect and prevent fraud; and ensure the
timely payment of benefits within the UI system. These funds are provided in addition to existing
funding sources for states to pay unemployment insurance benefits and administer
unemployment insurance programs.
The underlying challenge for the Department is how to both prevent fraud, including the types of
fraud seen at the onset of the pandemic, much of which was perpetrated by sophisticated criminal
enterprises, while addressing long-standing equity and payment timeliness challenges in
partnership with the 53 states and territories that administer UI benefits, each of whom has its
own system.
• Promote equitable access: Inequity is pervasive in the UI system, with significant
racial and ethnic disparities in UI access and duration levels that were exacerbated
during the pandemic. In addition, some states have taken aggressive approaches to
fighting fraud that, in some cases, result in disproportionately shutting workers of
color out of the system, further exacerbating inequities. Finally, some states have
added new administrative hurdles for initial and continuing claims that have made the
system less accessible to workers of color, people on the other side of the digital
divide, people with disabilities, and low-income earners.
• Prevent and detect fraud: The scale of fraud in UI increased dramatically in 2020,
largely because of criminal enterprises that adopted sophisticated techniques to
exploit the increase in benefits available as well as the proliferation of stolen identity
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information from decades of data breaches. States initially did not have the staff or
resources in place to implement the new pandemic UI programs, process an
unprecedented number of claims, and catch fraud in real time. While states have since
implemented new controls, many UI agencies are still contending with fraud rings
that find innovative ways to attack systems, such as sophisticated phishing schemes
preying on vulnerable current UI claimants to hijack their claims. These efforts are
only expected to continue to evolve.
• Ensure timely payment of benefits: Even before the pandemic, states lacked
sufficient funding and resources for basic administration, much less support for long-
needed modernization. During the third week in March 2020, three million new
people filed initial claims and six million filed claims each week during the next two
weeks. By comparison, the previous all-time claims record was 695,000 in October
1982. Naturally, systems were plagued with capacity issues, resulting in significant
benefit delays. Unprecedented fraud attacks bogged systems for weeks, and in some
cases months, as states worked to flag and clear potentially fraudulent claims, leading
to even larger backlogs in the system.
Informed by feedback from multiple rounds of stakeholder engagement with state workforce
staff, the National Association of State Workforce Agencies, and advocates, the Department are
working with state UI agencies to address these persistent challenges.
The Department has allocated $615 million in ARPA funds to immediately help states
begin addressing these challenges through a series of grants and projects. In addition, the
Administration is committed to creating a framework for a more resilient and equitable
Unemployment Insurance system for the long term.
Efforts to Advance Equity:
• Grants to strengthen states’ fraud prevention and detection capacities, while
ensuring equitable access. Using ARPA funds, the Department awarded $133.86
million in grant funds to 50 states and territories, to aid in the detection and
prevention of fraud. As part of the grantmaking process, the Department specifically
instructed states that as they “consider additional tools to incorporate into their fraud
management operations, equitable access to unemployment benefits must be at the
forefront of the decision-making process.
• Grants to states to advance equity. The Department awarded $81.5 million in
grants to 18 states. These grants are innovative in requiring states to specify the
metrics used to measure improvement for the historically underserved populations
they have identified. The Department is reviewing additional applications from 31
other states that were received by the deadline of December 31, 2021, to provide up
to a total of $260 million to carry out activities that promote equitable access to UI
programs, which include eliminating administrative barriers to benefit applications,
reducing state workload backlogs, improving the timeliness of UI payments to
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eligible individuals, and ensuring equity in fraud prevention, detection, and recovery
activities.
• Deploying teams of experts into 24 states to help identify process improvements.
Under the “Tiger Team” project, the Department has deployed teams of experts into
24 states to date on a voluntary basis to help identify process improvements. Equity
efforts include helping all claimants in underserved communities, including women,
standardizing and expanding translation services, simplifying communications,
expanding mobile and offline access for workers who have limited internet access,
and building partnerships with community-based organizations to assist claimants in
successfully applying for their benefits. The Department has allocated $200 million
to fund state implementation of Tiger Team recommendations.
• Helping workers access UI benefits through a pilot UI Navigator Program. The
Department awarded $18 million in ARPA funds to pilot a new UI Navigator
Program in seven states. The purpose of this program is for state UI agencies to
partner with community-based organizations in helping historically underserved
workers learn about, apply for and, if eligible, receive unemployment insurance
benefits and related services, as well as to support state agencies in delivering timely
benefits to workers.
• Creating equity indicators through state UI data partnerships. The Department is
launching a series of pilot data partnerships with volunteering states to develop high-
quality, consistent indicators of access to the UI program—such as through
application rates, recipiency rates, denials rates, and timeliness measures. These
indicators will be disaggregated by characteristics such as race, ethnicity, gender, age,
disability status, occupation, industry, and education. Currently, five states have
expressed interest in participating in the initial cohort of data partnerships and they
are currently negotiating data sharing agreements with the Department.
Efforts to Address Fraud:
• Grants to States – ETA provided four grant opportunities to states using CARES Act
and ARPA funds ($100 million on August 31, 2020, $100 million on January 15,
2021, and grants of $100 million and $140 million on August 11, 2021) to assist
states with their efforts to prevent and detect fraud and identity theft and recover
fraud overpayments in PUA, PEUC programs, and regular UC programs. In addition,
ETA provided up to $260 million to states on August 17, 2021, for activities that
promote equitable access to UC programs. This includes eliminating administrative
barriers to benefit applications, reducing state workload backlogs, improving the
timeliness of UC payments to eligible individuals, and ensuring equity in fraud
prevention, detection, and recovery activities.
• ID Verification Assistance – ID verification is a critical tool in paying
unemployment benefits to eligible individuals. Yet too few states have the resources,
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expertise, and capacity needed to address effectively the wide-ranging attacks that the
UI system has experienced from organized criminal enterprises. The nature of
fraudulent activity in UC programs will continue to be highly dynamic and states will
require additional support and continuous monitoring for evolving threats.
• Website Resource for Victims of UI ID Fraud – On March 22, 2021, the
Department launched www.dol.gov/fraud, a new website created for people to
understand UI ID fraud, how to report it, and provide resources to help victims. ETA
worked closely with other federal agencies, as well as state workforce agencies to
consolidate the necessary steps to help victims of UI ID fraud and conducted user
testing to confirm the website’s instructions were clear and easy to understand. The
collaboration across government and with stakeholders created new partnerships.
The Department continues to update the website and seek opportunities to streamline
communications regarding UI ID fraud across government and with the public.
• The UI Integrity Center – The Department created and funds the UI Integrity
Center, which is operated in partnership with the National Association of State
Workforce Agencies (NASWA). The resources of the UI Integrity Center include
state-specific consultation and technical assistance services, virtual and in-person UI
program trainings, and a central repository of integrity resources of including
recommendations, best practices, and proven strategies. The Center also operates the
Integrity Data Hub (IDH).
The IDH supports states in detecting fraud and improper payments by enabling cross-
matching with key data sources and other functionality, including an Identity
Verification (IDV) dataset; a Suspicious Actor Repository (SAR); the Multi State
Cross-Match (MSCM) to identify where UI claims data are being used across
multiple states; and Fraud Alerting capabilities.
State participation in the IDH increased significantly from the number of states using
its services prior to the pandemic. Only 34 states had executed an agreement to
participate in IDH cross-matching in March 2020, whereas now all 53 states have an
agreement in place. Only three states were participating in MSCM in March 2020,
and now 43 use this important cross-match. Additionally, IDV functionally went live
in July 2020, and now 34 states are currently using the IDV solution. All states and
the DOL-OIG participate in the IDH’s Fraud Alerting.
The Department also pursues additional datasets for integration into the IDH to
enhance state cross-match efforts and strengthen fraud prevention and detection, and
provided the UI Integrity Center with funding to acquire a service to allow states to
proactively identify and authenticate bank account information provided on a UI
claim. The new Bank Account Verification (BAV) service went into IDH production
for states’ use on February 16, 2022. States can now access the BAV to validate the
status of a bank account (e.g., account is open or closed) and receive confirmation
that the individual identified as the claimant is the bank account owner and/or
authorized user prior to initiating the UI benefit payment.
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On October 28, 2021, the UI Integrity Center launched the much-anticipated
Behavioral Insights (BI) toolkit which brings together practices from the field of
behavioral science to promote unemployment integrity and reduce UI improper
payments. The BI Toolkit offers a collection of resources to help UI agencies
improve integrity and customer compliance through targeted changes to program
communications and processes. Some of the Toolkit's features include overviews of
20 behavioral strategies developed through engagements between the UI Integrity
Center and states, as well as helpful articles on topics such as What UI Challenges
Are a Good Fit for Behavioral Insights?, Designing a Behavioral Insights Project,
Applying Behavioral Insights Effectively: Common Mistakes & How to Avoid Them,
along with tools and templates to help states plan and report on behavioral strategies.
The Department announced the availability of the BI toolkit in November 2021.
• Access to Prisoner Data – The Department worked in partnership with the Social
Security Administration (SSA) to recently establish an incarceration data exchange to
aid states in making eligibility determinations for UI by cross-matching UI claims
data with SSA's Prisoner Update Processing System (PUPS) prisoner records. The
Department provided guidance to states on how to access the data exchange.
• Workgroups – The Department participates in several fraud/integrity workgroups
and reoccurring meetings to enhance partnerships, develop relationships, and
strategize to find innovative integrity solutions to prevent and detect fraud and
recover improper payments. These groups have representation from DOL-OIG, the
Federal Bureau of Investigations (FBI), DOJ, Secret Service, and other law
enforcement entities, banking and financial institutions, state workforce agencies, and
the UI Integrity Center.
• Coordination with DOL-OIG – The Department continues to encourage states to
work collaboratively with its OIG and other federal, state, and local law enforcement
to investigate and prosecute fraud. For example, in April 2021, DOL-OIG conducted
data analysis on UI claims data obtained from states to identify potentially fraudulent
claims activity. At DOL-OIG’s request, ETA shared the results of this analysis with
the states to aid state efforts in preventing fraud and in pursuing investigations on
these particular claims. Additionally, the Department published updated guidance for
states reminding them of their obligation to refer allegations of UC fraud, waste,
abuse, mismanagement, or misconduct to DOL-OIG and to disclose information
related to the CARES Act to DOL-OIG for purposes of both UC fraud investigation
and audits. To continue this partnership of states sharing their state-owned data for
both UC fraud investigation and audits beyond the CARES Act UC programs (which
expired September 6, 2021), the Department conditioned the award of ARPA-funded
fraud prevention grants on states continuing to provide such data through December
2023. As noted above, we welcome further collaboration with Congress in regard to
providing DOL-OIG with more efficient access to confidential UC data that is owned
by the states administering these UC programs in a way that includes the security and
safeguards necessary to protect this sensitive information.
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Furthermore, ETA and DOL-OIG are holding quarterly joint calls with the ETA
regional offices and states to share information regarding fraud trends and analysis,
provide recommendations for responding to emerging fraud schemes, and offer
updates on prosecution efforts.
• Recovering Funds Stolen by Fraudsters – The Department has gathered
information, at the request of DOJ and DOL-OIG, to support federal law
enforcement's efforts to pursue seizure and forfeiture to recover fraudulently obtained
UC funds. This information supports ETA’s efforts to connect states with financial
institutions to facilitate the return of intercepted funds and reduce the need for
forfeiture actions. The Department recently provided guidance on how to distribute
recoveries from banks of fraudulent funds across multiple states.
Efforts to Improve UI Systems Broadly
• Modernizing UI Information Technology (IT) Systems – The pandemic has only
underscored states’ desperate need for technological support and improvements.
Many state systems have and continue to operate on outdated technology, which
made it difficult for them to rapidly respond to changes in law and economic
conditions. In addition, antiquated technology often requires extensive programming
resources to make changes or the development of manual processes due to
technological limitations, adding to current challenges states face in addressing large
backlogs and combatting fraud, and further delaying UI benefits to those most in
need. Funding from ARPA enables the Department to develop strategies to tackle the
most acute problems facing the UI system, which includes addressing long-term
technology challenges by improving state processes and service delivery through UI
IT modernization efforts. The Department partnered with U.S. Digital Service
(USDS) to start the transformative project of centrally developing open, modular
technology solutions that states may adopt as part of ongoing modernization and
improvement efforts. As part of the UI IT modernization project, the Department will
be engaging with multiple state partners to collaboratively develop a series of pilot IT
projects. Additional plans include shared IT solutions designed to integrate with state
systems and provide software to support various aspects of administration of UI, and
working with states’ IT staff to develop and implement plans that build resilience in
UI systems across the country.
Because this is a tremendously ambitious initiative, the bulk of the $2 billion in
ARPA funding has been reserved for this effort. These efforts are going to be iterative
and based on lessons learned in pilots, that will inform the direction and scope of
future pilots. The initial pilots focused on claimant experience have resulted in
Arkansas partnering with GSA’s login.gov as an alternative to the state’s existing in-
person ID verification process. As a result, hundreds of claimants have saved hours
traveling to state offices. A second partnership with New Jersey is now in beta testing
with a live reference site hosted by the Department that will include open-source code
to assist states in improving the claimant experience of applying for benefits. The
Department is now in the process of prioritizing the next round of pilots, which will
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continue to focus on optimizing customer experience while also using priorities that
state agencies have identified.
Multidisciplinary Tiger Teams Providing Direct Assistance to States – States are facing
acute and varied challenges that need to be better identified and addressed around the process of
preventing and detecting fraud, promoting equitable access, eliminating backlogs, and ensuring
timely payment of benefits. The Department is addressing these challenges by sending experts
directly to the states to work hand in hand with states to identify solutions. Despite ongoing
efforts to add staff, deploy innovations, and address backlogs, many states continue to deal with
adjudication and appeals backlogs. The systems Department is making up to $200 million
available in grants to support states with improving UI processes. States must first engage with
the Department to complete a consultative assessment of their UCUI program. During this
assessment, the Department will leverage a multi-disciplinary team of experts (i.e., Tiger Teams)
designed specifically to analyze state UCUI systems and process challenges. The Department
has completed negotiated recommendations for: Colorado, Kansas, Nevada, Virginia,
Washington, and Wisconsin. The Department has also completed recommendations for:
Alabama, Connecticut, Iowa, Kentucky, Nebraska, and Pennsylvania. The Department has
completed the discovery and interview phases of the engagements in the following states and
moving now to delivery of final project recommendations: Arizona, Delaware, Illinois,
Michigan, New Hampshire, and Oregon. The Department commenced consultative assessments
with a fourth cohort of states (mid-June through July). Those states include Idaho, Indiana,
Maryland, Missouri, Rhode Island and Wyoming. This brings the total number of Tiger Team
initiatives in year one of the project to 24. Alaska and California have committed to participate
in the fifth cohort of the project this fall. The Department continues discussions with numerous
other states to begin the process in the coming Federal Fiscal year. The Department’s goal is to
identify 30 state partners for the Tiger Team consultative assessment initiative by September 30,
2022.
Conclusion
I thank the Committee for the opportunity to present this testimony. I think that we all share
some basic concerns that UI continue to play the key roles that it is intended to play for
individuals and the economy. While the $2 billion provided in ARPA for improving UI systems
is already helping to develop a solid path forward, states will need more stable, reliable annual
appropriations for administering the systems going forward, and we need to work together to
advance basic reform elements that have been bipartisan for decades. The Department of Labor
stands ready to provide Congress with any follow up information that would be helpful.
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