Why Changing Unemployment Payments Could Take Months

WASHINGTON — Republicans want to replace a weekly bonus check for the unemployed with a new system that offers 70 percent of the wages workers were earning before they were laid off. Experts say it would be a difficult switch to pull off and one that would disadvantage lower-wage workers.

There are 53 different unemployment systems across the United States and its territories, all of them inundated with record numbers of unemployment claims, and they all have different ways of calculating and handing out benefits.

As of now, they all dispense their normal unemployment checks, which vary based on the state and how much a worker was earning over a certain period before losing his or her job. For the last several months, states have been adding $600 per week from the federal government on top of those benefits because of the coronavirus pandemic.

Republicans want to transition the system to a uniform enhanced benefit for every unemployed worker in the country — one that equals 70 percent of what workers were earning immediately before they were laid off. That would require states to implement a new way of calculating past wages, and to adjust benefit checks accordingly, at a time when they have been overwhelmed with the more straightforward task of processing and paying out a deluge of unemployment claims.

It could take months to pull that switch off in every state.

“You’re asking for a varying amount of changes in these state governments,” said Kathryn Anne Edwards, an economist at the RAND Corporation who studies unemployment benefits. “Some of them are going to be faster than others. Because the story of unemployment benefits is always, always going to be the story of differences between states.”

Complicating matters, the change would be most damaging to lower-wage workers given 70 percent of their previous earnings would amount to a meager payout. Thanks to the $600 weekly supplement, many of those workers have been receiving more than they were earning from their jobs — a data point that Republicans cite when arguing that the program is too generous and discourages workers from seeking employment. But economists say those payments have provided a vital financial cushion to the unemployed at a moment when returning to work is still not an option for many people.

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Under a bill that Senator Charles Grassley, Republican of Iowa and the finance committee chairman, released on Monday, the weekly $600 check would fall to $200 through August and September. On Oct. 5, it would be replaced by a formula that starts with the amount of state benefits a worker would normally receive for unemployment and then adds federal dollars to bring the total benefit to 70 percent of the worker’s former wages.

States would have the option of proposing an alternative system, or continuing flat payments to each worker, that would allow for the average benefit to match 70 percent of lost wages.

Such a structure would be far more cumbersome for state unemployment offices than the current system. Part of the challenge is that each state agency has its own benefit formula and maximum benefit amount. That means each person will need to get an individual determination about what their federal-level benefit will need to be so that their total benefit package is equivalent to about 70 percent of their pre-pandemic income.

In states with low maximum amounts — like Arizona, at $240 weekly — the federal benefit will need to be much higher. “They will have to figure out a way to set up the system to figure out the differences,” said Michele Evermore, a senior policy analyst for social insurance at the National Employment Law Project.

The National Association of State Workforce Agencies, a national group representing state unemployment offices, said it expects states’s implementation schedules to vary widely, from four to twelve weeks or more, according to an agency document that analyzed several policy proposals.

“If such a policy solution is chosen, the effective date should be set well in the future,” the agency said in the document, “with a continuation of a flat amount until that future effective date.”

There are other complications for self-employed people and others who aren’t typically eligible for benefits, including those with limited work histories. Under the expanded system, many of these individuals can collect checks through the so-called pandemic unemployment assistance program.

But they do not necessarily have to submit proof of earnings to qualify for that program’s minimum benefit amount — and receiving the minimum makes them automatically eligible for the extra $600 federal benefit.

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So if the new federal benefit is based on actual earnings records, each state would need to build a system to receive and analyze wage data from self-employed people. “The state may not have good documentation about what they were earning,” Ms. Evermore added, “as the documentation requirements to get the minimum P.U.A. are less stringent.”

Other jobless workers receiving benefits may not have any earnings history at all. Workers who had job offers that were rescinded because of the pandemic, for example, can still receive checks even though they didn’t have any income.

States already had trouble reprogramming their systems to deploy the expanded benefits provided under expansion under the CARES Act. Many states administering unemployment benefits are relying on archaic systems, which were quickly overwhelmed by the influx of claims. Some are using aging mainframe computers programmed using a language called COBOL, which is more than 50 years old, and some states, like Connecticut, had to recruit retirees who knew how to program in the antiquated language.

Only 16 states have fully modernized their unemployment insurance systems, according to recent testimony by Rebecca Dixon, executive director at the National Employment Law Project, and many of those that did update their system still experienced problems.

“I would be very surprised if a state could get a new system to pay a percentage replacement up in two months,” Ms. Evermore added, “given everything else they have to deal with right now.”

If states were somehow able to make the shift, it would carry the side effect of subsidizing states with less generous unemployment benefits, funded by lower taxes — a set of states that is heavily Republican. It is the opposite dynamic from another sticking point in the negotiations over the next stimulus bill: Republicans have resisted sending direct aid to states with large budget shortfalls amid the crisis, because they say they do not want to subsidize high-tax Democratic states.

It would also be a particularly large blow to workers in Democratic states, who would lose the most money per week out of their benefit checks. The federal government would kick in significantly more support to bring the benefit up to 70 percent for workers in a low-benefit state like Arizona than in a high-benefit state like Washington.

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Low-wage workers will be hurt the most. They have been receiving the most, compared to previous earning, from the $600 weekly federal supplements. (That also means they are the workers Republicans fear are being discouraged from returning to the workplace, because they’ve been earning more from unemployment than from their former jobs.)

The move to reduce benefits via the formula change also comes as the composition of America’s unemployed is changing to include more nonwhite workers, because employers are rehiring whites at a more rapid pace than Black or Latino workers, continuing a trend in America after recessions.

“There is a racial element to this — there is absolutely a racial element,” said Ms. Edwards, who favors extending the $600 per week enhancement, citing research showing it has buoyed consumer spending in a sharp downturn while not deterring workers from taking jobs if offered them. “We are in an unprecedented level of unemployment right now, and rather than focus on how to mitigate those scars, we’re debating the work ethic of the unemployed.”

Democrats, led by Senator Ron Wyden of Oregon, the party’s top-ranking member of the finance committee, have criticized the wage-replacement proposal and called it unworkable. Earlier this year, though, such a system was Democrats’ goal — in discussions with the Trump administration over an economic rescue package in March, Mr. Wyden and others pushed for an enhanced unemployment benefit that would replace 100 percent of workers’ wages.

Labor Department officials told them such a plan was not workable for states. The $600 additional payment was selected as a compromise — it is the average gap between state unemployment benefits and a typical unemployed worker’s former pay. Because it is an average, the payment has allowed millions of Americans to earn more from unemployment that they were earning before being laid off.

Given the challenges involved with transitioning to a wage replacement system, policy watchers expect Congress to ultimately agree to a $400 per week compromise that splits the difference between what Democrats and Republicans support.



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