A national policy discussion is in progress with respect to Unemployment Insurance and the dramatic increases in payments to individuals who have been adversely impacted by COVID-19 and the ensuing economic recession. What support is appropriate? How should it be delivered? How can identity theft and fraud be avoided? How should the system be financed? Is a new system needed or should there be adjustments to the current Federal-State Unemployment Insurance system in anticipation of the next recession?

President Biden has released his American Families Plan Fact Sheet: The American Families Plan | The White House  which includes a statement that:

UNEMPLOYMENT INSURANCE REFORM
The unemployment insurance (UI) system is a critical lifeline to workers at the hardest times. During the pandemic, it saved millions from poverty and helped people put food on the table. But, the system is in desperate need of reform and strengthening.  Too often Americans found themselves waiting weeks to get the benefits they deserved.  Too often the benefits Americans would automatically receive would’ve been too low and would not have gone long enough absent Congress stepping in.  Too often the safeguards to prevent fraud in the system have been insufficient. And it has been unemployed people of color who have borne the brunt of the UI system’s weaknesses. President Biden is committed to strengthening and reforming the system for the long term.  That’s why he won $2 billion in the American Rescue Plan to put toward UI system modernization, equitable access, and fraud prevention.  And, that’s why he wants to work with Congress to automatically adjust the length and amount of UI benefits unemployed workers receive depending on economic conditions. This will ensure future legislative delay doesn’t undermine economic recovery and it will enable permanent reform of the system to provide the safety net that workers deserve in the hardest times.

No legislative language was provided with President Biden’s plan, however, a recent proposal from Senator Ron Wyden (D-OR) and Senator Michael Bennet (D-CO) addresses the issues noted in the President’s plan and much more.

Wyden-Bennet Proposal

The Wyden-Bennet proposal would fundamentally change the federal-state unemployment insurance system, dramatically increase benefits and costs, increase federal and state unemployment taxes, and impact the operation of the private labor market in the United States.  The primary drivers of the change include:

  • Requiring all states to adopt the “ABC” test to determine whether individuals must be reported as employees and covered for the purposes of Unemployment Insurance
  • Lowering the unemployment rate at which states trigger “on” to federal extended unemployment compensation
  • Providing 100% federal reimbursement to state UI trust funds for extended unemployment compensation
  • Increasing the number of weeks of unemployment that states must provide
  • Increasing the percent of wage replacement that state UI laws must provide
  • Lowering the workforce attachment requirements to qualify for unemployment compensation
  • Paying unemployment to individuals who currently do not qualify for unemployment compensation
  • Providing a federal supplement in addition to the amount provided as support for unemployed workers seeking employment
  • Increasing the FUTA and SUTA taxes (amount of increase not yet determined)

These provisions propose to cover more workers, increase the benefits to be paid to them, and extend payments for longer periods of time. In many cases the result, particularly for entry level workers and low income workers, may be unemployment compensation that exceeds income from work. Research suggests that many individuals would be discouraged from being available or seeking work and the cost to employers of hiring workers would increase. Some employers are currently observing that it is more difficult to find workers to fill jobs because workers are being paid more in unemployment compensation than the wages to be paid to work. The Wyden/Bennet proposal, if enacted, would result in employers not only paying higher FUTA and SUTA taxes on average but the cost of labor would increase due to the increase in government payments.

Such a proposal would likely score for federal budget purposes in the hundreds of billions if not trillions of dollars over ten years.  However, portions of the proposal could be taken up in the context of continuations of provisions of the CARES Act and FFCRA that were extended through September 6th by the American Rescue Plan Act (ARPA).

We have developed a detailed review of the Wyden-Bennet proposal, and we are participating in legislative discussions with respect to further continuations of the UI provisions currently in the American Rescue Plan Act (ARPA) before they expire on September 6th.