How to fix a broken unemployment insurance system

The unemployment insurance system in the United States is broken and needs major reform at the federal and state levels, concludes Stephen Wandner, former research director of the U.S. Labor Department’s Office of Unemployment Insurance, in a new book published by the Upjohn Press. Wandner, an Upjohn Institute research fellow, is the editor for “Unemployment Insurance Reform: Fixing a Broken System,” which examines unemployment insurance from a research and policy perspective.

In 1935, the Social Security Act established the unemployment insurance program with the goals of helping unemployed people find new jobs, boosting the economy during recessions and discouraging employer layoffs. The program has grown less effective over time, Wander argues, as economic conditions have changed and statutes failed to keep pace.

In many states, unemployment benefits are set too low and do not increase as wages increase. The federal wage base used to pay for the program hasn’t been increased since 1983, and many states haven’t raised their own wage bases high enough to make up for this. Wandner contrasts the Social Security system, which indexes both benefit levels and the taxable wage base, to the unemployment insurance program, which does neither.

The book features chapters on reform proposals, the Employment Service-Unemployment Insurance partnership, state financing in response to the Great Recession, and policy recommendations. Contributors include the Upjohn Institute’s Christopher O’Leary, who updates a 2017 paper with David Balducchi and adds a chapter on evidence-based policy recommendations with Wandner; Suzanne Simonetta; and Wayne Vroman.

 “Unemployment Insurance Reform: Fixing a Broken System” is a WEfocus book, one of a series of short books from noted experts who provide a concise discussion of important labor market issues along with the programs and policy recommendations that address those issues. Books in this series are available as free PDF downloads or as paperbacks.

Since 1935, the labor market has changed, with more women and older Americans working. Unemployment also has changed, as employers lay off workers permanently instead of temporarily and workers stay unemployed longer. The unemployment insurance program struggles with systemic problems, Wandner writes, “but part of the reason that UI reform is needed is simply that times have changed, while the UI program has not.”

The book details some of the past efforts to change the system before concluding with a detailed list of key reforms for both states and the federal government. Following these recommendations better aligns the program with its original intent, Wandner concludes. Failing to do so leaves the system unprepared to weather the next recession.

Download the full book or individual chapters.


Research Topics: Unemployment Insurance