Automatic Aid for the People? How Jobless Benefits Can Fit the Economy.

For years, people who study unemployment benefits have warned that the American system of jobless insurance was too antiquated and clunky to meet the needs of workers in a time of economic crisis.

To understand what they were worried about, consider this bizarre timeline since the start of the pandemic:

Last spring, when the economic shutdown caused millions to lose their jobs, many state systems were so clogged that people were unable to receive jobless benefits for weeks, sometimes longer.

Congress concluded that it would be technologically impossible to calibrate extra benefits to replace every jobless person’s full income, so it took a blunter approach: Lawmakers tacked an extra $600 per week onto unemployment checks. The result, by one estimate, was that 76 percent of recipients made more than they earned when they were working.

At the end of July, that $600 supplement expired, falling to zero. But the economy remained in dire condition with jobs nowhere to be found — leaving millions of jobless people in the lurch.

Then, early this year, $300 per week was tacked on. It is set to stay there until September, even as Americans are vaccinated on a mass scale and as the economy starts to roar ahead.

So while unemployment insurance has fulfilled a vital role of keeping families afloat financially — and preventing overall demand for goods and services from collapsing — the stop-and-start cash sequence has been reflective of neither individual recipients’ lost income nor the state of the labor market.

This has been partly the result of U.S. policymakers’ rejection of ideas that many labor market experts support, and that some advanced nations have adopted to varying degrees. These economists have called for investing more in the technological and customer service infrastructure of state unemployment systems, and presetting benefits based on economic conditions. Benefits would adjust automatically to the level of need, thus helping people who are struggling and stabilizing the overall economy without Congress having to do much of anything.

“There are a lot of flaws and gaps in the unemployment insurance system that were revealed in Covid but have always been there,” said Chloe East, an economist at the University of Colorado Denver who has studied the system.

Such proposals have typically come from left-of-center policy experts. But now, as the economy starts to recover, there’s a twist. In the potential boom-time summer to come, these automatic triggers would probably fulfill conservative policy goals — ensuring that benefits are reduced as the economy recovers, thus increasing incentives to return to work.

Businesses around the country are complaining of difficulty finding people to hire. Many employers blame generous unemployment insurance payments that may give some would-be workers incentive to stay home.

Some recipients still earn more on unemployment than they do when they’re working, thanks to the $300 supplement. And under current law, those benefits will remain in place until Sept. 6 no matter how much the economy might boom or how abundant jobs turn out to be.

In a proposed sweeping overhaul of the system published this month by Arindrajit Dube of the University of Massachusetts Amherst, the duration of jobless benefits would vary based on the unemployment rate. States with a jobless rate under 5 percent would extend benefits for 26 weeks, and those with 10 percent unemployment for 98 weeks. He would also raise benefits by $100 a week when the jobless rate was above 6 percent, and by $200 when it was above 8 percent.

Some lawmakers are thinking similarly. Two Democrats, Senators Ron Wyden of Oregon and Michael Bennet of Colorado, proposed legislation this month that would, among many other things, extend benefits when the unemployment rate is at or above 5.5 percent.

Similar proposals have failed to advance for a range of reasons. For one, the plans appear expensive in the conventions of budget math. The current practice is to extend benefits in a bill, or a series of them, if the need arises. That appears less expensive than building in money in advance for jobless benefits and automatic triggers based on the economy.

Now consider the partisanship that can come into play in limiting the size of recession aid packages. If lawmakers agree to spend only $900 billion on economic help, for example, it’s a disadvantage if some of that is devoted to a theoretical estimate of what jobless benefits might be years in the future.

Moreover, lawmakers may like the appearance that they are leaping to citizens’ aid in a crisis or recession — which would be less visible if the aid were increased automatically.

In times of economic crisis, like last year, Democrats and Republicans have been able to agree on these policies. But if they were to try to devise a system from scratch, they might turn out to be quite far apart on how generous jobless benefits should be.

“I think everyone can agree the optimal system would be calibrated to the economy, but the devil is so much in the details,” said Marc Goldwein, policy director of the Committee for a Responsible Federal Budget. “I suspect the parties are much farther apart on what a permanent trigger should look like than what we should do in the next six months.”

Still, the current moment shows there could be harmony between at least some fiscal conservatives and pro-business interests and those on the left who would like to see more expansive benefits.

“Even people who would like to see pandemic unemployment insurance gone by now would have wanted people last May and June to be getting checks when millions of people weren’t getting them because the systems couldn’t function,” said Jay Shambaugh, an economist at George Washington University. “One way or another, the system we have now didn’t provide money along the optimal path.”

The flip side of a system that can get money out quickly is that it can also be fine-tuned to make sure benefits go away when circumstances justify it.