Unemployment insurance faces renewed scrutiny amid recession fears

As concerns about a potential U.S. recession grow, the spotlight has once again turned to the unemployment insurance (UI) system. Experts warn that the system, which workers rely on for temporary income support during layoffs, is at risk of faltering if another economic downturn occurs.
System Unprepared for Another Downturn
Michele Evermore, a senior fellow at The Century Foundation and former deputy director for policy at the U.S. Labor Department’s Office of Unemployment Insurance Modernization, expressed concerns about the system’s current state. “It absolutely isn’t ready for the next recession,” Evermore stated, adding that the system may be in worse shape now than before.
The unemployment insurance program plays a crucial role in supporting consumer spending and stabilizing the economy during downturns. However, the pandemic exposed significant weaknesses in the system, including technology failures and an administrative structure that struggled to deliver benefits promptly and accurately.
Challenges Exposed by the Pandemic
A recent report from the National Academy of Social Insurance highlighted the “major cracks” in the unemployment insurance system that were laid bare during the pandemic. The report, authored by over two dozen UI experts, pointed out wide variations among states in terms of benefit amounts, duration, and eligibility criteria.
Andrew Stettner, director of the Labor Department’s Office of UI Modernization, emphasized the need to address these challenges during periods of economic stability. “Policymakers should address the system’s shortcomings when times are good so it can deliver when times are bad,” Stettner said.
The Pandemic’s Impact on Unemployment Insurance
The early days of the pandemic saw an unprecedented spike in joblessness, with the national unemployment rate reaching nearly 15% in April 2020—the highest since the Great Depression. Unemployment benefit claims surged to over 6 million in early April 2020, compared to just 200,000 per week before the pandemic.
State unemployment offices, already strained, were further burdened by new federal programs introduced by the CARES Act. These programs aimed to enhance the unemployment insurance system by increasing weekly benefits, extending their duration, and expanding eligibility to include gig workers.