3 Years After the Pandemic-Era Downturn, the U.S. Unemployment System Is Still Plagued by Delays

The U.S. unemployment system is unique in many ways. It is one of the few systems that provide benefits to those who are unemployed due to no fault of their own. Additionally, it is one of the few systems that allow people to receive benefits for an extended period of time.

Almost three years after the Covid-19 pandemic caused widespread job losses, unemployment has recovered to near-historic lows. Applications for unemployment insurance have been at or below their pre-pandemic trend for the better part of a year.

Although the unemployment system in the United States appears to be functioning smoothly, those who are out of work and need benefits are not receiving them in a timely manner. This discrepancy is causing stress and frustration for many Americans.

The federal government considers a first payment to be "timely" if it is issued within 21 days of an initial claim for benefits. According to U.S. Department of Labor data, in March 2020, 97% of payments were timely, but today the average is only 78%.

The Labor Department has set 87% as the target for first-payment timeliness. This means that they expect most payments to be made within this timeframe.

The result is worse for workers who file an appeal over a benefit decision. For example, less than half of hearings in a lower appeals circuit are resolved within 120 days. The pre-pandemic share was almost 100%, according to Labor Department data.

Although delays are not as bad as they used to be, they still vary significantly between states. For example, at the pandemic-era nadir, just 52% of laid-off workers received a “timely” first payment of unemployment insurance. However, the delays are getting shorter.

The delays are still "significant," according to the Government Accountability Office's June report.

The GAO said that furloughs can have real-world effects, such as deferred bills, postponed rent, accrued credit card debt, raided retirement savings, loans from family and friends for living costs, and a reliance on community food pantries.

Unemployment experts say that the discrepancy between fewer claims and longer delays is due to the pandemic and state agencies that were already running on financial fumes heading into the crisis.

According to Nick Gwyn, an unemployment insurance consultant for the Center on Budget and Policy Priorities, states are still dealing with a high volume of claims even though new claims are low. Gwyn, who is also a former staff director for the House Ways and Means subcommittee overseeing jobless benefits, said that the pandemic has put a strain on state resources.

Gwyn said that it is "hard to exaggerate" the amount of work state unemployment agencies had to do in the months and years after February 2020.

As businesses closed due to stay-at-home orders to contain the virus’ spread, unemployment claims spiked. By early April, workers were filing about 6 million claims in a single week. This was a record-breaking number, with the previous record being 695,000 claims in 1982. By the end of 2020, 40 million people had received benefits.

The CARES Act has created new programs to enhance the safety net, including a $600-a-week increase in typical benefits, an extension of benefits to gig workers and others who are typically ineligible for aid, and an increase in the duration of assistance.

These programs were renewed and changed many times between March 2020 and Labor Day 2021.

States were initially doing all this work with very limited staffing and resources. They were managing a large number of claims, fielding calls from worried applicants, implementing and tweaking new programs, and issuing a unprecedented amount of funding.

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According to the GAO, administrative funding for state unemployment systems fell by 21% between fiscal years 2010 and 2019. (The decline was even larger when accounting for inflation, at 32%.)

Federal funding for these programs has been declining since the 1970s, said Andy Stettner, deputy director for policy at the Labor Department’s Office of Unemployment Insurance Modernization. This trend continued in the lead-up to the pandemic.

According to Stettner, funding declined 21% in the most recent fiscal year, to $2.6 billion in 2022 from $3.3 billion in 2021.

The downward trend over this time reflects an underlying tension in the system’s structure. States get funding based on their administrative workload, like the volume of claims states are paying. This can create a incentive for states to inflate their workload, which can lead to problems down the line.

Currently, states are receiving lower relative levels of federal funding due to fewer jobless claims. Around 186,000 people filed an initial claim for benefits in the week ended Jan. 21, which is fewer than the 200,000 or so who filed a weekly claim at the beginning of the pandemic.

As funding decreases, states are struggling to keep up with the administrative work required to implement CARES Act programs. Some of this work was put on hold as states rushed to implement the programs, but now it is becoming a bigger issue.

This situation is very different from what is considered normal, Stettner said. It's upside down and not at all what we're used to seeing.

According to Stettner, the states were in a very precarious position going into the pandemic, which left them very unprepared. One reason for the backlog of claims is that states had to put off certain work when all the new claims were coming in, and they are just now trying to catch up.

Michele Evermore, a senior fellow and unemployment expert at The Century Foundation, said that part of the current administrative burden is a kind of forensic accounting of funding issued during the pandemic.

For example, states are assessing the extent to which they may have overpaid benefits, she said. This is leading to increased scrutiny of benefit programs and how they are administered.

This is especially true for the Pandemic Unemployment Assistance program under the CARES Act. Some state agencies were not aware that they needed to reassess a worker's eligibility for benefits on a weekly basis. This includes factors such as illness, caring for an ill individual, child care, or a disruption in gig work and self-employment. Now, these agencies are asking PUA recipients to verify that they are indeed qualified for all the benefits they received.

Other factors have complicated the situation, experts said.

States have encountered historic levels of fraud during the pandemic. Organized crime rings and con artists have hacked state systems to take advantage of the mayhem with hopes of getting access to relatively rich levels of federal aid.

"Fraudsters have made things much harder and slower," Evermore said.

Criminals have been stealing personal data to commit identity theft and fraudulently claim benefits in other people's names. This has been a major problem, causing significant financial losses for many people.

According to the GAO, "improper" benefit payments are estimated to increase to $78.1 billion in fiscal year 2021, from $8 billion the prior year. The Labor Department said the multiyear sum may exceed $163 billion.

Criminals are still attacking the unemployment insurance system, experts said. They’ve adopted new tactics, too, such as “bank account hijacking,” in which hackers identify claimants receiving unemployment insurance and funnel their weekly cash infusion into a new, fraudulent bank account, Evermore said.

"Some criminals get hooked on this type of fraud and will continue to try it," Stettner said.

States have implemented various fraud controls, such as better identity verification, in order to clamp down on fraudulent claims. In some cases, these controls have delayed legitimate claims from being issued in a timely manner. A claim that is flagged for any reason generally must be vetted by a human at the state workforce agency.

This is a delicate balancing act: protecting funds from flowing to criminals or preventing claimants from getting too much money, while also trying to get assistance to people who need it quickly.

According to Stettner, agencies have had to shift personnel to handle backlogs in the appeals process, which has reduced resources available for ensuring that first payments are delivered on time.

The Labor Department is working with states to automate procedures where possible to improve efficiency, Stettner said.

"There are many states that continue to struggle to meet that acceptable level of performance," he said. "It's not a situation we want to see."

However, he said he believes that the delays are coming to an end.

Gwyn believes that the economy is heading in the right direction. However, with concerns of another economic downturn looming, she is worried that the unemployment system will not be able to respond effectively if it does occur in the near future.

Of course, that outcome is not guaranteed.

The Federal Reserve is raising borrowing costs in an attempt to slow down the U.S. economy and keep inflation in check. The central bank believes that this will help avoid a recession.

Gwyn said that the UI system is very troubling and she is concerned about what will happen if we have another recession.

"When you put all of that together, it's clear that the system is nowhere near ready for another recession," he added.