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Research Briefs | November 10, 2020

Extending Unemployment Insurance Benefits to Workers in Precarious and Nonstandard Arrangements

Katharine G. Abraham, Susan Houseman, Christopher J. O’Leary


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Many fear that rapid technical change is raising the rate at which workers are displaced from their jobs, as machines take over many tasks once performed by humans (Brynjolfsson and McAfee, 2014). By shifting the locus of production of many goods from advanced economies to emerging and developing ones, globalization also has contributed to worker displacement (see, e.g., Autor, Dorn and Hanson, 2013; Acemoglu et al., 2016; Pierce and Schott, 2016). Even aside from changes driven by technology and trade, employers’ increasing reliance on contract workers and on-demand scheduling rather than on permanent employees who work predictable schedules has added to the precariousness of many workers’ jobs (Weil, 2014; Lambert, Fugiel, and J.R. Henly, 2014; Lambert, Henly, and Kim, 2019).

The current global pandemic threatens to magnify these forces. The adoption of new technologies that minimize workers’ exposure to the virus may accelerate the process of labor-displacing technological change. The widespread shift to remote work during the pandemic may lead to lasting changes as well. Although remote work has some drawbacks, it allows workers to avoid time-consuming and costly commutes, and businesses can realize substantial savings on office space and business travel, among other benefits. Even after the pandemic is over, some of the shift to remote work seems likely to persist, contributing to reductions in employment in industries such as hotels, restaurants, and building maintenance—industries that largely serve other businesses and in which employment is dominated by low-wage workers (Autor and Reynolds, 2020). New jobs will be created, but many likely will be in different locations and require different skills from those that have disappeared. Further, as employers confront a less settled economic environment, the shift toward more precarious employment arrangements may accelerate, adding to workers’ uncertainties.

These developments underscore the importance of a robust social safety net for those who lose their jobs. They also point to a greater need for workforce program services that help workers find and possibly retrain for other jobs. Unemployment insurance (UI) is the principal mechanism for assisting job losers in the United States.

However, serious weaknesses in the unemployment insurance system have developed, particularly in recent years. In many states, the average share of lost wages replaced by unemployment insurance benefits and the maximum length of time the unemployed can receive benefits have both fallen. Some states have made the process of applying for benefits more difficult. Moreover, large numbers of workers do not qualify for UI benefits at all. Following the Great Recession of 2008–2009, the UI recipiency rate—the share of the unemployed receiving unemployment benefits—fell to historic lows. The current pandemic, which triggered the deepest recession since the Great Depression of the 1930s, has shined a bright light on the UI system’s inadequacies and the need for reform.

Comparing the U.S. UI system with those of other advanced economies also reveals its inadequacies. Many other developed countries provide both unemployment benefits that are based on a worker’s prior earnings and means-tested unemployment assistance once unemployment benefits have been exhausted. The Organization for Economic Cooperation and Development (OECD) produces regular estimates of the effective share of unemployed individuals’ lost net earnings that are replaced by unemployment insurance and other social assistance benefits (the net replacement rate). For a single worker with no children paid two-thirds of the average wage at the beginning of an unemployment spell, among the 40 countries ranked, the estimates for 2019 show the United States tied for 29th with Estonia (OECD, 2020).1 Other OECD research placed the United States 33rd out of 34 OECD countries as of 2014 in the maximum duration of unemployment insurance benefits, ahead only of Hungary. A ranking that same year of 33 countries by pseudo-recipiency rates, calculated as the ratio of the number of people receiving UI benefits to the number of people unemployed, placed the United States 26th, ahead only of Turkey, the Slovak Republic, Poland, Hungary, Japan, Slovenia, and Lithuania (OECD, 2018a).

The United States can and should provide greater support to unemployed individuals who are looking for new jobs or seeking to upgrade their skills to transition to a new type of work. In this research brief, we provide background on the unemployment insurance system and explain how business practices such as the use of scheduling algorithms (associated with variable work hours), temporary agency workers, independent contractors, and online platforms (employing “gig workers”) not only make work more precarious but also leave many without access to UI benefits. We close with a discussion of ways to reform the UI system to expand coverage to more workers in precarious and nonstandard arrangements and of the use of UI benefits as a stipend for those who have lost their jobs and need retraining.