The Unemployment Insurance system is not working. Here’s how we fix it.

By: Former Congressman John Faso​, Senior Advisor to the Center for Accountability, Modernization, and Innovation (CAMI)

The United States is getting back to normal. Restaurants are reopening, mask mandates for the fully vaccinated are falling by the wayside, and employers are hiring again after a year of economic uncertainty. However, the pandemic exposed real problems with our system of unemployment insurance.

According to May’s job numbers from the Bureau of Labor Statistics, 9.3 million Americans remain unemployed. Compared to February 2020, 2.6 million more Americans are counted among the long-term unemployed, and 1.6 million more Americans are not in the labor force but want to work. And 7.9 million people reported that they had been unable to work because their employer closed or lost business due to the pandemic. Worse, the workforce participation rate hasn’t been this low since 1977.

Despite those 9.3 million unemployed and almost 2 million who have left the workforce but want a job, employers are struggling to fill open positions. In my neck of the woods in upstate New York, the owner of a local bagel shop told me that he cannot find workers to fully staff his business. This is a common refrain from business owners across the country.

As is typical in Washington, D.C. these days, both sides of the aisle have different explanations for this scenario:

  • Republicans blame the increased unemployment benefits that were passed initially as part of the CARES Act, and later extended (at a slightly lower amount) through the American Rescue Plan Act through September 6, 2021. As a result, half of U.S. states have said they will end access to those benefits early.
  • Democrats point to the lack of affordable childcare and safety concerns as the reason workers are hesitant to return to work. However, President Biden said that enhanced UI benefits would not be extended upon expiration in September.

The reality is that labor shortages didn’t begin with the pandemic – this has been a problem for years. The workforce participation rate was in decline even prior to COVID-19. The United States had over seven million open, unfilled jobs at the end of 2019 indicating that there is a strong mismatch in U.S. labor markets. Employers simply cannot find employees to do the jobs they have open and fixing this should be an area where both Democrats and Republicans can agree.

A recent report from the U.S. Chamber of Commerce found that “[w]hile the pandemic has certainly impacted the labor market, the lack of workers to fill open jobs isn’t a new problem. In late 2019, there were more open jobs than unemployed individuals. Keeping our economy growing requires that we fill these jobs.”

The historical labor supply and jobs demand mismatch has been made worse by the pandemic and enhanced unemployment benefits, but there are also fatal flaws with the design of the workforce system, which focuses on short term employability rather than long-term solutions.

So, how do we fix this problem? State unemployment insurance (UI) offices are on the front lines of this problem. They need help.

State agencies were overwhelmed at the start of the pandemic. The deluge of individuals applying for UI and needing questions answered quickly overwhelmed outdated technology systems.

Recognizing this, Congress gave these agencies the flexibility to work with established contractors and third parties to assist with citizen response and program integrity matters. This flexibility also allowed states to scale up program response without making permanent additions to state agency staffing.

Then there are ineffective job training programs. The primary federal training program is the Wagner-Peyser Act. Yet only 14% of the unemployed actually utilize these training programs. Job training and retraining should be the keystone of our UI system but that isn’t the case today. A 2019 report found that by the end of fiscal year 2019, the federal government will have spent $18.9 billion on worker training across 47 programs — and that is just at the federal level. Our low workforce participation rates indicate that we’re not getting our money’s worth from current federal programs, and we need to fix it.

Employers lament that many prospective employees are unprepared for a real job. Job training programs – whether sponsored by the government or private sector – need to train workers for jobs which employers actually need. High school and community college training and apprenticeship programs need to seamlessly gear skills training efforts to jobs which actually exist.

Congress needs to give states the ability to innovate with workforce development. Governors, working with private sector employers, are better situated to address these issues at the state and local levels. Congress needs to allow states to create a new paradigm which reflects today’s job market and fosters programs which trains workers and gets them into the jobs for the economies of today and tomorrow.

John Faso is the former congressman for New York’s 19th Congressional District (2016-2018). He currently serves as a Senior Advisor to the Center for the Center for Accountability, Modernization, and Innovation (CAMI).