Wyden plan revamps aging U.S. unemployment benefit system
The acting director of the Oregon Employment Department says there are things to like, and much to consider, in a sweeping proposal by Oregon Sen. Ron Wyden to overhaul the nation's Depression-era system of unemployment benefits.
Wyden, who leads the Senate Finance Committee, and Colorado Sen. Michael Bennet laid out their framework for a revised system in a document they released Wednesday, April 14.
Wyden has talked about changes to the system for almost a year, since the coronavirus pandemic triggered the sharpest one-month economic downturn and a record number of unemployment claims in recent history. In Oregon, the unemployment rate spiked from a record-low 3.5% in March 2020 to a record-high 13.2% (adjusted) the following month and claims topped 500,000. The March 2021 rate was 6%.
Wyden gained political leverage in January when Democrats gained a tenuous majority in the Senate — Vice President Kamala Harris holds the tie-breaker in a 50-50 chamber — and he became chairman of the tax-writing panel.
Now that Congress has extended short-term benefits through Labor Day under President Joe Biden's pandemic recovery plan, Wyden said it's time for his colleagues to consider the next steps in changing a system that dates back to 1935.
"As we've seen in the last year, it's much harder for the unemployment system to work in a crisis when it's been neglected and sabotaged. We can't fail again to fix it in the wake of the second major economic crisis in 10 years," Wyden said in a statement.
"A 21st century economy demands a 21st century safety net that supports workers who lose their jobs through no fault of their own. Our proposal would help ensure benefits cover the basics, minimize the glaring disparities between state programs and create a permanent benefit for self-employed workers. Importantly, it would also prevent another race to the bottom where state after state cuts its program to the bone.
"If we don't fix unemployment insurance now, the system will be even more broken when the inevitable next recession hits."
Gerstenfeld was director of the unemployment insurance division from 2011 until he took a different job within the state agency in 2019. Gov. Kate Brown named him acting director when she fired Kay Erickson on May 31 last year.
Gerstenfeld said he supports changes that would trigger extra benefits based on economic indicators, such as when three-month unemployment averages reach specified levels.
During the Great Recession a decade ago, Congress ultimately extended federal unemployment benefits for up to 99 weeks, which ended in 2013. During the most recent downturn since March 2020, Congress passed three rounds of benefits under a variety of programs — including the first payments to self-employed and gig workers, who were never covered before — and then-President Donald Trump ordered the Federal Emergency Management Agency to transfer money from disaster relief to benefit payments.
"Through most recessions, we have ended up with new ad hoc benefit programs or extensions that have caused some of the challenges we have seen during this pandemic," Gerstenfeld told reporters in a weekly conference call.
"All states are having to build the new program or extension after it gets passed by Congress, rather than having something already designed and ready to roll out once the conditions require additional benefits. We think that (Wyden proposal) is a good long-term fix."
Over the past year, he said, Oregon paid out $738 million in federal benefits to self-employed and gig workers under the program known as Pandemic Unemployment Assistance.
Wyden proposes a permanent $250-per-week benefit for "job seekers," covering workers not under the traditional system and new entrants to the workforce.
Gerstenfeld said Oregon did tap its state unemployment trust fund to cover some gig workers who qualified for benefits. The initial CARES Act last year required states to screen such workers before qualifying them for federal benefits under Pandemic Unemployment Assistance.
Still, Gerstenfeld said, those federal benefits made a big difference to those workers who had never been covered before.
"There is still the prospect of a lot of people not having any support during a huge economic recession," he said. "So I think setting up a permanent program like that would make the safety net much stronger."
Among other features in Wyden's proposal:
• A standard 26-week period for regular state benefits — Oregon already does so, but seven states have shorter periods — and at levels equivalent to 75% of workers' wages. Weekly state maximum benefits now range from a low of $235 in Mississippi to $823 in Massachusetts; Oregon is toward the higher end at $648. In economic emergencies such as the recent pandemic-induced downturn, the replacement level would rise to 100%.
Gerstenfeld said such a system would be more complex to run. But the Oregon Employment Department is about to embark on a modernization of its computer system, which dates to 1993 and relies on computer language going back to 1959. The state received $89.3 million in federal money in 2009. Gov. Brown's budget proposes a start on the project in the next two-year cycle starting July 1.
"Some of those provisions would require extensive work with our technology systems," he said. "But some of them might work out in time for us to be able to build them into the modernized system we are building."
• Benefit coverage would extend to part-time workers and workers who quit their jobs with "good cause," such as domestic violence, sexual harassment or care of a family member who is ill or has a disability.
• Workers would be paid for their "waiting week," the first for which they file unemployment claims. Oregon finally paid workers last year after Gov. Brown ordered an end to non-payments for the "waiting week."
• A $25-per-week allowance would be made for dependents of unemployed workers.
How it's paid for
To pay for an expanded system, Wyden has proposed to lower the overall federal unemployment payroll tax rate, but raise the taxable wage base above the current $7,000, a figure set back in 1983.
He has not proposed to extend payroll taxes, which now are paid by employers, to self-employed or gig workers.
States would get more federal money to administer unemployment programs. Gerstenfeld said Oregon is reimbursed, but not at full cost, by the U.S. Department of Labor.
But states also would have to take steps to ensure that they would not have to borrow from the federal government to maintain their unemployment trust funds for regular benefits. Oregon did not borrow during the Great Recession, and Gerstenfeld has said he does not anticipate the state having to do so this time.
Oregon started the pandemic a year ago with about $5 billion in the state trust fund; it is down to $3.7 billion.
Oregon lawmakers are considering a bill to defer and reduce some state payroll taxes, which will replenish the state trust fund but at a lower level. Gerstenfeld said House Bill 3389, which awaits a vote of the full House, would save employers about $2.4 billion over a decade.
To see a discussion draft by Sens. Ron Wyden and Michael Bennet of the changes they contemplate in the nation's unemployment benefit system, click here.
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