Economists expect a recession this year. Are states' unemployment systems ready?

Elijah Johnson has been waiting for help from Nevada's unemployment insurance system since October.

He worries it might come too late.

The 26-year-old Reno resident lost his job at a warehouse last fall and has not found another one despite applying for more than 80 positions.

But joblessness isn't his only source of financial stress. He can't get Nevada's unemployment agency to approve and deposit more than $4,500 worth of unemployment checks into his account. Its phone lines are constantly busy, Johnson says, which means most of his calls don't go through. And the few times he has reached a representative of the state's Department of Employment, Training and Rehabilitation, he's told they don't know when an adjudicator will be able to examine his claim.

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Elijah Johnson poses for a portrait with his daughter Azriela-Nova in their apartment in Reno on March 28, 2023.
Elijah Johnson poses for a portrait with his daughter Azriela-Nova in their apartment in Reno on March 28, 2023.

At this point, he's facing eviction and worries about having enough money to feed his 7-month-old daughter.

"I was used to growing up poor," he said. "I see myself reverting back to those thoughts and feelings of: Am I going to eat tonight? Or am I going to have food? Am I going to be able to provide for my daughter? Honestly, it's extremely stressful."

Elijah Johnson plays with his daughter Azriela-Nova in their apartment in Reno on March 28, 2023.
Elijah Johnson plays with his daughter Azriela-Nova in their apartment in Reno on March 28, 2023.

About 53% of first-time unemployment insurance payments in Nevada were paid within 21 days of a claimant’s initial eligibility as of February, down from 99% in March 2020, according to data from the U.S. Labor Department. About one-third of applicants in the state waited more than 70 days to receive their first payment.  

Unemployment systems across the country were overwhelmed with claims in 2020 after COVID-19 lockdowns erased more than 20 million jobs and sent the jobless rate soaring to 14.7%. In 2021, The Labor Department announced funding to help states address the longstanding challenges within unemployment benefits systems and promised to "reform this critical safety net for future crises."

But various state unemployment insurance offices continue to grapple with outdated operating systems, a backlog of claims and staffing difficulties. The Department of Labor says at least 87% of first-time applicants should have their claims processed within two or three weeks to be considered an "acceptable" performance level. Some claimants are waiting months.

Experts warn the broken system could crack even further if the U.S. economy enters a recession this year, which could result in more layoffs and rising unemployment claims.

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Most economists had expected a recession within the next 12 months even before Silicon Valley Bank failed in March, raising fears that hobbled banks could weaken the economy.

"Recession fears are still looming," said Alexa Tapia, the unemployment insurance campaign coordinator at the National Employment Law Project, a nonprofit that advocates for workers’ rights.

"States and federal government have to immediately move to address" issues with unemployment systems, she said. "Otherwise, we will see a repeat of the 2020 crisis."

Response times have yet to bounce back

Arjun Singh, a spokesperson for the U.S. Labor Department, said the COVID-19 pandemic exposed longstanding challenges in the country’s unemployment insurance systems, which were bogged down by outdated technology and a lack of resources.

"Years of low investment into the program impacted the system’s ability to effectively respond to surges in claims," Singh said in an emailed statement. Administrative funding was at "the lowest in at least 30 years, leaving states ill-prepared for the challenges of the recession" of 2020. 

Efforts have been made across states to improve these systems through a boost in federal funding, but experts warn that dramatic overhauls will take time.

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In June of 2020, shortly after the onset of the pandemic, just 52% of first regular unemployment insurance payments in the U.S. were paid within 21 days, down from 97% just three months prior. Data from the U.S. Labor Department shows response times have improved, but the national average has yet to return to pre-pandemic levels, with about three-fourths of U.S. claimants receiving their first payment within 21 days as of February 2023.

The U.S. Government Accountability Office last summer moved unemployment insurance to its “high-risk” list of programs vulnerable to fraud, abuse, or mismanagement or in need of a transformation. The addition is meant to bring lawmakers' attention to the challenges facing the unemployment insurance system and spur change.

“The widespread problems plaguing the Unemployment Insurance system are extremely troubling,” Gene Dodaro, head of the GAO, said in a June 2022 statement. "The system (is) falling short in meeting the needs of workers and the broader economy."

In Nevada, where Johnson has struggled to find work, the unemployment agency has been short on staff who can review claims. But it is working on hiring and training more people, according to a statement from the Department of Employment, Training and Rehabilitation.

The agency said it must take the time to get the facts right and hear from both the employer and former employee if there is an issue with a claim, even if it slows the process.

“We are not current on processing claims that require a staff person to look at them, but we are making progress," the statement reads. And “staff is working hard to get calls answered as fast as possible,” with an average wait time of about seven minutes for callers who manage to get through the queue.

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Issues especially harmful for minority, low-income claimants

Issues with the unemployment insurance system can be especially harmful to low-income and minority demographics, which tend to experience higher unemployment rates.  

The Labor Department points out that unemployment insurance systems need to address access barriers to people who are not proficient in English, live in rural areas, have limited technology, or have disabilities.

"The UI system leaves far too many workers, especially Black, Latinx and women workers, of the system entirely," said Tapia of the National Employment Law Project. "It's when, not if, another recession occurs that Black and brown workers will be disproportionately harmed by this. So we have to really center them in our recovery efforts moving forward."

In Florida, 50-year-old chef Steven Dallas said he struggled to send his unemployment claims on his smartphone but had few other options without a personal computer.

His first experience filing for unemployment insurance benefits came after pandemic lockdowns forced him out of his job in 2020.

The application process was grueling. Without a personal computer, Dallas was forced to fill in forms on his smartphone. One wrong tap, he said, and he’d be sent back to the beginning. Dallas said it took him about four hours to complete the application after getting kicked off multiple times.

After thousands of unemployed workers in Florida in 2020 found themselves unable to navigate the state's unemployment website, the Florida Legislature in 2021 passed legislation to shift the state's unemployment insurance system into one that was cloud based.

But Dallas said he still had issues using the website in late 2022 after Hurricane Ian destroyed the restaurant he was working at and he found himself jobless yet again. He said it took nearly four hours to figure out how to submit his first claim the second time around.

“Nothing has changed for two years. They didn't fix anything. It was still almost impossible to file for unemployment,” Dallas said.

A statement from the Florida Department of Economic Opportunity said its reemployment assistance claims and benefits system is "fully accessible" and the state is “continuing to modernize its system.”

What's being done?

The Labor Department has established “Tiger Teams” that work with states to identify ways to improve access to benefits. The department made available equity grants that help states simplify the text in UI applications and translate materials into more languages. It also plans to use $2 billion from the American Rescue Plan Act to help modernize the UI system and address fraud.

“In partnership with states, efforts are well underway to reform the UI system we inherited and address gaps,” reads a statement from the Labor Department.

Chris O’Leary, a senior economist for the W.E. Upjohn Institute for Employment Research, notes that not all states are taking advantage of the resources offered by the Labor Department.

For example, 33 states have so far joined the Labor Department's Tiger Team initiative, which sends teams of unemployment experts to analyze states' unemployment insurance systems and process challenges.

“Some states want to improve administrative efficiency. And some states are not enthusiastic about the whole UI program.” O’Leary said. “Some people view unemployment as a business cost that they want to minimize.”

Additionally, some of the Labor Department funding is at risk. The House Ways and Means Committee recently introduced legislation that would repeal the provision that gives the Labor Department $2 billion in funding through the American Rescue Plan Act.

Even if the additional funding sticks, some worry it’s not enough.

“The U.S. Department of Labor has undergone a momentous effort to work with states to improve their unemployment system,” Tapia said. “Even so, that's a costly and time extensive effort that takes several years and is contingent on states' willingness to take advantage of these programs."

If a recession does happen this year – and 58% of economists in a recent survey say there's a good chance it will – claimants in many states can expect to encounter the same backlogs, website crashes and staff shortages witnessed in 2020, according to Tapia.

“Now is exactly the time to get it right, to make the repairs before the next storm, to build a UI system that will serve the American people in the next crisis,” reads a December statement from Julie Su, the acting U.S. secretary of labor.

Fewer benefits for claimants

Even when benefits are approved, research shows today's claimants are receiving less.

The share of jobless individuals receiving unemployment insurance benefits has declined for several decades, largely due to a deliberate effort among states to reduce access to benefits, according to the Center on Budget and Policy Priorities, a left-leaning research organization.

At least four states passed legislation last year to reduce the number of weeks of unemployment benefits, and legislation was introduced in at least nine states in 2022 to take away unemployment benefits either by reducing the number of weeks an individual can receive benefits or requiring unemployment insurance claimants to accept nearly any job.

Twelve states allow fewer than 26 weeks of unemployment insurance benefits, according to the Center on Budget and Policy Priorities. Florida and North Carolina allow no more than 12 weeks.

The center argues that these changes could weaken unemployment insurance systems ahead of future recessions.

"There's less (money) on the table. There's less incentive for people between jobs to apply for benefits," O’Leary said.

You can follow USA TODAY reporter Bailey Schulz on Twitter @bailey_schulz and subscribe to our free Daily Money newsletter here for personal finance tips and business news every Monday through Friday.

This article originally appeared on USA TODAY: Amid recession fears, unemployment insurance benefits enter spotlight