Kentucky Response to COVID-19: Protect State Economy Through Improved Unemployment Insurance
March 12, 2020
The COVID-19 pandemic has sparked concerns about an economic slowdown resulting from widespread shutdowns in the global economy, and recent cancellations of large events in the United States. Continued economic chilling will almost certainly lead to layoffs in Kentucky, and so to plan for that, lawmakers in Frankfort and Washington DC need to prepare our unemployment insurance (UI) program to dampen the economic harm caused by rising joblessness.
Federal improvements to UI are needed, but state action is required
The Families First Coronavirus Response Act being considered in Congress would implement a number of stimulus measures, among them being several emergency UI enhancements:
- States would receive $500 million for immediate help with staffing, technology, systems and other forms of administrative costs for the purpose of providing unemployment insurance benefits. UI recipiency would be conditional on ensuring beneficiaries are aware of their eligibility and are able to apply easily – which these resources would help with.
- States would have access to interest-free loans to help pay regular UI benefits if they exhaust their trust funds.
- The US Labor Department would provide technical assistance for states that want to set up work sharing programs as a way of mitigating layoffs and improving labor force attachment by making it possible for employers to offer partial UI benefits to those who go from full time to part time employment. Kentucky does not currently practice work sharing.
Perhaps the most meaningful provision would be that $500 million would be set aside for emergency grants to states that experience a 10% increase number of unemployment claims, and additionally the federal government would pay 100% of the cost of extended UI benefits (benefits provided past 26 weeks). These significant improvements would be contingent on states taking steps to ease eligibility requirements, specifically:
- Eliminating the “waiting week.” Currently, Kentuckians who qualify for UI benefits are not given the benefits for the first week of their eligibility.
- Relaxing the work searching requirements. Kentuckians who receive UI must provide proof that they are searching for a job, in order to maintain eligibility.
- Waiving the charge to employers who experience high rates of layoffs. Currently, UI benefits are paid for by a tax on employers which varies depending on how often and by how much they lay off workers. Waiving the related “experience rating” for employers during this time, in recognition of the broader economic conditions, would help ease the economic burden on businesses and possibly reduce further economic harm.
For Kentucky to take advantage of these significant federal enhancement measures, it would need to make statutory changes both to the waiting week and to the employer contribution rate schedule. The work searching requirements are in regulation and could be changed through administrative action. Governor Beshear announced on March 16 he is taking steps today to waive the waiting week and work search requirements while the State of Emergency is in effect.
Kentucky needs to make additional changes to prepare its UI program for a spike in unemployed
UI in Kentucky already only replaces 45% of lost wages and as of last year, only 1 in 5 unemployed workers received UI benefits, down from 2 in 5 in 2009. This low rate is problematic not just because fewer people and families are being helped by the system, but also because wide recipiency helps to dampen the broader effects of economic downturns. During the last recession, UI generated $2 in economic activity for every $1 that was spent through it, ultimately reducing the decline in GDP by 18% and preserving as many as 1.8 million jobs nationwide. As we face the possibility of layoffs and increased unemployment, UI benefits should be more widely available and more robust for those who receive them.
Specifically, Kentucky should make changes aimed at improving its recipiency rate, some of which is required in order to receive enhanced federal UI benefits under the Family First Corona Virus Response Act:
- Reassessing the accessibility of our new online system for applying for UI benefits. According to 2018 census data, 21% of non-elderly Kentucky adults lack high-speed internet access and 8% have no internet access at all. And under social distancing guidelines, public access at libraries, for instance, may be limited.
- Ensuring low-wage workers are eligible based on their incomes, as there is a floor for how much you can earn and claim UI benefits (our monetary eligibility standard was raised in 2018 by House Bill 252)
- Broadening our “good cause” definition of leaving employment. Kentucky’s definition extends only to being laid off because the employer didn’t have work for the individual, but the state could broaden this definition to include an individual voluntarily leaving a job due to harassment, domestic violence, excessive commuting requirements or unfair/erratic scheduling practices. More specifically, the state should also include leaving because of caretaking responsibilities for a sick or quarantined loved one or leaving because it is unsafe at their place of work – which could be especially pertinent as COVID-19 becomes more widespread.
- Implement a work sharing program as 27 other states have done. If the Family First Coronavirus Response Act is passed, the state could take advantage of federal technical assistance for setting up such a program.
- Adopt an “Alternative Base Period” (ABP) as 41 other states have done. Currently, to determine if an unemployed worker has earned enough to qualify for UI benefits, their earnings from the first four of the previous five quarters of work (prior to filing for benefits) are considered. This leaves out many part time, low wage and seasonal workers who may have had higher earnings in the previous quarter (the “lag quarter”), or the quarter in which they applied (the “filing quarter”) than earlier in the year. By one estimate, having an ABP would allow 1 in 5 workers currently disqualified to qualify, and adopting it only increases the overall UI payouts by 4-6%. As restaurants and bars close, and as a slowing economy reduces seasonal work like the building and construction trades, adopting an ABP is a critical improvement needed for our UI program, but requires a change to the law.
One indirect but meaningful benefit of higher recipiency rates, particularly as we face a public health emergency, is that receiving UI can be beneficial to health. One report found that unemployment benefits led to a 5% lower likelihood of reporting poor health, and the effect was strongest among workers who earn low wages and have less education. Losing less in wages during the likely downturn can help ease stress and the difficult choices people face between paying the bills and going to see the doctor when needed.
Kentucky should also raise its average weekly benefit amount in order to maximize the economic benefits of wage replacement. As of the third quarter of 2019, the average weekly benefit amount for a UI beneficiary in Kentucky was $366, compared to the average weekly wage prior to being laid off of $818. By raising the wage replacement rate, there is evidence to suggest that Kentucky could slow layoffs that result from decreased local demand.
For specific changes that should be made to Kentucky’s statutes and regulations in order to prepare our UI program, click here.
Updated on March 16, 2020.