The Unemployment Insurance System in Two Recent Economic Downturns: Lessons from the Great Recession and the COVID-19 Pandemic

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The Unemployment Insurance System in Two Recent Economic Downturns: Lessons from the Great Recession and the COVID-19 Pandemic

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This report explores how the federal-state Unemployment Insurance (UI) system responded to the Great Recession (2007-2009) and the COVID-19 pandemic (beginning in March 2020). The report discusses the economic contexts to which the UI system was responding, including the number unemployed, new UI programs (or changes to existing ones), and how states responded to staffing, financing, and other administrative pressures created by the increasing number and duration of UI claims. The report includes time-series and cross-sectional analyses as well those showing relationships between key UI program variables and UI outcomes across states or groups of states, through the end of September 2021. These analyses thus capture the evolution of both the UI system through the expiration of the major UI emergency provisions and the substantially complete recovery of the economy from the pandemic downturn in terms of economic output (although somewhat incomplete, in terms of the labor market).

The report notes that the rapid and substantial rise in UI claims in the Great Recession posed challenges for state UI operations, particularly in connection with legacy technology systems, which were strained by both the rise in claims and the administration of new federal benefit programs. The COVID-19 recession was distinguished by an initial spike in unemployment higher than the Great Recession and the highest since the Great Depression, reaching more than 14.7 percent of the labor force in April 2020. But the recovery from the COVID-19 recession has been rapid in comparison with recent recessions, with total employment nearly fully recovered by the end of 2021. Although the Great Recession response lasted longer, the COVID-19 response was in the aggregate much larger. At its peak, UI claims exceeded 30 million during the COVID-19 pandemic compared with more than 10 million in the Great Recession, and UI benefits amounted to more than 2 percent of GDP in 2020 but never rose above 1 percent in the Great Recession.

While the experiences of the Great Recession and the COVID-19 recession suggest important lessons for the operation of the UI system, they also indicate areas where additional evidence building would be valuable, on such topics as how states implemented programs that provided benefits to those not usually eligible for UI; how to have more flexible adjustments in benefit amounts; understanding more about downward trends in recipiency; how the changing nature of employment relationships and changing demographics continue to evolve in ways that may have consequences for the future operation and performance of the UI program; and how federal and state governments can ensure equity and access in the UI system.