Why States are Changing Unemployment Benefits

Unemployment insurance benefits provided a valuable lifeline to Americans during the COVID-19 pandemic.

“As many as 46 million individuals received unemployment payments in 2020, representing 1 out of every 4 workers,” notes the Center for Budget and Policy Priorities. “In the absence of this critical support, the hardship that jobless workers and their families suffered would have been substantially greater.” Unemployment insurance benefits also helped stabilize the economy, the organization notes.

Now that the COVID-19 pandemic appears to be on the wane and the economy is taking steps toward recovery, some states are changing the duration, amount, or rules around receiving unemployment insurance benefits.

How are States Changing Unemployment Insurance Benefits?

Most often, states are reducing the length of time that people can receive unemployment insurance benefits. During the worst part of the COVID-19 pandemic, the federal government supplemented unemployment insurance benefits by $600 a week from March 2020 to July 2020, and the $300 until September 2021, as well as providing up to 49 weeks of additional unemployment benefits, according to the Center for Budget and Policy Priorities.

Those extensions ended for all states on September 3, 2021, though some states ended the extended benefits in June or July 2021. But now, some states are reducing the normal length of time as well.

• The Iowa legislature passed bills to reduce the amount of time that a person can receive unemployment insurance benefits from 26 weeks to 16 weeks. This could save nearly $69.2 million during fiscal year 2023 and nearly $70.9 million the following year, according to state records.
• The Kentucky legislature overrode a gubernatorial veto to pass a bill cutting the number of weeks unemployed Kentuckians were eligible for benefits from 26 weeks to from 12 to 24 weeks — “with the exact time period indexed based off the statewide unemployment rate from nine to 12 months earlier,” writes the Courier Journal. For example, at the time of the bill’s passage, the period would be 14 weeks, the newspaper continued.
• The Wisconsin legislature also passed a bill to connect the amount of time someone can collect unemployment benefits to the unemployment rate. “Under the bill, the number of weeks someone is eligible would shrink as the unemployment rate drops, from 26 weeks to a minimum of 14 weeks,” reports Fox6. The state’s Democratic governor has vetoed the bill.
• The West Virginia legislature also considered a bill that tied the benefits period to the unemployment rate. The bill would limit the eligibility period for benefits to 12 weeks if the unemployment rate is below 5.5%, and it would go up an additional week for each half-percent the unemployment rate goes up, to a maximum of 20 weeks, according to West Virginia Metro News.

In addition, some states are adding new requirements that recipients have to follow to receive, or continue to receive, unemployment insurance benefits.

• In Iowa, for example, the state wants to reduce eligibility for Iowans out of a job due to a business closure from 39 weeks to 26 weeks, which would save $4.6 million next year and $4.7 million the following year and require Iowans collecting unemployment benefits to accept lower-paying jobs sooner, according to the Des Moines Register.
• In Alabama, where unemployed people are currently required to contact one potential employer per week, as of January 2023 they will be required to contact three potential employers per week to continue to receive benefits.
• Similarly, the new bill in Kentucky now requires unemployment insurance recipients to contact five potential employers per week. In addition, a job offer is now considered “suitable” if the individual has claimed benefits for at least six weeks; the prospective job is within 30 miles of their residence (or can be done remotely); the worker is able and qualified to do the job, even if they don’t have related experience or training; and the pay is at least 120% of their weekly unemployment benefit amount, according to CNBC.
• The West Virginia legislature considered a bill to require four job search activities per week.

Altogether, lawmakers in at least nine states considered legislation this year to amend benefits, whether it’s the duration, the amount, or the requirements, according to CNBC.

Why are States Amending Unemployment Insurance Benefits?

Generally, state governments are making these reductions because employers in their state are having trouble hiring people. For one reason or another, many employees have quit their jobs in the past year, and not all of them have returned to work. Some government officials believe reducing the duration or amount of unemployment insurance benefits will encourage more of these people to rejoin the workforce.

“With more than 85,000 job openings in our state, we cannot afford to leave any employable Iowans on the sidelines,” said Iowa Governor Kim Reynolds in a statement.

However, based on studies of the states that ended the federal unemployment insurance extensions early, reducing the duration or amount of unemployment insurance benefits doesn’t necessarily encourage people to go back to work. “Some argue that unemployment benefits reduce the efforts of jobless people to search for work, while recent research finds that, in fact, they primarily enable workers to find jobs better suited to their skills,” notes the Center for Budget and Policy Priorities. In addition, receiving unemployment insurance benefits generally require people to look for work and therefore prevents workers from dropping out of the labor force, the organization adds.

“Most states that prematurely ended pandemic unemployment benefits did so in June 2021, while states that did not end benefits early kept them until their federal termination in the beginning of September,” the Center for Budget and Policy Priorities writes. “During this interval, job growth in the two sets of states was very similar, with states maintaining the pandemic unemployment benefits having slightly higher growth. Similarly, job gains before and after the pandemic unemployment benefits ended in every state in early September show very little difference. In the four months before the benefits expired the economy created 2.2 million jobs, compared to 2.3 million jobs in the four months following termination. Evidence strongly suggests that unemployment benefits were not a significant factor in limiting total employment in 2020 or 2021.”

Higher unemployment insurance benefits also lower the likelihood that an unemployed person will become self-employed, as well as extend the length of time before they transition to self-employment, according to one study.

That said, some states are actually increasing the duration or amount of unemployment insurance benefits that people can receive. For example, in Connecticut, the Legislature is considering a bill that would allow workers on strike to receive unemployment benefits after two weeks.