Only about 35 percent of the unemployed, and a smaller share of unemployed low-wage workers, receive unemployment insurance benefits. We recommend that states (with federal help) reform “monetary eligibility” rules that screen out low-wage workers, broaden eligibility for part-time workers and workers who have lost employment as a result of compelling family circumstances, and allow unemployed workers to use periods of unemployment as a time to upgrade their skills and qualifications.
The federal government should provide incentives to encourage states to remove inappropriate restrictive requirements and strengthen linkages to services to help beneficiaries improve their reemployment prospects. States should also reexamine benefit adequacy. An initial goal of UI was to replace, on average, half of lost wages. Only one state (Hawaii) actually accomplishes that goal. States should consider following the lead of the 13 states that already supplement UI with a dependents’ allowance.
Ultimately, improving the UI system should include developing a more adequate and fair approach to funding. At the federal level and in 10 states, UI taxes are assessed against the first $7,000 of employee wages, resulting in a system that is both regressive and inadequately funded. The federal taxable wage base should be substantially increased to apply to a larger share of earnings, and it should be indexed for inflation.
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