There has been an unprecedented short-term increase in US unemployment owing to the Covid-19 crisis.

Initial jobless claims soared to a seasonally adjusted 3.28 million in the week ended March 21, according to the Department of Labor. That is the highest number of initial jobless claims in history, since the Department of Labor started tracking the data in 1967. The previous high was 695,000 claims filed in the week ending October 2, 1982.

I understand that the $2T stimulus includes extra money for the jobless, perhaps so that they don't start looking for new jobs immediately, i.e. so they stay at home, because hitting the pavement right away in search of a job might actually negate the social distancing efforts employed in combating the epidemic.

An article on Vox (before the stimulus passed) claimed rather alarmingly that

Recessions have happened in the past, but they come on slowly. The kind of sudden stop in economic activity that we are looking at is well outside the realm of anything we’ve experienced. And it’s going to break the unemployment insurance system unless Congress takes some quick steps to inject funds and change the rules.

Is that a rubbish claim, or can the system really "break" from too many claims and I mean financially (i.e. server issues aside)? Because I'm not quite seeing how the stimulus package "fixed" the system; it did make it sweeter for the insured though.

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    $\begingroup$ First I’ve heard of that claim. The article doesn’t really offer any details on the alleged mechanism, unfortunately. $\endgroup$ Commented Mar 29, 2020 at 2:29

1 Answer 1


I agree that the current crisis will not “break” the unemployment insurance system. The most that will happen is payments will stop being issued to those who qualify.

History of unemployment insurance (UI) program

Created in 1935, the federal-state unemployment insurance (UI) program temporarily replaces a portion of wages for workers who have been laid off, as long as they are looking and available for work.

The benefits vary by state but in most cases the program provides up to 26 weeks of benefits to unemployed workers provides half of a workers’ previous wages. Because more workers lose their jobs during economic downturns of the business cycle, this program also provides some needed economic stimulus that helps mitigate the severity of recessions.

How is it funded

The program is funded by taxes on employers, including state taxes and the Federal Unemployment Tax Act (FUTA), which is 6 percent of the first $7,000 of each employee’s wages. So at this point the insurance is paying for itself per employee.

States have extensive flexibility in determining benefits. Federal requirements are minimal, while ensuring that all states provide basic protections for eligible workers. States are pretty much free to choose the level of employer tax, benefit level and duration of benefits, and the eligibility criteria. Some states does choose to run their program differently.

For example, while the standard maximum time for an eligible person to collect benefits is 26 weeks; some states a can limit it to much less than that. Most state UI systems replace about half of prior weekly earnings, up to some maximum. I think the spell of unemployment payments is the issue.

What criteria makes one unqualified for unemployment?

• Are dismissed for misconduct at work.

• Are dismissed for misconduct outside of work.

• Receive severance pay.

• Committed fraud.

(the next three points are not relevant to the pandemic situation but its good to note)

• Turn down a suitable job.

• Don't look for work.

• Are unable to work.

Self-employed workers, gig workers, undocumented workers, and students traditionally aren’t eligible to apply for UI benefits.

Another important point to make is that to qualify for benefits you must also have earned at least $5,100 in the last year, and you must have worked for at least 15 weeks in the last year (in most cases).

CARES ACT and UI benefits

The CARES ACT extended the UI benefits which has been called the Pandemic Unemployment Assistance. It temporarily extends unemployment benefits to certain workers affected by COVID-19 and eligible self-employed workers, including:

• Freelancers and independent contractors

• Workers seeking part-time work

• Workers who don't have a long enough work history to qualify for state unemployment insurance benefits

• Workers who otherwise wouldn't qualify for benefits under state or federal law


There are new unemployment programs under the CARES Act.

Now there are new unemployment programs called Pandemic Unemployment Assistance, Federal Pandemic Unemployment Compensation, and Pandemic Emergency Unemployment Compensation.

-The Pandemic Unemployment Assistance (PUA) extends benefits to the self-employed, freelancers, and independent contractors.

-The Federal Pandemic Unemployment Compensation (FPUC) provides a federal benefit of $600 a week.

-The Pandemic Emergency Unemployment Compensation (PEUC) extends benefits for an extra 13 weeks after regular unemployment compensation benefits are exhausted.

SOURCE: https://www.investopedia.com/who-doesn-t-get-unemployment-insurance-4802117#:~:text=Under%20normal%20circumstances%2C%20you%20can,the%202020%20novel%20coronavirus%20pandemic.

All of the additional UI benefits included in the CARES Act are paid by the federal government. This also has boosted the program temporally.

Not everyone who is not working is getting UI benefits

It was reported in May (https://www.cnbc.com/2020/05/15/44percent-of-us-unemployment-applicants-have-been-denied-or-are-waiting.html ) that many are not getting benefits. Often they are workers, in the reports example, in the restaurant business were they are often being told they didn’t earn enough to qualify for unemployment, even when they’ve worked full-time.

Guidance that appears to restrict eligibility with the CARES Act

However, the Department of Labor recently issued guidance that appears to restrict eligibility for the expanded unemployment insurance benefits in the CARES act.

An example provided by a Brookings report was the guidance specified that gig economy workers are only eligible for UI benefits if they are “forced to suspend operations as a direct result of the COVID-19 public health emergency”, apparently excluding workers such as Uber and Lyft drivers who are experiencing a significant loss of income due to reduced demand. Similarly, it states that parents who had to stop working to take care of their children after schools closed will not be eligible for benefits once the school year is over—even though many families rely on child care, summer camps, and other facilities which may still be closed over the summer, and the guidance appears to provide a narrow interpretation of eligibility based on health reasons and on social distancing requirements.

Source: https://www.brookings.edu/blog/up-front/2020/04/07/how-does-unemployment-insurance-work-and-how-is-it-changing-during-the-coronavirus-pandemic/

The CARES act program runs until December 31, 2020 and its benefits are capped at 39 weeks. I agree that the CARES act may have made it sweeter for those who qualify but it won’t last long.


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