Points of View

Fixing Broken Benefits: The Case for Unemployment Reform

Fixing Broken Benefits: The Case for Unemployment Reform

Alex Andrews

From a talent perspective, there are three main priorities Michigan needs to address to accelerate economic recovery following the COVID-19 pandemic:

  1. Getting people back to work (reforming the unemployment insurance agency to incentivize the unemployed to actively seek and accept opportunities for work)
  2. Childcare (improving access and affordability to reengage the disproportionate share of women who left to labor force)
  3. Education and training (helping dislocated workers upskill in order to transfer into better paying jobs)

Michigan has made significant efforts to address childcare and workforce education and training over the past year, with the Tri-Share Child Care pilot, Future for Frontliners, and Michigan Reconnect programs. However, very little has been done to encourage the unemployed to return to work amid rising demand for talent across the state. Assistance for the nearly 600,000 adults in Michigan who lack a high school diploma/GED has been completely overlooked. These adults comprise 5.6 percent of the workforce in Michigan but accounted for over 1 in 5 dislocated workers — with an unemployment rate nearly 3 times higher than the average. As of now, only those adults who were essential workers and reside within a community college district would qualify for assistance to obtain their diploma/GED through Futures for Frontliners, contrasting the numerous state funded options available to upskill those who already possess this basic qualification. This is why we are advocating for the pursuit of a diploma/GED to count toward the unemployment work search requirement — assuming wages for this segment of the population will rise in conjunction with their education levels.

As for getting people back to work, it’s critical to note that data presented by Michigan’s Department of Labor and Economic Opportunity (LEO) indicates that employer demand has grown significantly (returning to pre-pandemic levels) and the Michigan has achieved Governor Whitmer’s goal to have at least 55 percent of the population vaccinated, heralding the return of in-person work beginning on May 24th and the termination of all statewide COVID restrictions on July 1st. When the Pandemic Unemployment Assistance and Compensation programs were announced on March 30, 2020, they were intended to grant benefits for “…self-employed, 1099-independent contractors, gig, and low-wage workers who can no longer work because of the pandemic.” Governor Whitmer stated, “This increase and expansion of unemployment benefits will provide a measure of security for Michigan working families who lost their income due to the pandemic. We are committed to ensuring emergency financial relief for unemployed residents who continue to stay home and stay safe.

If demand has returned to normal, it’s safe to return to in-person work, and Michigan will no longer be considered to be under a state of emergency as of July 1st — as indicated by recent actions taken by the State of Michigan to ease statewide restrictions — what is the rationale for maintaining enhanced unemployment benefits until their expiration on Sept. 4th? The argument from the Governor’s office makes it appear that fear is an underlying factor preventing the unemployed from returning to work, but survey data from West Michigan Works! tells a different story: insufficient pay significantly exceeds safety concerns as a barrier to finding work (67% cited low pay as a barrier compared to just 45% for safety concerns — before vaccinations were available to the general public).

Safety and availability of jobs were the only factors cited to support the introduction of the enhanced unemployment benefits last March, meaning they should be terminated at a time when it is once again safe to work, which it always has been, and jobs are available. If the return to in-person work on May 24th satisfies the requirement for safe working conditions, both conditions will be met as early as next week. If not, both conditions can be considered to be met as of July 1st, still two months prior to the expiration of the federal government’s enhanced unemployment benefits. To date, 22 states are set to terminate their participation in the federal government's supplemental unemployment benefits program, which provided an additional $300 per week to unemployment recipients.  

 

Employment and Labor Force Participation Trail Employer Demand

Using data from the Local Area Unemployment Statistics (LAUS), we can see that Michigan’s labor force participation rate dropped by 4.5 percent in the month following the introduction of the enhanced unemployment benefits on March 30, 2020 — a loss of nearly 365,000 participants. The size of the unemployed population skyrocketed to over 1,070,000, nearly 4 times as many unemployed in April 2020 compared to the previous month. In March of 2021, nearly 12 months after the expansion of unemployment benefits, the labor force participation rate in the state remained 2.6 percent shy of pre-pandemic levels with 208,000 fewer residents neither working nor actively seeking work. Nearly 25,000 more residents were unemployed compared to March of the previous year, reflecting an increase of 11.3 percent.

 

Employment and labor force participation has significantly trailed employer demand in Michigan, which can be largely attributed to enhanced unemployment benefits and UIA’s relaxed enforcement of work search requirements for UI recipients. Although employer demand shrunk by 11 percent in the midst of the pandemic, job ads rebounded as early as August 2020 and have continued to grow every month since. In March 2021, there were 60,000 more ads than the previous year (a growth rate of 20%).

 

The current maximum UI benefit equates to $662 per week (between state and Pandemic Unemployment Compensation) and provides an hourly rate of $16.55, a higher pay rate than 41 percent of workers in the state. Not only has this created an extreme disincentive for the unemployed to actively seek and accept opportunities for work, but this inflated source of income has driven employers to raise wages in an effort to attract and retain workers.

 

Wage Growth Exceeding Inflation

Using data from the Current Employment Statistics (CES), we can see that although wage growth in Michigan service industries hasn’t exceeded the rate of inflation, private sector wage growth most certainly has — growing at nearly 1.5 times the rate of inflation from March 2020 to 2021. Wage growth in goods producing industries was even more extreme, nearly 3 times the rate of inflation.

 

These estimates only account for wages of the employed and don’t factor in external sources of compensation (like sign-on or retention bonuses, which have become a popular method for employer to attract/retain talent). Considering these are just the wages of the employed, the increase in average wages referenced here wouldn’t reflect any increase in wages for unfilled positions. Thus, if an employer increased wages from $13 to $15 per hour in an effort to attract talent and the position remained unfilled, that potential wage growth of 13 percent would not factor into the above estimates.

 

It is difficult to determine how wage growth compares across industries, because wage data isn’t publicly available for detailed industries through CES. However, looking at one staffing firm in Kent Count, which filled over 4,000 openings across 150 companies in the light industrial sector, we can see that the average hourly wage of their placements grew by 12.2 percent from Q2 2020 to Q2 2021. This significantly exceeds the growth rate of 0.5 percent observed the previous year and times perfectly with the introduction of the enhanced unemployment benefits.

 

Conclusion

For the prosperity of Michigan businesses, residents, and communities, we must effectuate change and encourage the unemployed to get back to work as quickly as possible. There is an abundance of available jobs in Michigan for all who are willing and able to work, the state has satisfied the requirements necessary to lift COVID restrictions, and long-term unemployment ultimately imposes greater risks than benefits for individuals receiving aid. Marketable knowledge, skills, and abilities continually degrade the longer an individual remains out of work, making it more difficult for the unemployed to secure quality jobs once benefits expire. We must give unemployed Michigan residents the confidence to return to work by immediately 1) terminating the federal government’s $300 weekly unemployment enhancement on June 27th and 2) providing a return-to-work bonus for UI recipients who find and maintain employment — in addition to modifying work search requirements to allow the state’s most vulnerable workers to obtain their diploma or GED. A full list of solutions to expand, enhance, and update Michigan’s approach to workforce development to improve ease of access, user experience, and long-term effectiveness includes:

  1. Terminate the federal government’s $300 weekly unemployment enhancement on June 27
  2. Offer a return-to-work bonus to UI recipients contingent upon maintaining employment for 4 weeks
  3. Allow pursuit of a high school diploma to count toward work search requirements for the unemployed
  4. Reinstate work registration with Michigan Works! to 21 days; expand requirements to include both virtual and in-person options
  5. Update the Reemployment Services and Eligibility Assessment (RESEA) algorithm to better support UI claimants who are likely to exhaust benefits
  6. Create a One-Stop Management Information System (OSMIS) link for Michigan residents to register for workforce development services virtually
  7. Develop a Going Pro-type program to upskill employed adults lacking a high school diploma or equivalent
  8. Create a cloud-based, integrated communication system with shared data to improve data collection, reporting, and customized customer experience
  9. Utilize research and data to create data-driven policy and legislation to enhance UI programs and services
  10. Appropriate $5M and requisite authority to the Michigan Bureau of Labor Market Information and Strategic Initiatives (LMISI) to collect data from across state systems and all related 3rd party inputs (e.g., MDE, colleges/universities, UIA, MichiganWorks!, LARA, MDHHS, etc.)
  11. Promote a culture of data literacy and transparency in Michigan by creating an accessible SLDS website portal and publishing and promoting dashboards and aggregate program and outcome data relevant to labor market research from across Michigan government
  12. Assign a unique identifier code to every individual in Michigan that engages with the state government at first engagement (generation of birth record, or first engagement) for use across SLDS inputs, removing the Social Security Number as the primary identifier
  13. Appropriate $1M annually to LMISI to sustain the data system moving forward
  14. Develop an advisory council, with oversight of a newly created data innovation and quality fund. Recommended council members include: MI Dept of Education/CEPI, an institutional researcher with an Intermediate School District or RESA, an institutional researcher with a community college, a MichiganWorks! Agency director, the appropriate representative of the Michigan Unemployment Insurance Agency, a Governor appointee via state chief information officer, three (3) members of the public with a commitment to education and workforce quality. This group should meet quarterly to provide program review, feedback, and evaluate research requests
  15. Appropriate $1M annually to the data innovation and quality fund and make it available for Michigan secondary and postsecondary institutions to apply for research funding as the principal investigators, allowing for education institutions to partner with each other and for employers to understand Michigan education and labor market outcomes and demand
  16. Update UIA form UC 1017 and require collection at least twice annually with the 1st and 3rd employer filing, adding: (1) job title, (2) primary job location/city where 51% or more time is spent, (3) O*Net occupation code, and (4) hours worked

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