May 1, 2020 - Economy

Creaky unemployment systems plague jobless Americans

Illustration of woman struggling under the weight of crumbling dollar sign

Illustration: Eniola Odetunde/Axios

The sudden wave of tens of millions of unemployment claims has overwhelmed state agencies hobbled by outdated tech and understaffed offices.

Why it matters: The federal coronavirus aid package expanded unemployment benefits for laid-off workers as the pandemic roiled the labor market, but an unprepared system has boxed out people in need — and artificially depressed the unemployment count, economists say.

By the numbers: States have processed unemployment claims for roughly one in five working Americans — some 30.3 million people — in just 6 weeks.

  • And yet the Economic Policy Institute estimates as many as 13.9 million more Americans out of work since mid-March have been unable to get unemployment benefits because "long-neglected state [unemployment] systems are unable to handle the volume of applications."

What they're saying: Peyton Cannon, a north Florida resident, filed for unemployment on March 28 after being laid off from a Goodwill store.

  • A month later, his application is still pending. He tells Axios he's called the unemployment office, but the phone lines have been jammed.
  • About 7 of every 8 Florida residents that filed for unemployment between mid-March and early April were still waiting for their applications to be processed as of last week, per analysis by the Associated Press.
  • And, as of last week, only 10 states had systems running to accept applications from newly eligible gig-economy workers, according to the Wall Street Journal.

What's happening: Three factors explain the unemployment-system meltdown.

  1. Sheer volume. "It was like a recession happened overnight, and you had to just go from zero to 100 — record low levels of unemployment insurance claims to record high levels," Steve Grove, who heads Minnesota's economic development office, tells Axios.
  2. Overstressed bureaucracies. There aren't enough human beings to quickly process the huge glut of claims, and many states have intentionally built friction into their unemployment systems in a bid to nudge people back into the workforce.
  3. Obsolete technology. States' technical systems are not built to handle the load they’re now facing, and they’re often the product of years — even decades — of individual adjustments and additions that make each one unique, and uniquely challenging to troubleshoot. Most states are only now scrambling to tap technology like chat bots and apps to offload work from state employees. "Our system had been built back in 2010 with the understanding of what was needed based on the experience with the Great Recession," says Sam Salustro, a spokesperson for Illinois' Department of Employment Security. "That was an outdated assumption."

Fixing the technical issues could be the key to solving the problem, but states lack the expertise and resources to do so themselves.

  • At the federal level, the U.S. Digital Service and 18F both recruit experienced technologists to help federal agencies with problems just like the ones unemployment offices now face. Regulations bar them from working directly with states, but some lawmakers want to use coronavirus relief legislation to change that.
  • Corporate America is pitching in. Alaska and Pennsylvania are using IBM's Watson AI technology to field and answer residents' unemployment questions. New York announced a partnership with Google, Verizon and Deloitte to revamp its employment system.
  • There's also the nonprofit U.S. Digital Response (USDR), which recently launched to help state and local governments address technical issues related to the coronavirus crisis. A team of engineers there is helping on unemployment specifically and has been tapped by eight states so far.

The other side: Some states are just jerry-rigging quick workarounds to technical logjams.

  • Kentucky is telling applicants to simply ignore erroneous alerts that it hasn’t received their applications, said Reshma Khilnani, who's leading USDR's unemployment assistance effort.
  • Washington is directing citizens to apply and get rejected for conventional unemployment insurance before applying for pandemic unemployment insurance — which allows self-employed and gig workers to get benefits — as the system’s eligibility check wouldn’t work otherwise.

The bottom line: After a more than decade-long job market boom, state labor departments across the country were unprepared for the sudden, unprecedented onslaught of unemployment filings. The newly jobless are paying the price.

  • “What we’re really hoping is that the crisis of the moment reveals that 20 years to modernize a system is a contradiction in terms,” says UDSR co-founder Jen Pahlka.

Go deeper: Government tech struggles to dole out coronavirus stimulus cash

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