Executive summary
This report examines income support gaps in the United States in a “non-pandemic” labour market. It also considers the effects of COVID-related extensions to unemployment insurance, and their suitability for strengthening income security for jobseekers beyond the pandemic.
Overall spending on working-age benefits in the United States is comparatively low – about 2% of total household income, compared to 8% or more in the United Kingdom, France, and Belgium – and more tightly means-tested. Only about 40% of low-income individuals who are long-term jobless (six months+) receive any transfers, even with a history of continuous wage or salary employment. This share is similar to Korea or Greece, and much lower than Belgium and France (about 95%), or the United Kingdom, Spain, Germany or Hungary (about 80%).
Because of comparatively short durations of Unemployment Insurance (UI) payments, income-support entitlements for longer-term jobless people are similar for standard and non-standard workers (those with past part-time or self-employment). During the initial months of a jobless spell, however, non-standard workers are about 20% less likely to receive any benefits than otherwise similar jobseekers with a history of full-time wage or salaried work. Social protection gaps between racial and ethnic groups, as well as between and men and women, seem to be entirely driven by differences in work and earnings history.
Prior to the onset of the COVID-19 pandemic, 12% of all US jobseekers received unemployment benefits. This ratio is very low compared to other OECD countries, e.g. about 30% in the United Kingdom, Spain or Australia, and 60% or more in Austria and Germany.
Entitlement rules, including benefit durations and levels, are set at the state level. During the initial phase of unemployment, UI benefits are comparatively accessible across all US states. For jobseekers with low to average earnings, six months of continuous wage or salaried employment is sufficient to qualify. Most OECD countries require one year or more.
Benefit durations are short by international comparison: they vary across states but typically do not exceed 26 weeks. On average across 33 OECD countries, the maximum benefit receipt duration is 17 months.
Differences in statutory coverage mostly reflect the composition of states’ workforces, rather than different contribution or earnings requirements across states.
Statutory rules determining benefit levels do vary significantly across states, however. Southern states, with larger population shares of African Americans, offer comparatively modest benefit levels. Effective entitlements range from below 30% of the average wage in Washington D.C., Arizona and Louisiana to 70% in North Dakota. The OECD average is 45%.
Almost two in three jobseekers do not qualify for UI payments because they have been out of work for over 26 weeks. Other reasons for non-entitlement include voluntary quits (15%), past self-employment (2%), and insufficient work/earnings histories (3%).
Long-term unemployment is particularly prevalent among African Americans, and this is the main reason for their significantly lower coverage. Only 8% of African American jobseekers are entitled to UI, compared to 16-17% of non-Latino whites and Latinos.
Pandemic Unemployment Assistance (PUA) significantly increased receipt durations to 79 weeks in all states, extended benefits to self-employed workers, and reduced minimum contribution requirements to one week’s work at the minimum wage. In a non-pandemic labour market, this increases UI entitlement from 14% to 29%.
Most of this increase is driven by longer maximum receipt durations. Those with short work histories or low earnings, and those who were self-employed would also benefit. Yet, nearly half of all jobseekers have been out of work for 80 weeks or longer and would therefore remain without UI benefits.
Coverage gains would be bigger for Asian (high incidence of past self-employment) and African American (high incidence of long-term unemployment) jobseekers, than for Latinos and non-Latino whites.
Roughly half of all jobseekers live in relative poverty, and this share is highest among African Americans (two out of three). PUA-type extensions would mechanically lower poverty by 5% (7% for African Americans), but a majority of jobseekers would remain in poverty.
Given robust in-work tax credits in the United States, there is space for carefully expanding out-of-work supports without unduly weakening work incentives. Building on the analysis and reform experiences in other OECD countries, this report presents four reform options:
1. An extension of UI to the evolving and potentially growing group of self-employed workers. Although the overall incidence of self-employment in the United States remains comparatively low, independent contractors, including platform workers, may become more numerous. Careful policy design, including job-search monitoring and other activation measures, can provide a degree of income security while preserving work incentives for this group.
2. A softening of the requirement of involuntary unemployment as a pre-condition of UI receipt.
Most OECD countries reduce or delay payments instead of disqualifying voluntary quits outright. Expanding “good personal cause” exceptions across all states would particularly benefit women.
3. The “levelling up” of benefit amounts and maximum durations across states.
UI payment levels vary widely across states, with low benefit levels often coinciding with large population shares of African Americans.
4. Consideration of an unemployment assistance benefit for jobseekers without a recent history of employment.
A large share of US jobseekers have been out-of-work for long periods, or they (re-)start their job search after a period of inactivity. Almost half of all jobseekers live in relative poverty, with African Americans especially at risk. An unemployment assistance programme for the able-bodied, tied to active job-search and activation measures, has the potential to strengthen both income security and re-employment.