Low jobless claims don’t always signify a strong job market

The number of workers filing initial claims for unemployment insurance (UI) has been below 300,000 since the first week in March 2015. This is the longest streak of initial UI claims below 300,000 since April 1970, almost 47 years ago.

The fact that UI claims have been so low for so long is particularly striking in light of the fact that in early 2009 — in the depths of the Great Recession — there were many weeks where initial UI claims topped 650,000.

{mosads}As the labor market has strengthened since that time, two good things have happened to bring UI claims down: (1) there are fewer layoffs, which directly pushes UI claims down since getting laid off is what leads people to apply for UI in the first place, and (2) job opportunities are strengthening, so laid-off workers are less likely to apply for UI since they are more confident they’ll be able to find another job in a reasonable timeframe.

But the streak of ultra-low UI claims is not entirely good news. When someone who gets laid off doesn’t apply for UI benefits, it doesn’t always mean that they are confident they will quickly find a new job. It may mean that they are simply falling through the cracks of our UI system.

To assess how much of today’s low UI claims is due to workers falling through the cracks, we can compare 2016, when the unemployment rate averaged 4.9 percent, to 2005 and 2006, when the unemployment rate also averaged 4.9 percent. In 2016, 70 percent of laid-off workers applied for UI. But just 10 years ago, in 2005 and 2006, 79 percent of workers who suffered a layoff applied for UI benefits.

That 9-percentage-point drop in just a decade is both large and problematic. Unemployment insurance is a pillar of the social safety net and a lifeline to workers who are laid off from their jobs through no fault of their own. It protects workers and their families from poverty, a sharp drop in living standards and/or burning through their savings if they lose their jobs.

It also plays an important role in keeping laid-off workers in the labor force; since workers have to actively search for work in order to qualify for benefits, the UI system acts as an incentive for workers to continue to look for work rather than drop out.

Further, giving recipients a little wiggle room to find a job that is a good match for their skills and experience is good for the broader economy, since the economy is better off when the skills of its workers are fully utilized. Finally, UI provides a crucial boost to the economy, since UI recipients are less likely to have to sharply curb their spending on consumer necessities in the face of job loss. 

There are a number of ways that we can make sure workers don’t fall through the cracks of the UI system. For example, states could provide UI coverage for part-time workers and those who must leave a job due to compelling family reasons such as to move with a spouse, care for an ill family member or escape domestic violence.

States can also increase coverage for low income workers by using an alternative base period (an alternate way of calculating whether workers are eligible for UI that is based on more recently earned wages than under the standard approach).

Further, states should be encouraged to make improvements in their UI programs’ coverage, like extending coverage to temporary employment services workers, for example.

Many other reforms unrelated to initial coverage are also needed to strengthen the UI system, like putting state UI programs on a path to permanent solvency; modernizing the extended benefits program so that it quickly and effectively kicks in when states experience rapid job loss or high unemployment; providing incentives to expand work-sharing programs to ensure workers don’t become unemployed in the first place; providing job seekers with job search assistance and job training and requiring that all states provide at least 26 weeks of UI benefits to those who’ve lost their jobs.

With the economy on solid footing, now is the time to make these types of changes — both for the workers who face layoffs now as our economy constantly churns and evolves and to make sure the system is prepared to protect the economy and workers when the next recession occurs.

Heidi Shierholz is the former chief economist at the U.S. Department of Labor. Currently, Shierholz is the director of policy at the Economic Policy Institute, a nonprofit think tank that carries out economic research and analyzes the economic impact of policies and proposals.

The views expressed by contributors are their own and not the views of The Hill.