The COVID-19 pandemic has already sparked an economic slowdown resulting from widespread shutdowns in the global economy and recent closures of dine-in restaurants, entertainment businesses, gyms and child care centers.
As the crisis advances, the economy will likely continue sinking, and we should expect major layoffs across Kentucky. To plan for that, lawmakers in Frankfort need to prepare our unemployment insurance (UI) program to dampen the economic harm caused by rising joblessness.
UI is one of the best tools we have for fighting economic harm. During the last recession, UI generated $2 in economic activity for every $1 that was spent through it, ultimately reducing the decline in GDP by 18% and preserving as many as 1.8 million jobs nationwide. As Kentuckians ride out the COVID-19 crisis, UI will be crucial to allowing families to continue paying their bills and meeting their basic needs.
So what can Kentucky do to make sure we are in the best position to provide UI benefits to laid off waiters, child care workers, retail employees and the many others who will soon be needing our help? There are simple improvements that remove barriers and can make a big difference, most of which have already been adopted by other states.
• Adopt an “Alternative Base Period” (ABP) as 41 other states have done. This creates an additional method to determine if someone has earned enough to qualify for UI benefits and how much they will receive. By one estimate, not having an ABP in Kentucky leaves out 1 in 5 workers, who are likely to earn low wages and work part-time jobs. As restaurants and bars close, and as a slowing economy reduces seasonal work like construction, adopting an ABP is a critical improvement to our UI program, and requires a change to the law.
• Implement a work sharing program as 27 other states have done. Work sharing reduces layoffs by giving employers the option of allowing full-time employees to have their hours reduced to part time rather than being laid off, and have the lost wages partially replaced through UI benefits. By keeping workers attached to their jobs, it helps employers retain their workforces and reduces family stress and instability.
• Waive the charge to employers who experience high rates of layoffs because of coronavirus. Currently, UI benefits are paid for by a tax on employers which varies depending on how often and by how much they lay off workers. Waiving the related “experience rating” for employers directly impacted by COVID-19 due to an illness in the workforce or direction from a public health official to quarantine workers would help reduce further economic harm.
• Broaden our “good cause” definition of leaving employment. Kentucky’s definition extends only to being laid off because the employer didn’t have work for the individual, but the state could broaden this definition to include an individual voluntarily leaving a job because of caretaking responsibilities for a sick or quarantined loved one or leaving because it is unsafe at their place of work – which will be especially pertinent as COVID-19 becomes more widespread.
• Eliminate the “waiting week.” Currently, Kentuckians who qualify for UI benefits are not given the benefits for the first week of their eligibility, and although the Governor has signed an executive order to waive this on a short-term basis, the General Assembly should make its elimination law.
These measures will help workers and the economy, and potentially open up the state for significant federal financial assistance. The bipartisan Families First Coronavirus Response Act that passed the House and is supported by President Trump made millions of federal dollars contingent on some of the changes included above, and future stimulus bills will likely do the same. A federal boost will be critical to long work of recovery.
Social distancing necessary to reduce the spread of COVID-19 will cause widespread unemployment as businesses close and people spend less in the economy. To withstand the crisis and recover, we need to mitigate the resulting financial hit families will take.
The above changes to UI can easily be included in the budget that will soon pass the General Assembly. Doing so is right for Kentuckians and our economy.
Dustin Pugel is senior policy analyst for the Kentucky Center for Economic Policy. He can be emailed through Anna Baumann at email@example.com.