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Expanding Unemployment Insurance Coverage in the Post-COVID Era

Unemployment insurance (UI) is often the first line of defense against an economic downturn, stabilizing household finances for those who lose jobs and propping up aggregate demand. However, the COVID-19 pandemic highlighted blind spots in our UI system, which was unprepared for the tumultuous labor market and public health forces at play in 2020.

As a temporary solution, lawmakers enacted Pandemic Unemployment Assistance (PUA) in March 2020, extending benefits to those not covered by regular UI. First enacted as part of the CARES Act, PUA has provided crucial financial support for millions of households. At its peak in August 2020, PUA covered 14.6 million people. After two extensions, 5 million people were still receiving benefits in August 2021. With PUA now scheduled to lapse in early September, lawmakers should consider permanently incorporating some of these workers into the UI system to better reflect the 21st century workforce. In particular, the pandemic highlighted the necessity to provide UI benefits to self-employed workers.

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PUA Background

PUA extended UI benefits to Americans who lost their job during the fallout from COVID-19 but were not covered by traditional unemployment insurance—which only provides benefits to workers who are permanently laid off by their employers through no fault of their own. In particular, PUA provides coverage to self-employed workers who lost business, those who are furloughed, and those unable to work for reasons related to COVID-19, including: contracting COVID-19, being under quarantine, caring for someone with COVID-19, and caring for a child or family member whose school or care facility is closed due to COVID-19.

While PUA served as a critical safety net during the pandemic, it should not be a permanent fixture of the UI system. PUA’s provisions that respond directly to public health concerns (such as those specific to COVID-related illness and caregiving) should lapse after the pandemic ends. Although PUA’s quick passage was key to mitigating financial distress, that urgency prevented Congress from addressing potential pitfalls, and the program has likely been subject to high levels of fraud. Rather than continuing PUA indefinitely, lawmakers should look at ways to permanently expand eligibility for certain workers within the regular UI system.

UI Should Cover Self-Employed Workers

Millions of Americans are self-employed, working in jobs ranging from rideshare or delivery driving to plumbing to consulting for Fortune 500 companies. While data are sparse and inconsistent, official estimates from the Bureau of Labor Statistics indicate that there were 17 million self-employed workers in July, accounting for around 11% of all workers. In addition, over the past decade, the emergence of app-based jobs, such as driving for Uber or Lyft, has brought heightened attention to workers in the gig economy, many of whom are self-employed independent contractors. BLS found that in 2017, there were 10.6 million independent contractors in the United States, representing 6.9% of total employment. More recent evidence indicates that independent contracting could be even more prevalent today. A 2019 poll conducted by Gallup and Intuit found that 23 million workers—14.4% of the workforce—identify their primary job as independent contracting.

Despite their prevalence, these workers have historically been ineligible for UI, which requires beneficiaries to have a recent history of employer-provided income and to have been laid off by their employer through no fault of their own. Self-employed workers, on the other hand, report non-employment income and may not face the clear inflection point in employment status that a layoff provides, instead experiencing reductions in customers or income.

Unemployment insurance, as the name suggests, was enacted to insure individuals’ income against losses caused by factors beyond their control, such as economic downturns or business closures. But employees are not uniquely exposed to that risk. As the COVID-19 pandemic has shown, economic and social shocks can reverberate across all types of employment.

It is important to note, however, that permanently incorporating self-employed workers into the UI system would come with administrative challenges. When PUA extended UI to self-employed workers, for instance, eligibility for the program relied on self-certification, prompting significant concerns about misuse and fraud. The regular UI system may also struggle to determine eligible work-separating events among self-employed workers, with or without self-certification. In particular, it may be difficult to distinguish between those who lose income through no fault of their own and those who are simply working less. Lawmakers should explore ways to overcome those hurdles so that UI can adequately cover self-employed workers while limiting exposure to abuse.

Another design issue is how self-employed workers should contribute to the UI system, which is currently funded by employer payroll taxes based on employment income—a tax that self-employed individuals, who report non-employment income, do not pay. One option would be to levy the same unemployment taxes on the self-employed, which would also guarantee their benefits should they need them. Alternatively, participating in and contributing to UI could be optional for this population, which means that the system would only provide benefits to self-employed workers who opt-in. These and other issues merit careful consideration.


UI has long played a critical role in America’s social safety net, but the program has failed to adapt to a changing economy, leaving portions of the population unprotected from economic downturns and personal misfortune. While PUA successfully helped self-employed workers during the pandemic, its focus on COVID-19 and vulnerability to fraud make it ill-equipped to serve as a permanent solution. With PUA’s expiration imminent, lawmakers should turn their attention to updating the permanent UI system so that it can effectively serve all American workers in the years—and crises—to come.

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