Strengthening Unemployment Insurance

The COVID-19 pandemic exposed critical deficiencies in the unemployment insurance (UI) system, which struggled to handle an unprecedented surge in claims and likely lost more than $100 billion—around 11%–15% of the $900 billion paid out—to criminal actors exploiting outdated technology, according to the Government Accountability Office (GAO).^[1] These challenges highlight the need for a robust UI system, particularly as disruptive trends such as automation upend the workforce in the coming years.^[2] Although Congress, the U.S. Department of Labor (DOL), and states have made progress on improving the nation’s UI system, more work is required to minimize fraud, improve accessibility, and ensure that legitimate claims are processed quickly.

In 2024, the Bipartisan Policy Center identified the major challenges states face in administering UI benefits and several key lessons for reform.^[3] This report builds on those findings with practical, bipartisan policy recommendations developed through extensive engagement with UI stakeholders across the political spectrum, including researchers and think tank experts, worker advocates, congressional staff, officials at DOL, and state UI directors. BPC staff conducted one-on-one discussions and hosted a series of roundtable conversations, ensuring input from participants with diverse political perspectives. The recommendations presented here reflect BPC’s assessment of evidence-based and politically achievable policy solutions aimed at helping states strengthen the administration of unemployment insurance benefits.

Our recommendations address the following key challenges identified through stakeholder engagement:

• Outdated Technology: Many state UI systems rely on inflexible, obsolete technology that is not fit for their intended tasks and is costly to update.
• Insufficient and Unpredictable Funding: Federal funding for UI administration is inconsistent and inadequate, making it challenging for states to continuously improve technology and manage their programs effectively.
• Staffing Challenges: The pandemic exacerbated existing staffing challenges by driving high staff turnover and burnout, leading to a loss of expertise and administrative delays.
• Ongoing Fraud Risks: Pandemic-era fraud exposed vulnerabilities, with states continuing to face challenges in fraud prevention.
• Fragmented State Administration: The inconsistent application of policies, technology, and definitions across states creates inefficiencies and inequities in UI access.

Our policy recommendations are designed to address these challenges through two key strategies:

1. Improving Funding for UI Administration: It is vital to ensure that both the Labor Department and state UI programs have predictable, flexible, and sufficient funding to facilitate efficient day-to-day UI administration and the continuous improvement of technology systems.
2. Boosting Support to States and Enhancing Central Oversight: Federal support, guidance, and oversight can empower states to administer effective UI programs and promote the adoption of best practices to enhance consistency and performance.

Within these strategies, we have identified the following policy recommendations.