Black applicants half as likely to get pandemic unemployment benefits in some states, watchdog says

Black applicants for unemployment benefits were half as likely to obtain it as white applicants in some states during the pandemic, the Government Accountability Office reported Tuesday.

The findings are on track with a preliminary report GAO released a year ago, which warned that it had found “potential racial and ethnic disparities” in the administration of jobless benefits. It’s a continuation of a long-standing trend: The U.S. unemployment insurance system has long treated Black and Latino workers unequally, economists say, and during the pandemic may have even exacerbated racial inequalities. 

Yet the independent agency was unable to identify the full extent of the issue or its causes due to a lack of data, prompting calls for more information on states' administration of jobless benefits.

"You can't manage what you don't measure," Michele Evermore, deputy director of the Labor Department's Office of Unemployment Insurance Modernization, said in an interview. "If we were able to measure equity, then states would suddenly start finding themselves in the position that they have to figure this out and correct the problem."

The racial disparity was just one of several failings GAO identified in a trio of long-awaited reports Tuesday on the U.S. unemployment insurance system and how it fared during Covid-19. The pandemic and subsequent shutdowns triggered an unprecedented wave of demand for jobless benefits, which — even with additional aid from Congress — the network was ill-equipped to meet. 

Despite this, however, one of the reports found that “an expansion of UI programs during adverse times, such as the Great Recession of 2007-2009 and the COVID-19 pandemic, created overall economic stability, prevented detrimental outcomes from worsening, and had a limited effect on workers’ incentives to return to work.”

Republican governors who opted out of pandemic unemployment insurance programs often cited employers’ difficulty finding workers as a main reason why.

President Joe Biden proposed enacting some changes to the administration of jobless benefits as part of his Build Back Better plan, as well as in his budget request for fiscal 2023. Congress would need to enact the most substantive changes — and the leading reform effort on the Hill, led by Sens. Ron Wyden (D-Ore.) and Michael Bennet (D-Colo.), lacks the bipartisan support it needs to get through a 50-50 Senate.

“GAO’s reports make clear the unemployment system is broken — both in terms of program administration and benefit policy,” Wyden said in a statement. “My proposal with Senator Bennet would address many of the problems GAO identifies by funding administration and technology modernization, ensuring benefits better cover the basics, and making the system more responsive to economic conditions.”

Many of those provisions, however, remain unpalatable to Republicans, who take issue with the cost and express concerns over fraud.

“This troubling report says the federal government has no idea how much of the taxpayers’ dime has been lost in the greatest theft of tax dollars in American history — and that’s the point," House Ways and Means ranking member Kevin Brady said in a statement. "Democrats have ignored repeated calls for congressional oversight hearings and to protect American taxpayers."

The Biden administration can take some steps to improve the system on its own. But without legislative action, "what we can't do is tell states how much they have to pay," Evermore said. "There seems to be a race to the bottom among states," which can exacerbate racial disparities: Black workers typically need benefits for a longer period of time than white workers, which means that shortening duration disproportionately affects them.

Passing a bill would also get state agencies the funding they need to hire more staff.

"This is the thing that keeps me up at night," Evermore said. "If we had another recession, it's not just that we don't have a floor for benefits; it's not just that it's hard to access benefits in some states — we've depleted the UI workforce."

Lawmakers enacted a trio of emergency unemployment insurance programs as part of one Covid-19 relief package, the so-called CARES Act. Yet states’ understaffed and outdated systems struggled to administer them, resulting in long wait times and high fraud rates.

Applicants to the Pandemic Unemployment Assistance program, which provided jobless benefits to the self-employed, part-time and others not traditionally eligible, “faced challenges, such as long wait times for benefits, customer service difficulties, and having to draw on savings or borrow money,” one of the GAO reports found.

They also encountered significant racial and ethnic disparities, the agency said. GAO was only able to obtain the relevant data for five states, and excluded one — Arizona — due to “large amounts of potential fraud.”

In North Dakota and Wisconsin, two of the states that were analyzed, the percentage of Black applicants who received pandemic unemployment assistance was half that of white applicants.

In the two other states studied — Louisiana and New York — the recipient rates were much more similar. In fact, in Louisiana, a greater percentage of Black applicants than white applicants received the benefit.

GAO was unable to determine the causes of the racial disparities because it did not have enough data to “control for or otherwise take into account” other factors that may have been at play. But it hypothesized that “one potential explanation for the disparities we identified is that systemic inequities—such as how states reviewed claims or applied program criteria—or individual biases could result in some states approving PUA claims differently based on applicants’ race or ethnicity.”

“Alternatively or in addition, a high volume of potentially fraudulent PUA claims could result in the appearance of racial and ethnic disparities if these claims were concentrated in certain groups (i.e., if fraudsters more frequently selected a certain race).”

Officials in Wisconsin told GAO that their system did not track the reasons why applicants’ claims were denied. And officials in Louisiana and North Dakota said one possible cause was that “individuals submitting fraudulent PUA claims disproportionately used identities stolen from Black or Hispanic/Latino individuals relative to a state’s PUA applicants.”

House Democrats may draft legislation that would expand access to the relevant data, one person familiar with the conversations on the Hill said, so that policymakers may better understand the extent of the issue and its root causes.

“It’s unacceptable that applicants of color received benefits at lower rates, and there is no further data to understand these inequities or enforcement tools to hold states accountable,” House Ways and Means Chair Richard Neal (D-Mass.) said in a statement.

That could mean either requiring states to separate out their data on jobless benefits — or simply provide it all to the federal government, Evermore said.

"That's going to be a very, very, very long road," Evermore said. "But it's an important first step."

GAO, for its part, recommends that the Labor Department find a permanent way to get jobless benefits to the part-time, self-employed and other workers who received benefits under pandemic unemployment assistance.

The permanent unemployment insurance system "is still designed around the full-time factory worker," Evermore said. "We need to take a look at the workforce today and figure out why people are not qualifying, and then set a federal standard for those people to qualify."

The Labor Department has yet to take steps toward doing so, Evermore said: "We're digging out of so many things." She said it hopes to address some of the same issues obliquely through some of its other efforts.

Experts say that the agency should immediately start work on the issue in earnest given that another recession could be imminent.

"Congress can't go back to insufficient responses of the past, and must be prepared to deliver federal unemployment assistance to millions of workers excluded from state UI the next time the economy turns south," Andrew Stettner, a senior fellow at The Century Foundation, said. "As GAO concluded, that policy development work should start now, and not wait until the last minute as Congress did with PUA."

GAO also directs DOL’s Office of Unemployment Insurance to report on the “extent of and potential causes of racial and ethnic inequities” associated with the PUA program.

“Such an analysis could find that disparities in receipt of PUA were isolated, or it could find that disparities were caused by broad issues that could also affect the regular UI program (e.g., insufficient program controls),” according to the report. “DOL has not systematically analyzed or monitored the extent of racial disparities in the UI system, including PUA, even though ensuring equitable access to UI is a program priority.”

Already, Evermore said, the Labor Department is partnering with states to "improve the data and reporting that they have" on equity.

Another report GAO released Tuesday centered on the system’s broader failings. The agency sees “an urgent need” to address issues “that were exacerbated in the pandemic,” it said.

Chief among those: fraud, which the report found “greatly increased” during Covid-19. Improper payments more than doubled from 9.2 percent to 18.9 percent between fiscal 2020 and fiscal 2021, DOL estimated. That’s more than $78 billion.

Issues determining eligibility have always been one reason for improper payments, the Labor Department said. But the pandemic brought a rise in identity theft, which became “a main cause.”

At least 146 individuals pleaded guilty to UI fraud between March 2020 and January 2022, according to the report. Charges were pending against at least 249 individuals.

Another highlighted problem: Long delays. The pandemic-related jobless benefit programs have all expired. But applicants for regular unemployment insurance “continue to face significant delays.”

About 18 percent of claimants who received payments for the first time in February had been waiting longer than 10 weeks, GAO found. In March 2020, less than 1 percent had been waiting longer than 10 weeks.

GAO has put the unemployment insurance system on its list of “high-risk.” It recommends stricter federal standards; IT system modernization; and the use of more data sources to identify fraudulent benefit claims, among other things. It also directs the Labor Department to “develop and execute a transformation plan.”

The Labor Department hopes that the high-risk designation can "be the the catalyst we need to really actually fix these things," Evermore said. "GAO took a very broad, very measured view that integrity is about getting people the right benefits at the right time," not just fraud.

The department said it already has taken steps toward doing so, including via the creation of an Office of Unemployment Insurance Modernization and a new partnership with states to obtain and analyze data on equity.

It’s also using funds enacted under the American Rescue Plan to launch so-called Tiger Teams in 18 states to identify “quick actions states can take” to improve their unemployment insurance systems — as well as provide grants to states for promoting equity and improving awareness.

One person familiar with conversations on the Hill said Democrats are looking at narrower unemployment insurance reforms that could garner GOP backing.

But Evermore said reaching an effective compromise could be difficult.

"If you pass a few elements of UI reform, but not something comprehensive, it can act as like squeezing a balloon," Evermore said in an interview. "You have to figure out how all the moving pieces work together."

"Maybe if we get down the road and something gets on the floor ... that's a better time to start thinking about compromise," Evermore added. "But right now, I have a hard time seeing where you can take certain elements of reform" on their own.