Racial Differences in Unemployment Insurance
Barnard College and Duke University
Previous research has found that Black and Hispanic workers tend to be less likely to receive Unemployment Insurance benefits than White workers. Differences in location and work history among workers of different races account for some of this gap. Could other aspects of the Unemployment Insurance (UI) program also lead to disparities? We followed a sample of workers in one city who worked in the same set of industries during pandemic induced layoffs. In spite of the fact that all workers had eligible work histories due to pandemic-related UI expansions, we found that workers of color were still less likely to receive Unemployment Insurance benefits when laid off than White workers, with leakage at every point in the benefits process.
Only one-third of the study's Black and Hispanic laid-off service workers in Philadelphia received UI and the legislated supplement in a timely manner.
- Black and Hispanic workers are less likely to receive Unemployment Insurance than White workers. Unemployment Insurance (UI) is the main program for providing financial support to workers who have lost work through no fault of their own. Previous research consistently finds that UI has unequal reach across the population. A recent study, for instance, finds that Black individuals who separate from a job are 24% less likely to receive UI than whites. When they apply for UI and are approved for benefits, there is also a large gap in the amount of UI that Black and White unemployed workers receive. Compared to White claimants, Black claimants receive an 18% lower replacement rate (unemployment benefits relative to prior wage), according to another study. Researchers have documented a number of factors that contribute to these population-level differences. One is that, although the specific requirements vary from state to state, UI eligibility typically requires a minimum amount of earnings in the first four quarters of the five quarters that precede the job loss. Because workers of color are more likely to be given part-time and unstable work hours, they are less likely than White workers to meet the minimum earnings requirements. Lower earnings as a result of part-time and unstable work hours also drive lower benefit amounts. Another issue is that each state sets its own policies, and prior research has also revealed that Southern states – where a disproportionate share of Black workers live – provide less generous UI.
- A longitudinal survey of low-wage service workers with young children, which started in late 2019, provides a window into the experiences of a group highly impacted by pandemic-era layoffs who shared similar eligibility for UI. We recruited a representative sample of hourly service workers in retail, food service, and hotel establishments who had young children in Philadelphia during late summer and fall of 2019 to understand the effects of parents' unstable work schedules on income and well-being. The COVID-19 pandemic disrupted the original goals of the study. However, we continued to follow this sample of highly policy-relevant workers throughout the pandemic. Because these workers were in the industries most disrupted by the pandemic, about a quarter were laid off, providing a large sample to observe prior to and during unemployment.
- Black and Hispanic workers were much less likely to receive UI and to receive it in a timely manner, with leakage at every point in the process. Consistent with a large body of prior research, Black and Hispanic service workers in our Philadelphia sample were more likely than White workers to be laid off, despite working in similar jobs (see chart). Hispanic workers who lost their jobs were less likely to apply for UI than were White workers who were laid off. Black and Hispanic workers who applied for UI were less likely to receive it. Moreover, among those Black and Hispanic workers who did receive UI, they were less likely to do so while special supplemental benefits were available during the pandemic and to actually receive supplemental payments in a timely manner conditional on receiving while the supplement was available. All in all, only one-third of Black and Hispanic laid-off workers, compared to more than half of laid-off White workers, actually received UI and the legislated supplement in a timely manner (see chart).
- These findings point to a range of challenges that make it more difficult for people of color to access UI. First, accessing UI requires navigating a complicated government bureaucracy, including potentially needing to provide documentation of work status or hours. Workers of color may have more difficulty navigating that bureaucracy for a variety of reasons, including that they have less stable access to technology such as high-speed home internet. Similarly, when bureaucracy requires sending and/or receiving paper forms, Black and Hispanic workers may experience additional burdens if their neighborhoods have less secure mail delivery. Second, workers of color may have lower awareness of UI, may have fewer resources to make it through a complicated bureaucratic process, and may face discrimination from bureaucrats when they attempt to advocate for themselves. Finally, prior research has shown that within groups, such as Hispanics, with high immigrant shares, individuals are less willing to apply for government programs even when eligible, due either to “chilling effects” from other community members’ ineligibility or due to fear of benefit receipt precluding their or a family member’s future ability to access residency or citizenship.
- Outdated state UI systems could also contribute to disparities in UI receipt. Many state UI systems still run on mainframe computers and programming that was developed in the 1980s, with the need for upgrades acknowledged but not often implemented. As a result, benefit determination and other complex tasks can be difficult to update. Because workers of color are more likely to have complexities in their UI cases, for example due to less stable work hours, these outdated systems have more of an effect on them than on White workers. Even when systems have been upgraded to use online tools, they are often not available for mobile device users, further disadvantaging Black and Hispanic workers who are less likely to have internet access at home but who have ready access to mobile technology.
- Employers may be more likely to block claims filed by workers of color. Just as a driver’s car insurance premium goes up after an accident due to experience rating, the UI system is structured so that employers pay higher UI payroll taxes after they have laid off employees who subsequently collect UI. This system of experience rating incentivizes employers to contest workers’ UI applications by arguing that they were not laid off but rather fired for cause, and this practice is most frequent in industries and firms characterized by low wages, high turnover, and poor worker protections — exactly the jobs where workers of color are concentrated. If workers of color are perceived by employers to have fewer resources with which to withstand an appeal by their employer, or shakier claims due to volatile hours, it is also possible that employers may strategically target workers of color for appeals.
- Pandemic UI protected against layoff harms. In our study, consistent with previous work, being laid off led to material hardship and worsened mental health for workers across all racial and ethnic groups. We find that receiving Unemployment Insurance benefits was highly protective against these harms, and that supplemental payments provided additional protection. Basic UI buffered against severe income loss (living on less than half of former income, a 15-point effect) and the probability of anxiety (a 17-point effect) and depression (a 10-point effect). Supplemental UI offered additional protection against severe income loss (an additional 8-point effect for the $300 supplement, or 16 points for the $600 supplement) and material hardship (cutting inability to pay rent or mortgage by 9 or 18 points and running out of food by 7 or 14 points). UI’s protections were generally similar by race and ethnicity — all groups were protected by receipt.
What this Means:
There are several policy reforms that would improve Unemployment Insurance for all and could reduce race and ethnicity gaps in receipt. First, permanently extending coverage to lower-earning workers by eliminating minimum earnings requirements would reduce racial disparities in receipt driven by lower wages, more volatile hours, and less access to full-time work among Black and Hispanic workers; and, after all, workers and employers pay into UI from the first dollar of earnings, so minimum earnings requirements to draw benefits are of questionable legitimacy. Second, there is strong evidence for the protective benefits provided by UI— in terms of reducing material hardship and promoting physical and mental health — that may justify raising benefit levels and duration, especially during times of economic crisis. Such expansions would remove the need for Congress to enact piecemeal supplements and extensions during crises and would bring the U.S. in line with peer countries. Third, reforming Unemployment Insurance financing so that employers are disincentivized from blocking workers’ claims would eliminate a barrier that has been shown to drive racial disparities in receipt. Finally, providing funding for states to modernize application and delivery processes, or centralizing administration at the federal level so as to more easily modernize the program, would reduce the contribution of racial disparities in internet access to disparities in Unemployment Insurance receipt. Taken together, our findings illustrate the harms of layoff and the protective capacities of UI — particularly when its generosity is increased — along with an important pathway by which institutional inequality in access prevents this putatively redistributive policy from remediating health disparities. Our results also demonstrate, however, that UI has unrealized potential to be a force for reducing these disparities.