Expanding eligibility for Unemployment Insurance helps low-income U.S. workers find better jobs

Unemployment Insurance serves as a critical income support program for U.S. workers who lose their jobs through no fault of their own. It is also a valuable tool to stabilize the U.S. economy and support workers during recessions and other periods of economic uncertainty.

Within the field of labor economics, it is a well-established finding that more robust Unemployment Insurance benefits lead workers to delay finding work after losing their jobs. At the same time, there is little evidence to date that extended periods of time to search for new jobs allow workers to find better reemployment opportunities. Together, these two empirical insights may discourage policymakers from making UI benefits more generous except amid severe economic downturns, as happened in 2020 during the COVID-19 pandemic and recession.

The reality is more nuanced and may reflect the limits of the comparisons this past research has made. Indeed, our recent study, published in Equitable Growth’s Working Paper series, reveals that expanding UI eligibility for low-income workers largely avoids this presumed trade-off between extended UI benefits and unemployed workers delaying their job search. Specifically, we find that workers who receive Unemployment Insurance minimally delay finding new jobs in the short term, but that short delay ultimately leads them to work more overall as they find more stable and higher-paying jobs.

Our paper compares workers who received Unemployment Insurance with those who did not, whereas most earlier studies compare UI recipients with different weekly benefit amounts or potential durations. This distinction matters because receiving Unemployment Insurance changes workers’ weekly job search requirements and gives them access to reemployment services.

Further, while past research has largely examined higher-income workers or the broader pool of UI claimants, we focus on workers with less stable employment and lower incomes—those who are only marginally attached to the U.S. labor force. The effects of Unemployment Insurance may differ across these groups, especially since workers with fewer financial resources and less consistent work may respond differently to the support and structure that UI benefits provide.

The benefits of Unemployment Insurance for workers marginally attached to the U.S. labor market

In all U.S. states and the District of Columbia, eligibility for Unemployment Insurance requires sufficient periods of employment through workers’ formal labor market experience, reflecting the program’s design as an insurance system. Unemployment Insurance in the United States is run as a state-federal partnership, with the federal government setting broad program requirements and individual states determining benefit eligibility, amounts, and duration for their residents. In Washington state, for example, where we focused our study, workers must accumulate at least 680 hours of work in the year prior to their job loss to qualify for UI benefits.

This threshold creates a sharp eligibility cutoff, which we use to compare workers who barely meet the requirement to those who narrowly fall short of it. This allows us to identify the effect of receiving UI benefits on job search and reemployment outcomes. Critically, this comparison isolates the effects of receiving UI benefits for these marginally attached workers—not just the benefit payments, but also the program’s institutional features, such as mandatory work search requirements and access to public employment services.

We find that receiving UI benefits only slightly lengthens the time it takes unemployed workers to find new jobs, but it has large payoffs once workers return to the labor force. Workers who receive Unemployment Insurance are less likely to find immediate reemployment in the same quarter in which they lose their jobs. Yet these workers then go on to work about 15 more full-time weeks and earn roughly $14,000 more over the next 2 years, compared to similar workers who miss out on UI benefits, representing 37 percent and 50 percent increases, respectively.

Indeed, not only do our results suggest that receiving UI benefits leads to more hours worked and higher earnings, but also that this effect grows over time. The cumulative effect of receiving Unemployment Insurance on hours worked plateaus after five quarters, whereas the effect on earnings continues to increase over time.

Importantly, we also find evidence that these gains reflect that workers who received Unemployment Insurance found more stable and higher-paying jobs. We detect a discontinuity in these outcomes at the UI eligibility threshold, which we attribute to the discontinuity in the receipt of UI benefits. More precisely, our results show that UI recipients switch jobs less frequently—working for 1.6 fewer employers over that period—and earn about $3 more per hour when back at work.

Measuring the value of expanded UI eligibility

To weigh the costs and benefits of expanding UI access and lowering the eligibility threshold, we use the marginal value of public funds framework, which allows us to compare the cost-effectiveness of different policies. This framework calculates the ratio of how much workers value a dollar of spending on a particular policy divided by the net cost of that policy to the government. A marginal value of public funds above 1 suggests the program delivers more value to recipients than it costs taxpayers.

In our study, we estimate Unemployment Insurance’s marginal value to be about 2.5, suggesting that every dollar spent on expanding UI benefits creates $2.50 of value. By comparison, previous marginal value estimates for raising weekly UI benefit amounts range from 0.43 to 1.03, while extending the maximum duration of UI benefits ranges from 0.45 to 0.83. This discrepancy suggests that expanding UI to marginally attached workers may be substantially more cost-effective than the reforms typically considered and previously evaluated.

On the benefits side, newly eligible low-income workers receive UI payments that help them manage expenses and maintain stability while unemployed. Additionally, these workers find better jobs when they return to employment. On the cost side, the government covers the payments to newly eligible workers, but part of this expense is recouped through tax revenue on these workers’ higher earnings. Our calculations thus imply that expanding eligibility for these low-income workers specifically is the most cost-effective UI policy studied to date.

Lessons for state policymakers

Though our study takes place in Washington state, the lessons extend well beyond it. To develop policy recommendations, we consider which states have UI programs that most closely resemble Washington’s and which states are well-positioned to expand UI, given the strength of their trust funds, which cover the costs of Unemployment Insurance. Notably, Washington has both the most stringent UI eligibility requirement in the country and the highest minimum weekly UI benefit.

We first identify 11 states that come reasonably close to Washington’s eligibility threshold of 680 hours worked in the year prior, based on how many hours a minimum-wage worker would need to work in order to be eligible in that state. Five of these states also offer comparable weekly benefits to Washington state. These states are Utah, Arizona, Kansas, Ohio, and Maine, and they stand out as strong candidates for UI reform. A large share of the low-wage or part-time workers in these states currently fall short of qualifying for Unemployment Insurance, missing out on substantial benefits.

At the same time, these states have the fiscal capacity to broaden access to UI benefits due to the strong position of their UI trust funds. Indeed, all 11 states we identified in this exercise are operating with a healthy UI trust fund balance and thus are in a positive fiscal position for their policymakers to expand Unemployment Insurance without immediate pressure to raise employer payroll taxes or cut other benefits to cover the additional costs.

Conclusion

Our findings challenge previous research that found more generous Unemployment Insurance simply prolongs unemployment, at least for low-income workers. Instead, we show that broadening access to UI benefits can help marginally attached workers find stable, higher-paying jobs without imposing significant costs on state budgets. These results suggest that policymakers should seriously consider expanding UI access by lowering the eligibility threshold as a cost-effective way to support these workers.

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