Modernizing unemployment insurance for the changing nature of work

The first section of the paper reviews changes in the labor market since UI was created. Although most workers still have traditional full-time jobs, the prevalence of non-traditional work has increased. Non-traditional work includes self-employed, independent contractors and freelancers who operate outside formal employer-employee relationships. Other types of non-traditional arrangements include temp-agency workers, on-call workers, contract company workers, multiple jobholders, and part-time workers. These arrangements can be structured as W-2 employment, yet do not provide traditional, stable full-time work. While non-traditional work can provide increased flexibility, it can also heighten job and financial insecurity, and can leave workers without access to critical employment-based benefits and protections. The second section of the paper explains why workers in non-traditional jobs often lack UI coverage. Independent contractors and freelancers are excluded from UI because they do not work for a traditional employer that would make contributions on their behalf. Other non-traditional workers, such as part-time workers, can qualify for UI as a benefit of W-2 employment, but are disadvantaged relative to traditional workers in how the program is structured. The third section of the paper discusses the opportunity to use non-traditional work to help unemployed Americans return to the labor market. Most states generally require UI recipients to seek traditional full-time work in order to continue receiving benefits, even if their original jobs were part-time. Very few states offer Self-Employment Assistance (SEA) to help UI recipients become entrepreneurs. Further, there are structural incentives that discourage regional workforce offices from helping workers find and prepare for non-traditional work. The final section of the paper reviews proposals to modernize the UI program to account for the growth in non-traditional work. The proposals are grouped according to three goals: first, protecting independent contractors — who currently lack UI coverage — from job and income loss; second, providing better coverage to non-traditional workers in W-2 arrangements; and third, supporting entrepreneurship and voluntary transitions from unemployment into non-traditional work. The paper does not include proposals for improving the solvency of state UI trust funds, as it focuses on reforms to broaden eligibility for workers in non-traditional work arrangements. However, the authors strongly support improving solvency as an important goal of any UI reform effort