University of Wisconsin–Madison
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Leslie Hodges on Unemployment Insurance and Material Hardships

In this episode, we hear from IRP postdoctoral scholar Leslie Hodges about the Unemployment Insurance program and how the program might mitigate economic distress, including poverty and material hardships, when someone loses a job.

Transcript

Chancellor: Hello and thanks for joining us for the Poverty Research and Policy Podcast from the Institute for Research on Poverty at the University of Wisconsin-Madison. I’m Dave Chancellor. This is our October 2019 podcast episode and we’re going to be hearing from Leslie Hodges about the Unemployment Insurance program and, specifically, how the program might mitigate economic distress in the event of a job loss. Hodges is a postdoc here at the Institute for Research on Poverty and we talked about a paper she wrote with Fei Men who’s a postdoc at the University of Toronto. When we started talking, I asked Hodges to tell us about the Unemployment Insurance program—or UI—and how it works.

Hodges: The official name is the federal state unemployment compensation program. It was a program that was funded out of the Social Security Act in the late 30s. And it really is a program that’s designed for workers, so it’s to provide insurance to people who have been working regularly and then experience involuntary job loss. So, UI like I said is really a program for workers. The program is funded through an employer tax on wages and people qualify for unemployment insurance based on their prior work history and earnings, and so it’s really meant to be a form of insurance. It’s not means tested and by that I mean it doesn’t matter what your spouse makes or your other household income is and it also doesn’t matter if you have other assets. For example, a 401k or something else that you could draw on during a period of unemployment, so it’s really about having an event and having some income protection against that event.

Chancellor: In their paper, Hodges and Men ask the question ‘do unemployment benefits reduce poverty and hardship?’ And it might be tempting for us to think that the answer to that question is kind of mechanical—if someone loses their job and is able to get a benefit that covers some of their lost wages, that should provide some protection against hardship and poverty, right? Well, Hodges says it’s not quite that simple.

Hodges: In some ways it’s a question that’s combining two different things, two different populations and groups because the UI program is targeted at workers and so there’s not an explicit goal for the UI program to do something like reduce poverty, right? So it’s not a clear question coming out of the program. At the same time, in order to evaluate the effectiveness of the program and whether it’s meeting the needs of workers in today’s economy, then we really need to have information about what the beneficial effects of UI might be. And so that sort of motivates that question of does UI reduce poverty? Or does UI help people to pay their bills, to make mortgage payments, to purchase food? That being said, it tends to be people who we consider to be more advantaged in the labor market who typically take up UI benefits, so people who have pretty stable employment, people who have higher earnings.

Chancellor: I asked Dr. Hodges to tell us more about why more disadvantaged workers might be less able to take up UI benefits.

Hodges: They might not qualify because they don’t have the amount of work history or earnings in the past—it’s about a year—in the past year that would make them income eligible for UI. But it’s also possible that their reasons for exiting employment make them ineligible for UI, so the program is really targeted toward people who are what we call experiencing involuntary job loss—or they’re job losers, and not people who have left their jobs purposefully and also, typically not people who have been fired. So those are kind of things that might be disruptions. And then the last thing is there are a few studies that have shown that there’s a lack of information about the availability of benefits, and I think that’s a really important thing, especially when you’re talking about low-income workers. They might either perceive that they’re not eligible for benefits or they might not even know that the program exists and that they could qualify for benefits.

Chancellor: And Hodges says that, for their study, trying to compare individuals who are unemployed and receive UI to those who don’t gets tricky.

Hodges: Because what we have is we can see that people who receive UI are about 12 percentage points less likely to be in poverty. And to kind of put that into other numbers—it’s about I think 32 percent of our sample of unemployed workers who don’t get UI are in poverty and then only about 20 percent of our sample of UI recipients are in poverty, so there’s that 12 percentage point difference in terms of actual rates. Part of that is the program itself, but part of that is characteristics about UI recipients that we can’t observe.

Chancellor: And the sample they’re drawing on here is from the Survey of Income and Program Participation or the SIPP, and so I asked Hodges to tell us about the SIPP and the kinds of information it can provide.

Hodges: It’s a nationally representative longitudinal survey of households and individuals. Depending on the year that the survey started—and those are called panels, it runs anywhere from two to five years, so it allows you to follow households over that time and learn about their employment, their earnings, their participation in other programs, other sources of incomes, changes in their household structure, so it has a lot of really great information there. And core sets of questions are asked throughout the course of the survey—every four months—and then at different periods, additional questions are asked, and so what we use is what’s called the topical module on adult wellbeing where people are asked these specific questions about hardships. So, in the past year, were you unable to pay your rent or mortgage payment? In the last year, were you unable to pay a utility bill or a phone bill or did you have your phone service disconnected? So those are the questions that we’re using to measure hardship.

Chancellor: Hodges says that the SIPP is really ideal for looking at these issues because it asks a broader range of questions about hardships than many other nationally representative surveys.

Hodges: And the reason that’s really relevant is because when we talk about poverty and economic wellbeing, our measure of poverty is one of income poverty. And so it makes an assumption that by having a certain amount of income, families have enough to meet their basic needs. And that works to some extent, except we know that people above the poverty line report not being able to meet some basic needs, and some people below the poverty line report being able to meet those needs. So they don’t always map onto each other. And so the material hardship measures or consumption-based measures, they’re direct questions that asked, were you able to meet this basic need? Were you able to consume adequate housing, consume adequate food? Those things, so I think that putting them side by side is really helpful because we just know that income poverty tells us something, but it doesn’t tell us the whole story about people’s economic wellbeing.

Chancellor: I asked Hodges to tell us more about how we can think about this distinction between income poverty and material hardship in the context of the challenges that someone who has lost a job might face.

Hodges: The issue with looking at income poverty when you have UI receipt is that it’s a cash transfer, it’s cash income, so of course you have a mechanical effect. You might have had a loss of income because you became unemployed, but you have an increase in income by definition because of that UI benefit, right, so that to me, the relationship there seems like one that’s mechanical and less one that tells us that much about people’s abilities to meet their needs. So if I were to say, of course the UI program makes people better off, ‘look, this many fewer people are income poor because they get UI, well it’s a cash transfer of income, yes.” Yes, but that doesn’t mean that ‘I’ve been unemployed now for three months, and I could cover my mortgage payment for a while, but now I’m starting to get to the point where I can’t cover my mortgage payment. And so one of the things we do is we look at the duration that people have been unemployed to kind of see patterns and reductions in hardships for people who are unemployed for six months. Because exactly like that, I may be having a much more difficult time—I could have, if I did have liquid assets. I maybe have already have already started to run out of them.

Chancellor: And for their results, they did find a difference when they looked at rates of income poverty versus rates of hardship.

Hodges: So we found that UI was associated with reductions in poverty and also with reductions in food insecurity and general deprivation. And what I mean by general deprivation is experiencing two or more hardships. And we found this in our full sample that we looked at. But what is really interesting is that this reduction in poverty was really consistent across the different subgroups of workers that we looked at. We looked at nonwhites and whites, we looked at people who had liquid assets and who didn’t and we looked at people with different durations or lengths of unemployment and we basically found this poverty reduction across all those groups. Whereas the reductions in food hardship and general deprivation were concentrated among certain subgroups. So mainly among nonwhites and among those who didn’t have liquid assets and also among people who were unemployed for more than six months.

Chancellor: And Hodges says that when we think about economic distress related to job loss, it’s important to understand how the story can be different for whites and nonwhites.

Hodges: One thing that has been fairly well researched and shown is pretty large disparities in unemployment and length of unemployment spells between whites and nonwhites, so pretty big racial disparities and or what’s referred to as deeper economic scarring from job loss, so not only longer unemployment spells, but we talk about how long it takes for people to get back to their same level of earnings that they had before they lost their job. Most people don’t immediately get back to their same level of income from employment once they find a new job. And that tends to be longer for nonwhites or for racial minorities. So that was a really important group for us to look at, it’s also important because there’s a lot of literature on access to UI that shows that take up rates are much lower among nonwhites than whites. Actually in some of my own research, I find that Latinos are actually more likely than whites in my sample to be eligible based on their income for unemployment insurance, but then much less likely to take it up. So that’s important too. And that gets back to this information question, it’s not as though they’re not qualifying, but they’re not necessarily taking up benefits, which is really important. And, we look at nonwhites to sort of see if UI might be more protective for that group, and we actually find reductions in hardship almost across the board, so unlike for our full sample, we find reductions in poverty, but also in utility hardships, in medical hardships—which is ‘were you unable to see a doctor if you needed to?’, and then also in food hardships. I think also in terms of making sure people have information about the availability of the program and increasing access among people who are having lower rates of take up, I think this is a really important contribution to that area, because we show that this is where UI can really be helpful.

Chancellor: And finally, Hodges says that a central question for the UI program is whether it’s meeting the needs of workers in today’s economy.

Hodges: We just know that employment now looks different than it did 50 years ago. And even though we have record low rates of unemployment right now, we still expect that people’s experiences during a spell of unemployment are different. I think a question for policymakers always is what should the scope of UI be? How broad, how widely available should it be? You both need to know what the negative consequences of that might be, like increasing unemployment rates, increasing the length of unemployment, but also the beneficial aspects. So what it means for a household to receive UI benefits during a spell of unemployment, because you can’t really determine the right scope of the program without knowing how it makes people better off. I mean I think they want to know if their program is working and I think to some extent, we have evidence here that it is, and it’s working for populations that not only does the UI program care about, but we care about more broadly. People who are more economically vulnerable, so that’s important.

Chancellor: Thanks to Leslie Hodges for sharing her work with us. This podcast was supported as part of a grant from the U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation but its contents don’t necessarily represent the opinions or policies of that Office, any other agency of the Federal government, or the Institute for Research on Poverty. To catch new episodes of the Poverty Research and Policy Podcast, you can subscribe on Apple, Stitcher, or Google Play Podcasts. You can also find all of our past episodes on the Institute for Research on Poverty website. Our theme music for this episode is “Staring Straight” by Maarten De Boer. Thanks for listening.

Categories

Economic Support, Employment, Labor Market, Low-Wage Work, Social Insurance Programs, Unemployment/Nonemployment

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