The pandemic made clear that most states weren’t prepared for an economic crisis. They hadn’t saved enough money to support those who were hardest hit or taken steps to drive a stronger recovery once the downturn ended. Nearly two years later, most of the trust funds that pay for state unemployment benefits are insolvent, while nearly four million Americans are still missing from the labor force. States should look to Florida, North Carolina and Alabama, which have solved both problems by linking unemployment benefits to economic conditions.
It’s called unemployment indexing, and while the details of each state’s reform differ in the specifics, they share some basic similarities. When the economy is strong and the unemployment rate is low, benefits end sooner. When the economy is struggling and unemployment is high, benefits last longer. This approach spurs work and saves money in good times, while more effectively supporting laid-off workers in the toughest times.