How to Make Unemployment Insurance Work for Gig Workers

As COVID cases spike around the country, U.S. jobless claims are also on the rise, and along with them continued concerns about unemployment insurance fraud and abuse. Rampant fraud is among the main reasons that the Department of Labor has just pledged millions of dollars to help modernize the country’s outdated system.

But even more troubling than the United States paying out an estimated $400 billion to fraudulent unemployment claims during the pandemic is the fact that millions of legitimate claimants continue to wait weeks—and even months—to receive the assistance they desperately need. 

An analysis of more than 2.5 million hourly workers from Steady found that one-third of those who experienced total income loss during the pandemic waited at least 16 weeks to receive unemployment assistance. That means hundreds of thousands of contract and self-employed workers are going three months without money for groceries and rent. What’s worse: the lower a worker's wages, the longer the wait. 

The troubling lag between income loss and receipt of benefits is, in many ways, the result of an infrastructure that has failed to keep pace with the evolving needs of the workforce. 

This challenge stems from the fact that the income verification process—which qualifies workers for not just unemployment insurance, but also vital safety nets like food stamps—remains rooted in a world where workers could simply share their W-2 forms or pay stubs to show government officials how much they had earned. 

But the share of workers who have traditional full-time jobs is shrinking. Since 2010, the 1099 economy has grown by more than 6 million workers, with 1099 workers now accounting for more than one-third of the workforce. That’s a 15% increase in just one decade. And income verification presents unique challenges for this massive segment of workers, who are forced to chase down and cobble together bank statements and other payment substantiation from multiple jobs to prove their prior income. 

Imagine that in 2020, the breadwinner in a family of four earned a total of $40,000 from four or five different “gig” roles, from part-time work at a supermarket to driving for Lyft or Instacart. This would not be unusual: at least one-third of gig economy workers in the U.S. report having two or more jobs. Piecing together the necessary paperwork in the midst of a pandemic while facing a devastating loss of income is no small task. It creates an unfair and unreasonable burden for one-third of the workforce, and often results in not just delays, but also incomplete and inadequate benefits. Miss reporting a gig or two, and the size of the benefits is diminished, oftentimes far below the amount a caregiver would need to provide for their family.

The multiple income streams of 1099 workers also present challenges for states charged with verifying claimant identity and income under both Pandemic Unemployment Assistance (PUA) and Unemployment Insurance (UI) programs. In the coming months, states will continue to grapple with the daunting task of processing and verifying millions more documents by hand. Claimants will struggle to complete the paperwork required to access vital unemployment benefits in order to provide for themselves and their families. Those challenges combined will only make it harder for states to provide financial support to the workers who need it most.

Public officials must take seriously the responsibility of safeguarding taxpayer dollars and reducing the potential for abuse. But mitigating risk can’t come at the expense of equity and access in an era where emerging technologies make it possible to manage both. The good news is, just as the makeup of the labor market has changed in ways that create new challenges for federal programs, the technologies that enable such shifts can help to alleviate some of those very same challenges. 

The rise of online banking and mobile computing has allowed consumer finance tools to begin addressing these challenges. Apps like Steady, which is now used by millions of non-W-2 workers, can automate the verification process by using machine learning to comb through terabytes of wage data. This information can then be provided to states much faster than traditional reporting systems, improving the accuracy and efficiency of income verification. 

Unfortunately, the guideposts that inform state and worker use of these emerging technologies have not kept pace. Although the use of this third-party data is clearly permissible within the intent of existing law, state leaders remain eager for clear signals from the U.S. Department of Labor and Congress. Now is the time for the Labor Department to actively consider and provide clear guidance around the use of technologies that can support gig workers in accessing federal benefits. Doing so would unlock the potential for needed innovation at the state level—and provide an important boost for workers still grappling with the fallout from the pandemic. 

Our outmoded income verification systems are harming displaced workers, as well as the credibility and effectiveness of the agencies designed to help them. To help Americans get the assistance they need during the pandemic and beyond, we need not just a modernized system—but also better data that reflects how today’s workers actually work.

Jane Oates served as assistant secretary for the Employment and Training Administration in the Obama administration.