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A 'perfect storm' for chaos: Unemployment system's failures were a long time coming

Delays in unemployment benefits also indirectly affect other social services, such as Medicaid, creating what one expert called "a perfect storm."
A person wearing a protective mask walks past a shuttered business in Philadelphia on April 23, 2020.Matt Rourke / AP

In New Jersey, a 60-year-old programming language became the scapegoat for years of neglect after the state's unemployment website struggled to handle the flood of unemployment claims spurred by coronavirus lockdowns.

In Florida, there have been extreme cuts over the last decade in the unemployment system. The state's onerous process seems designed to deter applicants, including eliminating in-person or phone options to apply for unemployment insurance and funneling them through a badly designed and underfunded website. As a result, the state has struggled to handle the influx of claims.

In Ohio, the unemployment system hadn't recovered since the Great Recession. Strained by almost a million new applicants over the last six weeks, phone lines have been clogged for hours, and the website has been crashing or timing out. Some applicants reported that they were rejected because they didn't meet eligibility criteria that had been waived during the pandemic.

Similar situations are playing out in Michigan, California, New York and elsewhere across the country.

Newly laid-off workers have overwhelmed unemployment offices in numerous states, leading to frustration and delays in applying for and receiving benefits. Each state has its own story, but many share two themes: budgets cut by state legislatures and starved by the federal government, and old, inefficient systems that can often create more work for applicants and processors.

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But the damage isn't limited to unemployment offices.

Delays in unemployment benefits also indirectly affect other social services, such as Medicaid and cash and food assistance, as workers lose employer-provided health insurance and income.

"It's the perfect storm," said Leo Ribas, a partner at the Change and Innovation Agency, which has helped several states modernize these social services. "There are more families, overtaxed resources, a combination of bad processes and antiquated IT," or information technology.

He described how the crisis has forced states to reconsider how they deliver services to comply with social distancing guidelines, which means having employees process cases online or on the phone.

"They are building the plane as they fly," he said.

Day late, dollars short

Unemployment insurance is a temporary benefit program to help people who are out of work for reasons beyond their control, like being laid off because of the economic downturn resulting from the pandemic.

To qualify, applicants usually have to show that they worked at their last job for a certain amount of time and that they are actively looking for work, although many states have waived certain eligibility requirements during the current crisis to help the millions of Americans suddenly thrown out of work. Normally, most states allow unemployment insurance for up to 26 weeks, but a recent relief package passed by Congress grants people 13 additional weeks.

While states have the biggest role, the underfunding behind ailing unemployment systems isn't only a matter of state budgets. Although states administer unemployment benefits, funding comes almost entirely from the federal government, and one of the main sources of that funding is the federal unemployment tax.

The last time the figure was adjusted for inflation was in 1983.

"Unemployment insurance provides a striking illustration of how defunding the administrative capacity of the program itself has really limited the sort of response that both the federal government and the state can provide in this economic crisis," said Alexander Hertel-Fernandez, a professor of public affairs at Columbia University who studies state political networks.

During a typical year, the if-it-ain't-broke-don't-fix-it approach most likely wouldn't cause too much disruption in people's receiving their benefits. However, the COVID-19 pandemic created a surge in demand for social services that has never been seen before as the number of first-time unemployment claims soared to 33 million.

Nicole Rodriguez, research director for New Jersey Policy Perspective, a nonprofit think tank, said the state's unemployment system is just one area that has been allowed to deteriorate.

"Over the last decade, every single New Jersey department was cut to the bone, and it's been hampering the state's ability to provide ordinary services and run programs people expect during normal times," Rodriguez said. "Now, in a crisis, we are seeing how bad those cuts were."

Rodriguez's organization has conducted research showing that although funding for the state's labor department has remained stagnant since the Great Recession, it is operating with 25 percent fewer employees than it was in 2008.

The backlog in processing cases means the real unemployment rate could be much higher than has been reported.

According to a survey by the nonprofit Economic Policy Institute, for every 10 people who successfully filed for unemployment insurance benefits over four weeks in March and April, an additional three to four people tried and failed to submit claims.


The process for filing for unemployment benefits varies among states, but options include filing online, over the phone, via mail or in person (or a combination). There have been plenty of technology failures, including crashed websites and clogged telephone lines, but in many cases the bottlenecks are caused by limits on the number of staff members trained to review cases.

But there's a stark difference between states that have taken steps to modernize their systems — not just in technology but also in the processes that can cause bottlenecks — and those that haven't.

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Some states, including Texas, Nevada and Washington, modernized how they deliver Medicaid, cash and food assistance before the pandemic hit, but the programs are administered by different departments from the ones that handle insurance benefits. Still, thanks to recent upgrades, those states have been able to stay on top of their workloads, Ribas said.

They have been successful because they redesigned the human workflow rather than just upgrade the technology to avoid automating "a really bad process," he said.

"You can put bots in place to answer your phone, but they are not going to tell you if you are eligible or not eligible for Medicaid," Ribas said. "Agencies are trying to resolve the symptom, but in reality they need to focus on calculating benefit eligibility so that people don't need to call back three, four, five times."

Tech scapegoat

Technology has emerged as something of a patsy for the broader problems of unemployment systems.

When an unprecedented surge in applications for unemployment benefits in early April crippled New Jersey's ability to process claims, Gov. Phil Murphy blamed an ancient and clunky mainframe computer system and asked for help from any software developers familiar with a six-decade-old programming language called COBOL.

Murphy's comments triggered a flurry of media reports decrying the absurdity of a state's using such old technology. Hundreds of COBOL programmers came forward to offer their services.

COBOL, it turned out, did just fine. Weeks after Murphy's statements, NBC News could find no evidence of any COBOL volunteers' being deployed to help New Jersey shore up its IT systems. A spokeswoman for the state labor department said the call for COBOL programmers was issued "metaphorically" to highlight the age of some of the systems.

Overall, the systems have performed "very well" apart from two outages in mid-March and one on Sunday, the spokeswoman said, and they seem to have been caused by capacity problems with the public-facing websites, as 930,000 residents — 1 in 5 workers — filed claims in the last six weeks.

COBOL may have been a victim of its own success, said Mar Hicks, a technology historian at the Illinois Institute of Technology.

"For many years, these systems were stable enough to trundle along with little or no maintenance. So the people who maintained them were fired or laid off," Hicks said. "It's a labor problem."

Now isn't the time to be making radical changes to legacy systems, said Todd Schroeder, Google's director of global public-sector digital strategy.

"I don't think that's in anyone's best interest, because that's just going to require more time and effort, and isn't necessarily going to get us to serving this new population of folks that are eligible for these benefits quickly," he said.

States that haven't invested in the digital infrastructure that supports critical government functions should be looking at what's happening in the unemployment insurance system as a "North Star," he said. Google is working with New York, Georgia, North Carolina and Illinois to ensure that state unemployment websites aren't paralyzed by the spike in demand.

"If we don't bolster the critical unemployment need, there will be other critical functions that span from that," Schroeder said.

Hicks warned that the finger-pointing at specific technologies or programming languages is being stoked by a range of interested parties, including the consulting firms that stand to benefit from lucrative digital transformation contracts, as well as those that make money by maintaining the status quo.

"There's a great tradition in American society of profiting off a crisis, and we've been seeing an awful lot of that," Hicks said in reference to the technology companies that are pitching their services as a panacea. "They would be remiss if they didn't try to take advantage of this opportunity by saying, 'We have the right answer, and trust us to fix these systems.'"