Unemployment isn’t recession-ready — but it’s getting better, says acting Labor secretary

The unemployment insurance system crumbled when the pandemic hit in 2020. 

Looking back over four years later, acting Labor Secretary Julie Su says that the Biden administration has improved the system, but unemployment insurance still isn’t ready for the next economic crisis.

As the unemployment rate soared to historic highs during the pandemic, many states struggled to pay needed benefits to eligible Americans and stem the flow of money to bad actors.

“Each time when a crisis hits, people say, ‘Oh my gosh, why did this system not work?’” Su told Nextgov/FCW during a recent interview in her office at the Labor Department. “We know why it doesn't work.”

“Shame on any administration that doesn't learn those lessons and continue to build on the foundation that we've now put in place,” she added. 

States struggled to use clunky technology to set up new temporary jobless aid programs during the pandemic. Also at play was underfunding — the amount available generally goes down for program administration during times of economic calm. And in terms of fraud, Congress initially didn’t require checks beyond self-certifications for a new jobless aid program meant for self-employed workers, opening it up to fraudsters.

“It is a system that was grossly in need of an overhaul and in need of investments,” said Su, who knows this personally, as she was the secretary for California’s Labor and Workforce Development Agency at the start of the pandemic. “That was true in California. It was true all across the country.”

Su says that she’s been in contact with her “successor,” noting that “my offer has been to be as collaborative as needed and that will stand, actually, even after I'm gone.” 

Su plans to stay onboard at the department through the inauguration, she told Nextgov/FCW. President-elect Trump has said he intends to nominate Rep. Lori Chavez-DeRemer, R-Ore. to take up the role.

Pandemic pressure

The story of the pandemic is one that’s haunted Su’s own trajectory. She’s been an acting head of the department since March 2023, but she has yet to be confirmed by the Senate as Labor Secretary. Su was often asked about her role in California during nomination hearings for her federal deputy secretary and secretary nominations in the Senate. 

The state was defrauded of at least about $20 billion during the pandemic, and millions of Californians’ payments were delayed or improperly denied. A backlog peaked at 1.6 million, as a CalMatters investigation into the crisis details. 

“One of the things that was very clear is how important a strong federal response would have been, could have been. We didn't have it,” said Su. “States were left to fend for themselves.”

News reports have rated California officials’ blame of the Trump administration’s Labor Department for the widespread fraud in the state as “partially true.”

“What we've tried to do is play that strong federal role,” said Su of recent years. “The federal Department of Labor can put out guidance, can put out resources, can partner with states [and] can lift up good practices that will help to build a system that works.”

The Labor Department got $2 billion for unemployment modernization in the American Rescue Plan Act in 2021, although Congress later cut the funding in half. The department has been using the ARPA funding for projects aimed at fraud prevention, equitable access and timely delivery of benefits.

States got $780 million in grants, according to the department, and 225 projects funded by ARPA are completed. 

Also, 53 states are using the Integrity Data Hub, an multi-state data-matching system housed in the National Association of State Workforce Agencies meant to help states curb fraud. That’s up from 34 in 2020. 

Among the work that Labor fielded during the pandemic are a series of pilot projects done with states to improve identity verification and make unemployment applications easier to use. The department also sent “tiger teams” to states to find sore spots and field recommendations.

Although the department had initially sought to build and house tech centrally, it largely shifted to a push for “modular” technology built of components not necessarily housed by Labor itself.

One of those pilot projects resulted in a simplified application for unemployment in New Jersey which the state rolled out in May. The work was the federal department’s first foray into actual product development in the unemployment system.

Su says that a big priority for her work on unemployment at DOL was resetting the relationship between the federal agency — historically the enforcer — and states. 

“This is a federal-state system, and the states rely on a federal government DOL that is intent on helping create solutions. Not playing gotcha, not wiping our hands of the hard things and letting the states figure it out for themselves but then auditing them when they try something,” she said. “We can't create a system that is averse to innovation.”

Su was surprised, she said, to find an approach in D.C. of “we can’t tell the states what to do anyway” once she came to the Labor Department. The agency has relatively little enforcement power over states for unemployment. 

In California, on the state side of the system, there had been worry “about the federal Department of Labor coming out with guidelines that would tell us we couldn't do certain things.”

“I think that was one of the failures in the system,” she said. “Where was the responsibility for making sure that the right policy decisions were being made to deliver what the system needed?”

One big change since the pandemic has been the push to identity-proof people applying for benefits as a way to try to curb fraud.

In 2023, the Labor Department unveiled identity verification offerings that 19 states now use to tap into through the federal government’s online identity proofing system Login.gov and an in-person option with the U.S. Postal Service. It also came from a pilot project, this one fielded with Arkansas, during the pandemic.

During the pandemic, states were faced with “the most impossible decision,” said Su. “Do you want to basically stop the flow of benefits at all in order to stop the fraud? Or do you want to get benefits out to people who were about to lose their homes and about to go hungry during a time when there was a public health crisis?”

California did actually stop taking new claims for benefits for two weeks in the fall of 2020 to install identity verification technology and reduce its backlog, at the suggestion of a strike team brought in by Gov. Gavin Newsom.

There have been concerns about how identity proofing technology impacts access to the system, even from the Labor Department’s own watchdog. 

“If you create a situation where people are afraid to access the system, they don't trust it, [and] the attention to fraud makes everyone have to jump through hoops of fire to get something they’re actually eligible for, it will deter people from using a system,” said Su when asked about how she considers the balance of access versus fraud.

“If access is impossible for people who are eligible and should get it, then that's a failure of the system,” she said. “People always think of integrity as, ‘we're trying to crack down fraud,’ but you also try to make sure that people who are supposed to get through, get through.”

Although the department has said that over 53 million got benefits during the pandemic, the number of unemployed people that actually get benefits has been going down for years. Racial and ethnic minorities, younger people and less educated people have lower recipiency rates.

Although much of the fraud occurred in the temporary pandemic programs that are now shuttered, not traditional unemployment insurance, “at this point because of what happened during COVID, we're not going to be able to build a system without having some kind of identity verification,” said Su.

As for what’s next: “I also hope that there's not retrenchment about the need for investments in the system” said Su. “Sometimes people say, ‘Well, we shouldn't invest in this thing because it's not working anyway.’ When the real problem was, we hadn't invested enough, right? And we need the system. It is a critical lifeline for working people.”