As layoffs skyrocket, America's unemployment safety net is underprepared to help many in need

More than a million workers are expected to lose their jobs by the end of March, economists say, a dramatic turnaround from February when the unemployment rate was near a record low. Ball State University economist Michael Hicks predicts this month could be the worst for layoffs in U.S. history.

The Labor Department reported Thursday that 281,000 people applied for jobless benefits last week, up 33% from the prior week. Economists say it's only going to get worse. New York restaurateur Danny Meyer's Union Square Hospitality Group let 2,000 workers go this Wednesday. Pebblebrook Hotel Trust, which oversees 54 hotels, laid off 4,000 employees Tuesday. MGM Resorts and Caesars have begun letting staff go, along with countless smaller restaurants, bars, gyms and coffee shops.

The surge is straining state unemployment offices, which deliver benefits to the jobless so they can buy food and pay rent. On Monday, there were so many people trying to file for unemployment insurance in New York, Oregon and elsewhere that the websites crashed. Newly laid off workers waited hours on poorly staffed phone lines, they said.

As Americans turn to unemployment insurance, some are finding they don't qualify. Or if they do, the average payment of $385 a week is modest. In some states, there's a week-long waiting period before the first payment arrives.

"Workers expect unemployment insurance to be there for them in a downturn. A bunch of workers are about to find out that it's not," said Martha Gimbel, a labor economist at Schmidt Futures who was formerly at Indeed.com. "This is a real-life nightmare. Every hole we allowed to grow in our social safety net is hitting us all at once."

Sean McGuire lost his job as a dishwasher at a popular Portland, Ore., brunch spot on Monday. The restaurant owners gave him brisket, onions and an apology. He spent the rest of the day trying to apply for unemployment, only to be turned down.

"I was on hold with the Oregon Department of Labor for over an hour. They were inundated," said McGuire, a 30-year-old Army veteran who served in Iraq a decade ago. "When I finally spoke to a person, they told me I don't qualify."

McGuire moved to Oregon on Jan. 1, but he hasn't worked long enough in the state to receive benefits. He tried to apply in New York, where he previously worked, but the website crashed. After another long wait on the phone, he was told he had not met the requirements there, either, because he quit a previous job. Most states require at least six months of work to qualify for any benefits. Now he's worried about paying his $1,200 monthly rent on a short-term Airbnb through June.

Many of the newly jobless haven't been able to file for unemployment benefits yet because the Web portals in their states are down. The problems are exacerbated by low staffing levels at state unemployment offices that didn't expect such a surge any time soon. In mere weeks, the pandemic is on track to usher in a magnitude of unemployment that took months to reach during the Great Recession.

In Seattle, Ian Vermeers was laid off from his job at a Regal Cinemas movie theater on Monday. He's been staying up all night to submit his application online and by phone - to no avail.

"I figured maybe things would get better in the middle of the night, but it's 8 a.m. now and I still haven't gotten through," he said Wednesday. "Every time, I'm immediately hit with, 'Sorry, our system is not working right now.'"

Many economists are urging Congress to quickly boost funding for state unemployment insurance. The Families First Coronavirus Response Act that President Donald Trump signed Wednesday included $1 billion to help states with administrative costs of processing unemployment insurance, but additional stimulus will be needed to cover more people. Twenty-three states were already running low on money in their unemployment trust funds before the pandemic hit.

Congress also has the power to increase the amount of unemployment dollars laid off workers receive and to extend benefits to self-employed and "gig" workers, as happens during natural disasters. Sixteen states have such restrictive criteria that fewer than 20% of laid off workers in the state are able to get unemployment benefits, according to the left-leaning Center on Budget and Policy Priorities.

"I'm terrified that states aren't recession-ready anymore," said Michele Evermore, senior policy analyst at the National Employment Law Project. "States have reduced the amount of benefits and access to benefits in a way that means that very few people can apply for unemployment insurance and receive it."

Contractors, tipped workers, full-time students and undocumented workers often do not qualify for unemployment benefits, labor advocates said. Waiters and hotel staff who lose jobs are especially vulnerable, because they tend to move jobs frequently and rely on tips - factors that states handle differently. Plus, many states require applicants to prove they are searching for full-time work, although a few states including Texas have begun waiving the requirements.

Shawna, an exotic dancer who spoke on the condition she be identified only by her first name, found out Monday by text message that she would be out of work for at least two weeks. Unlike the bartenders and bouncers who work with her at a gentlemen's club near Philadelphia, she does not qualify for unemployment insurance because she is a contractor.

She used to make $1,300 in a good week. Now the 31-year-old isn't sure how she'll be able to pay her rent or afford food without a steady income.

"The whole system is set up in a really bad way for us," she said. "We are completely on our own right now."

So far, the wave of coronavirus-related layoffs has disproportionately hit service workers in typically lower-paying jobs. Many lack adequate savings and say they don't know where to turn as restaurants, bars, cafes and shops across the country shut their doors indefinitely.

Nellie Hana, a full-time student and line cook at an Olive Garden in Buffalo, New York, said managers this week told kitchen staff they had a choice: They could be laid off and file for unemployment, or they could keep working five hours a week processing to-go orders.

For Hana, unemployment wasn't an option. Full-time students don't typically qualify for unemployment benefits. She chose to keep working, even though that means her $600-a-week job will now bring in less than $70 each week.

"I have no choice but to wait this out," said Hana, 20, who is majoring in media production at SUNY Buffalo State College. "I have student loans and bills to pay. Rent is coming up. Past that, I don't know how I'm going to eat."

Rich Jeffers, a spokesman for Olive Garden's parent company, Darden Restaurants, said the company has not laid off any employees, though many restaurant workers have had their hours reduced to zero, as mayors and governors order dining rooms to close. The company, he said, is providing emergency pay of up to two weeks to affected employees.

For workers, one of the most frustrating aspects is the uncertainty. No one knows how long the pandemic and near-lockdown of the economy will last, and some workers have found themselves in limbo - not technically laid off, but also not getting paid.

Several big companies, such as Marriott International, are furloughing tens of thousands of workers. Halliburton announced furloughs of 3,500 employees at its Houston campus starting next Monday, because of the huge hit to oil prices this month. Furloughs allows workers to keep their health-care benefits, though they have no income coming in. 

American Eagle is among a growing number of retailers closing its stores through late March. The company has pledged to pay employees for the hours they are scheduled in coming weeks. But an employee in a New York store said managers recently scrapped the original schedule and created a new one that only includes managers, which means she - and the majority of her co-workers - won't be paid.

"I've worked up to 40 hours a week for more than three years," said the employee, who spoke on the condition of anonymity because she feared retribution at work. "I've never received zero hours. I don't know what to do."

American Eagle didn't return a request for comment.

Workers whose hours are severely reduced are supposed to be eligible for partial unemployment benefits, but state rules vary, and workers often have to file an appeal if an initial claim is denied.

One proposal in the works that could help the unemployed is a move backed by the White House to send $1,000 checks directly to workers, possibly twice. That's just a small comfort for McGuire, however, who made more washing dishes in Portland.

"If you're in a major city, that $1,000 doesn't pay your rent, let alone health care, transportation and food," he said. "My financial situation is in complete disarray."