Publication

INTRODUCTION

At present, the United States is enjoying a stunningly low rate of unemployment. The federal government’s most recent report puts that rate at 3.6% and notes that job openings continue to rise. That’s a dramatic rebound from the dark days of Spring 2020, when unemployment skyrocketed to 13%. 

To cope with the flood of laid off workers during the COVID-19 crisis, America relied heavily on our nation’s Unemployment Insurance (UI) system. Its mission is twofold: First, to provide an income-smoothing effect for workers and their families during times of joblessness; and second, to sustain and stabilize consumer spending during economic downturns. The UI system enables unemployed workers to keep paying bills and caring for their families, which, in turn, keeps other workers employed and regional economies vital.

In short, the UI system is a lifeline for jobless Americans in bad economic times that also has the “countercyclical” effect of shortening recessions. However, the system nearly crashed in many states during the pandemic, and experts believe it’s not prepared should the economy start contracting and shedding jobs. U.S. policymakers need to act now, while the system is not under stress, to make it more resilient against future emergencies.

As they do that, policymakers should not overlook UI’s untapped potential to create more opportunities for entrepreneurship. Currently, a small program within America’s UI system seeks to address this need — the Self-Employment Assistance Program (SEA). SEA offers qualifying individuals the opportunity for self-employment by combining income support during periods of unemployment with activities related to starting a business. Only 5 states have active programs and as a result, the SEA program serves a very small, distinctive slice of UI recipients, with less than 1% of UI claimants participating in the program. In fact, in 2022, there were only 1,404 SEA participants nationwide. This is a stark comparison to the number of entrepreneurs across America’s workforce — with some research now showing there are 31 million entrepreneurs in the U.S. making up 16% of the adult workforce.

While UI undeniably offers support during job loss, it falls short in fostering opportunities for entrepreneurship. This policy brief aims to illuminate the importance of creating more opportunities for entrepreneurship in the U.S., the transformative role UI can and should play in creating these pathways to self-employment and outlines actionable policy recommendations for federal leaders to consider. By enabling dislocated workers to pursue entrepreneurship even amidst financial distress, we can provide increased economic opportunity for individuals, communities, and the nation at large.

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