What happens to U.S. workers without access to Unemployment Insurance amid economic downturns or disruptions related to AI?

Key Takeaways:

Overview

The adoption of artificial intelligence in the workplace has led to predictions of U.S. labor market disruptions. In response, policymakers have increased attention on the fitness of the nation’s social insurance programs. Of particular interest is the Unemployment Insurance system, the joint federal-state program (opens in a new tab) that provides temporary and partial wage replacement or income support to workers who lose their jobs typically through no fault of their own.

While the UI system provides vital income support to out-of-of work Americans and their families, and acts as an economic boost during downturns, the system has long been broken for many workers. Critically, the UI system excludes millions of workers in non-traditional labor arrangements, among them entry-level, self-employed, part-time, and gig workers. Workers without access to Unemployment Insurance will be the focus of this column. These workers typically are excluded from the nation’s social insurance infrastructure for a variety of reasons but are no less at risk of job losses or income disruptions.  

Policymakers can learn from responses to past labor market disruptions, such as the targeted action taken during the COVID-19 pandemic to expand access to unemployment insurance (opens in a new tab) for gig workers, part-time workers, and workers with limited labor market history (opens in a new tab). (opens in a new tab) Unfortunately, the 2025 congressional budget reconciliation bill—the One Big Beautiful Bill Act or Public Law 119-21 (opens in a new tab)— included deep cuts to social programs, including the Supplemental Nutrition Assistance Program and Medicaid. These cuts reduce the options available to workers and their families when they face an interruption to their earned incomes or suffer job losses.

In the face of potential economic and employment disruptions from increasing use of AI across the economy, policymakers need to be prepared to take quick action. They must consider the limits of existing policies and programs, such as Unemployment Insurance and other social programs, in addressing the needs of all workers during potential large-scale labor market transformations. Future economic policies must ensure AI-related workplace disruptions do not further stratify the U.S. workforce into those with and those without the resources to adapt and thrive in an AI-dominant economy.   

Policymakers can provide economic support for workers navigating economic downturns in the AI era

When large labor market disruptions occur, no matter whether directly related to AI, millions of workers and households need access to income-support programs to enable them to meet their basic needs until they secure new jobs; ideally, jobs that match workers’ talents and pay comparable or better wages. Many workers may not be able to wait for good jobs to open if they lost their current ones. Thirty-seven percent of respondents in the Federal Reserve Board’s 2025 Survey of Household Economics and Decisionmaking (opens in a new tab) reported they would not be able to finance a $400 purchase with cash or its equivalent.

Unemployment Insurance (opens in a new tab) provides income support so that households can meet their basic needs when they experience job loss through no fault of their own. UI benefits enable households to continue consuming the goods and services they need, which supports the wider economy (opens in a new tab). By helping families make ends meet, Unemployment Insurance also provides unemployed workers with the time they need to find well-paying jobs that match their skills. This added time is particularly needed when job searches take longer than they have in recent years (opens in a new tab).

In practice, however, the program excludes many workers and is hard for many eligible workers to access (opens in a new tab). Since state UI systems are funded through payroll taxes paid by traditional employers, workers who are independent contractors (opens in a new tab)—typically on-demand, or “gig,” freelance workers—as well as self-employed workers are typically excluded from receiving Unemployment Insurance. UI systems also exclude almost all entry-level workers or others reentering the labor market, including young college graduates (opens in a new tab) who have been increasingly struggling to find employment and part-time workers whose earnings may be too low or lack sufficient earnings history—generally 12 months (opens in a new tab)— to qualify for UI benefits.

Policymakers should be concerned about these workers’ economic security, even setting aside the risks of AI-based labor market disruptions. The self-employed, including independent contractors, made up an estimated 16.5 million workers (opens in a new tab) in 2025. But researchers have argued that government data, including surveys and tax records on independent contractors, provides an incomplete picture of the population (opens in a new tab), potentially undercounting their prevalence in the economy. In July 2025, the U.S Bureau of Labor Statistics reported (opens in a new tab) an estimated 4.8 million part-time workers would have preferred full-time employment but were working part-time because their hours had been reduced or they were unable to find full-time jobs.

Every year, millions of recent graduates (opens in a new tab) join the labor market. In 2024 (opens in a new tab), for example, roughly 1.2 million high school graduates joined the labor market (2 million additional graduates enrolled in college), 352,000 completed an associate’s degree, and 1.2 million earned a bachelor’s degree. Research finds that workers who are unable to enter or reenter the labor market after time away (for example, because of illness, caregiving, or time in the criminal justice system) suffer long-term consequences, such as reduced earnings (opens in a new tab) and slower career progression (opens in a new tab) relative to peers who got jobs in healthier labor market conditions.

While there is no conclusive research yet regarding how AI is affecting entry-level employment, the exclusion of these workers from most UI benefits is well documented. This is a clearly identifiable problem in need of policy responses before the next large economic disruption, whether due to AI or otherwise.

Congress has recognized excluded workers’ need for access to social insurance in the past. During the 2020 pandemic, Congress expanded the unemployment insurance program (opens in a new tab) to temporarily expand access to unemployed individuals who were self-employed, independent contractors, or gig economy workers. This expansion increased the UI recipiency rate to as much as 88 percent. (opens in a new tab) Yet that average disguised state variations due to state discretion in setting benefit requirements.  Workers in California, for example, experienced a 90 percent recipiency rate while workers in Florida experienced a 25 percent recipiency rate (opens in a new tab). The research suggests Florida’s maximum duration of UI benefits drove its low recipiency rate, with more than 20 percent of the state’s claimants exhausting their benefits during 2020 compared to the national average of 6 percent.

While the pandemic-era UI expansion program was not perfect, policymakers could look to actions taken then (opens in a new tab), including expanding access to unemployment insurance and the economic security it provides—just one example of potential action for future policymaking and with an eye on the impact of AI across the U.S. workforce.

It is important to keep in mind that Unemployment Insurance was not designed to support the U.S. economy through major sectoral or structural labor market transitions, such as what could occur from AI’s integration into the economy. This is not to diminish the role of Unemployment Insurance as a valuable income-support program and automatic stabilizer worth continued updating and investment. Still, the program’s objective (opens in a new tab) of providing income support and economic stability would improve by setting federal minimum standards for program funding and participants’ benefits, boosting support for program administration, implementing triggers to expand the program automatically during periods of rapid-onset unemployment, and adapting the program for today’s workforce by including workers with nontraditional employment. Policy proposals (opens in a new tab) to support some of these excluded workers include a jobseeker’s allowance, a modest weekly benefit for unemployed workers who are seeking work but would not be eligible for Unemployment Insurance, including the self-employed and those entering or reentering  the labor market (opens in a new tab).

Policymaker Considerations

Although the academic literature on AI’s potential impact on the labor market and economy is genuinely unsettled, policymakers can prepare for the unknown. Investing in social insurance programs that provide income security to households and that evidence shows support the U.S. economy during economic disruptions will support economic resiliency. But policymakers must consider the limits of existing policies and programs, such as the nation’s underfunded social insurance programs, particularly Unemployment Insurance, in addressing the needs of all workers during potential structural transformations to the labor market. American workers and their families will likely need more economic support than the system can currently provide, and millions won’t be reached unless policymakers take focused action to reach them.

Our nation’s shared success in navigating a potential labor market transition spurred by emerging technologies will require policymakers to invest in the future of American workers to ensure they emerge economically secure and connected to the labor market. This will require a policy response that doesn’t apply a one-size-fits-all approach to ensure that all types of workers at all phases of their careers are supported through any economic transition. These policy responses might require multiple phases of engagement, such as initial triage tools in the event of a financial crisis worsened by widescale job losses. Longer-term support should enable workers to match their skills to comparable or higher paying jobs.

Fortunately, we can look to past government programs for lessons learned as we consider other levers available. Future economic policy must ensure AI-related workplace disruptions do not further stratify the U.S. workforce into those with and those without the resources to adapt and thrive in a changing economy.

In the meantime, equipping the UI system to be responsive to the U.S. labor market, supporting household consumption when workers suffer from involuntary unemployment, and enabling unemployed workers to engage in productive job searches or job retraining to secure new employment with higher pay are all no-regrets investments that policymakers can make to support shared economic prosperity and growth, regardless of what the future brings.

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