The recession that began in late 2007 has posed major challenges for the U.S. labor market, including a high unemployment rate and a steep increase in unemployment durations. The American Recovery and Reinvestment Act (ARRA) of 2009 was part of the federal policy response to the recession and the lingering weak labor market. ARRA included financial inducements to encourage states to adopt several provisions intended to increase the recipiency of unemployment benefits among the unemployed. These inducements included 100 percent federal funding of most of the benefits paid through the Extended Benefits (EB) program and so-called modernization provisions aimed to revise and update states’ unemployment benefit programs. The U.S. Department of Labor offered financial incentives of $7 billion to states to implement the modernization provisions.

Despite the considerable financial incentives offered to states to adopt these provisions, not all of the states adopted them. This study set out to explore the factors states considered when deciding whether to adopt each of the policies. Our goal was to determine which factors were considered most strongly, how the incentives factored into the decision to adopt, and what this might imply for future federal efforts to incentivize states to change their UC systems.

To conduct the analysis, we relied primarily on two types of data: (1) responses to a survey we administered to the UI Administrators in 50 states and the District of Columbia and (2) national and state data available from public sources. The study produced two main findings indicating that increased federal financing and the use of incentive funds encouraged the adoption of the UC-related provisions of ARRA. First, the 100 percent federal financing of most EB benefits spurred adoption of the TUR trigger for EB—which is generally considered an “easier” way to trigger onto EB—in almost all of the states that would have qualified for the EB program using this trigger. Only 10 responding states did not adopt or already have in place the TUR trigger, and five of those responded in the survey that they had such low unemployment rates that EB would not have been activated even under a TUR trigger. Among the other five, there were some indications that philosophical objections played a role in the decision not to adopt the trigger.

Second, the federal modernization incentive funds spurred states’ adoption of the modernization provisions. The survey responses, combined with information on the size of each state’s potential incentive payment, indicated that, for the most part, states for whom the incentive payments exceeded the estimated costs of enacting the modernization provisions did adopt the provisions. Survey responses also indicated that philosophical objections were of little importance for adopting and non-adopting states; an in-depth analysis of non-adopters for each of the provisions indicated that anticipated costs were the primary factors against adopting the policies. Supplementary analyses indicated little support for the hypothesis that political considerations factored heavily in the decision to adopt the modernization provisions.