Cheating on Unemployment

For millions of Americans, collecting unemployment checks has become as routine as visits to the water cooler when they were working. Indeed, in many cases compensation checks have been handed out too routinely. They are going not only to people who deserve and desperately need the money, but also to some who do not. Among them: people who work part-time but collect jobless benefits, others who willfully evade work, and still others who make claims under false names and Social Security numbers.

Such cheaters are a small minority of the 10.2 million Americans who got jobless checks during the fiscal year just ended from individually run state compensation programs. But they are throwing an added burden on a system that is under severe strain. Despite a year of economic recovery, legitimate joblessness is still high. Last week the Government reported that 7.5 million people, or 7.9% of the labor force, were out of work in August, v. 7.8% in July. Total payments to the jobless swelled from about $5.6 billion in fiscal 1974 to an estimated $18.3 billion in the 12 months ended last June 30 (see chart). In 21 states, unemployment funds have run dry, forcing the states to borrow $3.1 billion from the Federal Government to maintain the flow of money to recipients for as long as 65 weeks.

Harried Officials. The very volume of claims has encouraged abuses. In Michigan, for example, the number of unemployment claims increased from 64,000 three years ago to 560,000 last year. To handle them, recalls Employment Security Commission Director S. Martin Taylor, the state had to set up temporary claims offices "in union halls, 15 state armories and almost any other place large enough to serve throngs." Harried officials obviously could not give each case anything like the scrutiny it deserved.

It is impossible to pinpoint the number of cheaters who have slipped through in Michigan and other states. A Georgia official estimates that at the peak last year 15% to 20% of jobless-benefit payouts in the state were going to people who had no crying need of assistance. But that would include housewives who worked for a while, then quit and legally collected full unemployment benefits. Most estimates of outright fraud now range nationally from 2% to 5%. The Federal Government's latest figures show that less than 1% of claims are made illegitimately--but that counts only the minority of cases in which fraud has been proved.

A few cheaters honestly do not think that they are doing anything wrong. They believe they have paid into the unemployment compensation system, and thus are entitled to get their own money back. That is a falsehood; the system is funded by a tax on employers and by federal subsidies.

The great majority of cheaters know exactly what they are doing. They are wily and skilled in the law and its many loopholes. They know how to take advantage of unemployment officials who are inclined to give jobless people the benefit of a doubt. Their justification to themselves is that the economic system that resulted in their unemployment somehow owes them a living. Says Edward Kelly, a Massachusetts unemployment official: "It [unemployment compensation] is a fringe benefit they feel they should take advantage of."

The hardest kind of cheating to detect involves collusion between employers and employees. Caroline K., a 30-year-old Manhattan secretary who was having personal problems, quit her job last year. Her employer, in sympathy with her plight, listed her as fired, thus enabling Caroline to collect $90 a week in unemployment benefits for 65 weeks (in New York, most employees who quit voluntarily are ineligible for jobless benefits). Unemployment officials insisted that she visit prospective employers regularly. But her former boss had deliberately made Caroline difficult to place by saying that her relatively high salary was for work performed as a file clerk instead of a secretary. That suited Caroline fine. Says she: "I needed a vacation. Besides, I got away with it only because my company let me. I just didn't want to work, that's all."

Some employers hire part-time workers and pay them "off the books," usually in greenbacks taken from the petty-cash drawer. The employer gets the advantage of cheap labor; the workers draw both clandestine wages and jobless benefits. Harold Kasper, who directs New York State's unemployment insurance program, ran into one such case by sheer accident: while munching a corned beef on rye at an Albany delicatessen, he overheard a waitress complaining to a friend that another waitress was being paid off the books. Such freakish breaks aside, says Kasper, the fraud is extremely hard to combat: "The guy who pays someone off the books, how in hell do you control that?"

Some forms of abuse may not violate the letter of the law, but they do violate its spirit. In nearly all states, a worker must earn a minimum level of wages and be employed for a specified period, usually six months, before becoming eligible for unemployment compensation. So, some people work exactly that time, then provoke employers to fire them. They collect unemployment compensation for as long as possible, go back to work, then get themselves fired again. Layoffs in seasonal businesses such as the theater may serve the same purpose.

Doubled Penalty. Armed with computers, state officials are doing what they can to curb fraud. Washington is helping by increasing funds for probes of suspected frauds, though most state compensation offices are woefully short of investigators. Mary Ellen Gornick heads an auditing team in Illinois to cut down on abuses. Says she: "We were so preoccupied with strengthening the system so legitimate claims would get paid. Only recently have we been able to focus on some of the abuses."

When violators do get caught, the common penalty is to make them pay back the money they got illegitimately. Some states charge a 100% penalty on top of that. Few violators are imprisoned. But one New York man who collected money under eleven names and took the state for $23,000 was sent to jail for three years.

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