Unemployment insurance is temporary income for eligible workers who become unemployed through no fault of their own and who are ready, willing, and able to work.
Unemployment insurance, a fixture in the U.S. economy since the Great Depression, is a fundamental part of the nation's safety net for those who lose their jobs through no fault of their own. It provides a partial replacement of earnings for the unemployed. And it has a positive impact on the economy during recession. It puts money into the hands of people who will spend it and help speed the economic recovery.
The money granted in benefits circulates quickly through the economy. A Labor Department survey indicated that every dollar paid out in benefits helps expand the nation's output by $2.15 worth of goods and services.
Each of the 50 states administers its own version of the unemployment insurance program within the general rules of federal law. Eligibility and benefit amounts are determined by the states. It is financed by federal and state taxes on wages. The federal tax is levied on the first $7,000 earned each year by workers. Money from the federal government pays for the administrative costs of running the program, and for federal extensions of the benefits. The money collected by the states is used for the benefit checks given to workers.
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Eligibility is linked to work history. The state will impose rules on the amount of wages that must have been earned during the base period, the year before the worker files for unemployment insurance benefits. It usually takes two to three weeks after a claim is filed for a worker to receive the first benefit check. Unemployment is defined as losing a job through no fault of your own. Jobless workers must file each week, or every two weeks, depending on the state, to continue to be eligible to receive benefits.
“Claimants who file for unemployment benefits may be directed to register for work with the State Employment Services, so it can assist you in finding employment," according to the Department of Labor explanation of the rules. "If you are not required to register you still may seek help in finding a job from the Employment Service,” the Department said.
In addition to the basic unemployment coverage, there is a variety of special programs under which people can collect benefits.
Workers whose jobs have been interrupted because of a disaster declared by the President are eligible for benefits for as long as 26 weeks after the disaster occurred. The event could be a flood, a tornado, or a catastrophe such as the September 11 terrorist attacks on the World Trade Center in New York and the Pentagon in Virginia.
Another source of help is designed for workers whose jobs were affected by foreign imports. The special benefits are authorized under the federal Trade Adjustment Assistance (TAA) program for people “who were laid off or had hours reduced because their employer was adversely affected by increased imports from other countries,” according to the Department of Labor's Employment & Training Administration. Benefits are available after regular unemployment insurance has been exhausted. “These benefits include paid training for a new job, and financial help in making a job search in other areas where jobs are more plentiful,” the Employment & Training Administration said.
Regular benefits last for 26 weeks in most states. The average benefit is about $231 a week, according to a study by the National Employment Law Project. For most workers, this means a replacement rate of about 30% of their wages.
Extended benefits are available during times of high unemployment. This part of the program is geared to help workers who are having extra difficulty finding work because of the persistence of the economic downturn. An additional 13 weeks of benefits is available after an individual has exhausted his, or her maximum regular benefit period of 26 weeks. Some states have a voluntary program under which they pay an additional seven weeks of extra benefits, making a maximum period of 20 weeks for extended benefits.
During the current recession, Congress has enacted Temporary Extended Unemployment Compensation (TEUC), which provides an additional 13 weeks of coverage on a nationwide basis to all workers who have exhausted their regular benefits.
If an individual lives in a state that already is offering extended benefits because it has a high unemployment rate, the TEUC extension is considered a separate expansion of benefits.
Example: John Jones has been laid off from his factory job. He has used his regular 26 weeks of benefits. Because he is in a state with a high level of unemployment, he qualifies for an additional 13 weeks, bringing his total benefit period to 39 weeks. In addition, Congress has approved a temporary extension of unemployment compensation for any worker who used all benefits and is still searching for a job. This provides another 13 weeks. If Jones is still jobless, he can use these 13 weeks of benefits, giving him a total of 52 weeks of unemployment insurance payments.
The nature of the economy and the characteristics of the work force have changed considerably in recent decades, but the basic unemployment insurance structure has remained the same. As a result, a smaller proportion of people who lose their jobs are eligible for unemployment benefits now than was the case in previous recessions. More people work part-time, more people move in and out of the labor force on an irregular basis, and many of them do not accumulate the work histories and wages that would entitle them to collect unemployment benefits.
Example: Sam Smith is a factory worker in Illinois, a state with high levels of unemployment. He can collect unemployment insurance benefits for 26 weeks under the regular federal program. Because Illinois is a high-impact state, he gets another 13 weeks, for a total of 39 weeks. His payment for the extended benefit period is the same amount of money he received weekly under the regular 26-week program.
The modern labor market is drastically different than the workforce was in the 1930s, when unemployment insurance was created as a part of the Social Security Act.
The unemployment insurance structure originally was designed for an economy in which families had a single breadwinner, the man who worked year-round. The insurance was deigned to replace a portion of the income while the worker searched for a new job. Eligibility rules were designed to provide coverage and protection for those who worked full-time year round. The key beneficiaries were men who worked in factories and held other industrial jobs.
Since then, the economy and social conditions have changed, and women have moved into the labor force in massive numbers. However, they are less likely than men to work year round and to work a full week. Also, they are more likely to be in lower paid jobs or to serve as temporary workers. This means many of them will not have the work history that will make them eligible for unemployment insurance.
Because the workers are different, the jobs have changed, and the full-time industrial workforce has given way to a mixed labor force. The economy is dominated by service jobs, many of which do not follow the traditional pattern or a year-round 40-hour work week. Therefore, in any typical recession, a smaller percentage of the unemployed population is able to collect unemployment insurance benefits. (NASI Health and Income Security brief, “Ensuring Health and Income Security for an Aging Workforce.”)
| Merton C. Bernstein Coles Professor of Law, Emeritus Washington University (508) 896-8383 Bernstein@wulaw.wustl.edu |
Linda Blumberg Senior Research Associate The Urban Institute 202-261-5769 (office) lblumber@ui.urban.org Expertise: Other Health Coverage |
| Gary Burtless Economist and Senior Fellow The Brookings Institution (202) 797-6130 (office) GBurtless@Brookings.edu |
David M. Cutler Professor of Economics Faculty of Arts and Sciences Department of Economics Harvard University (617) 496-5216 (office) (617) 271-5013 (cell) dcutler@harvard.edu |
| James N. Ellenberger Deputy Commissioner Virginia Employment Commission (804) 371-6568 (office) (804) 840-6206 (cell) jellenberger@vec.state.va.us |
Richard A. Hobbie Unemployment Insurance Director National Association of State Workforce Agencies (202) 434-8020 (office) rhobbie@naswa.org |
| Paul Kleyman Editor Aging Today American Society on Aging (415) 974-9619 paul@asaging.org |
Stephen A. Woodbury Professor of Economics Marshall Hall Michigan State University (517) 355-4587 woodbur2@msu.edu Senior Economist W.E. Upjohn Institute for Employment Research (269) 343-5541 woodbury@upjohninstitute.org |
| Rich Hobbie Executive Director National Association of State Workforce Agencies (202) 434-8020, ext. 9 rhobbie@naswa.org |