Unemployment Insurance

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. 

What is Unemployment Insurance?

Unemployment Insurance (UI) was established in 1935 and has been a fixture in the U.S. economy since the Great Depression. It is a fundamental part of the nation's social insurance infrastructure for those who lose their jobs through no fault of their own. UI provides a partial replacement of earnings for unemployed workers. By putting money into the hands of people who will spend it and help speed economic recovery, it also has an important positive impact on the national economy during downturns and recessions.

Indeed, the money granted in UI benefits circulates quickly through the economy. Of the many UI “automatic stabilization” studies, the latest, a 2010 study by the Urban Institute’s Wayne Vroman, indicated that during recessions every dollar paid out in benefits helps expand the nation's output by $2.15 worth of goods and services.

Who Administers Unemployment Insurance?

Each of the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, administers its own version of the UI program within the general rules of federal law. While the Federal government is responsible for oversight and enforcement of Federal statutes, each jurisdiction determines eligibility, benefit levels, and tax amounts, which, as a result, vary substantially across states. For example, while Federal law prescribes that eligibility must be based on prior work attachment and be applied uniformly to all claimants, the level of past wages a worker must have earned to be eligible and the amount of benefits paid are state decisions.

The program is financed by two taxes, a federal and a state tax on wages, primarily on employers. The federal tax is currently levied on the first $7,000 earned each year by workers, and is used to pay for the administrative costs of running the program and for federal extensions of the benefits, such as the Emergency Unemployment Compensation program, (see section on benefits below.) The money collected from the state tax is used solely to fund the benefit checks provided to eligible unemployed claimants.

For a list of experts to contact, click here.

 

Size of the UI Program:

  2017 2018 2019
Number of Beneficiaries: 5.7 mil. 5.2 mil. 5.1 mil.
Benefits Paid: 27.8 bil. 25.6 bil. 27.2 bil.
Payroll Taxes (Federal): 6.1 bil. 6.5 bil. 6.8 bil.
Payroll Taxes (State) 36.8 bil. 34.8 bil. 36.3 bil.

             

 

Who is Eligible for Unemployment Insurance?

Federal law applies to employers who employ one or more employees in covered employment in at least 20 weeks in the current or preceding calendar year or who pay wages of $1,500 or more during any calendar quarter of the current or preceding calendar year.

All states require that a claimant must have earned a specified amount of wages or must have worked a certain number of weeks or calendar quarters in covered employment within a base period to qualify for benefits. States 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.

Unemployment is defined as losing a job through no fault of your own, so quitting a job or being fired for cause does not qualify a jobless worker for UI. (Federal law requires that state and local government employees, and for the most part non-profit organization employees, be covered, but self-employed and independent contractors are not.)

Jobless workers who are eligible for UI must file each week, or every two weeks, depending on their state, to continue to be eligible to receive benefits. States usually require claimants to demonstrate that they are actively searching for a job, and that they “able and available” for re-employment. In all states, claimants who are deemed ineligible for benefits because of their inability to work, refusal of suitable work, unavailability, or any other disqualification are entitled to a notice of determination and an appeal of the determination. Workers typically wait two to three weeks after filing a claim before they receive their first benefit check.

Over and above providing replacement wages, state UI programs also assist jobless workers in finding new jobs. According to the Department of Labor explanation of the rules, “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. …  "If you are not required to register you still may seek help in finding a job from the Employment Service.”

In addition to basic UI coverage, specialized federal programs enable people who are temporarily without work for specific reasons to collect benefits.

Workers whose jobs have been interrupted because of a disaster that was declared by the President are eligible for benefits for as long as 26 weeks after the disaster occurred. This includes natural disasters, such as earthquakes, floods, hurricanes and tornadoes, as well as catastrophes 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 are affected by foreign imports. 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 UI 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.

Two additional programs to assist UI claimants are also active in a small number of states: 1) The Self-Employment benefit program assists eligible claimants in starting their own business, and 2) The Short-Time Compensation program, (or so-called Job Sharing program) provides employers an alternative to layoffs when business is slow by providing UI benefits to employees whose hours have been reduced.  

What are the Benefits of Unemployment Insurance?

Regular benefits last for 26 weeks in most states, though in 2019, ten states had reduced their maximum potential duration below 26 weeks. The average weekly benefit was about $369, which replaces, on average, approximately 45% of jobless workers’ previous wages.

In addition to the first period of regular benefits, extended benefits may be available during times of high unemployment. This part of the program, which is geared to help workers who face unusual challenges finding work during economic downturns, can provide an additional 13 weeks of benefits after an individual has exhausted his or her maximum regular benefit period of 26 weeks. States may also elect to extend benefits by an additional 13 weeks in periods of deeper economic downturns.

During the recent recession, Congress enacted an Emergency Unemployment Compensation program (EUC), which potentially provided some claimants the ability to earn a maximum of up to 99 weeks of unemployment insurance 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, however, 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, which 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 Current Economy and Unemployment Insurance

The modern labor market is drastically different than the workforce was in the 1930s, when UI was created as a part of the original Social Security Act.

The UI structure originally was designed for an economy in which families had a single male breadwinner who worked year-round. The insurance was deigned to replace a portion of that worker’s income while he searched for a new job, and eligibility rules were designed to provide coverage and protection for those who worked full-time year round. The key beneficiaries were mostly men who worked in factories and held other industrial jobs and their families.

In the decades since, the economy and social conditions have changed, including the movement of women into the labor force in massive numbers. However, women are less likely than men to work year-round and to work a full week, and they are more likely to work in lower-paid jobs and to be temporary workers. This means many of them lack 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.

These factors and others have prompted calls for UI reform in the recent past. Indeed, over the past forty years, two Federal Commissions, multiple state reform committees, and numerous academic works have recommended major changes to the program. Most of these efforts focus on issues such as insufficient benefit payments, low recipiency rates, inadequate tax levels, low trust fund solvency, and deteriorating operations. (Recommendations from the most recent Federal Commission, the Advisory Council on Unemployment Compensation, can be found here.

Experts to Contact on Unemployment Insurance

Melissa Boteach
National Women's Law Center
mboteach@nwlc.org
Phone: (202) 403-1377

Gary Burtless
Economist and Senior Fellow
The Brookings Institution
(202) 797-6130
GBurtless@Brookings.edu

Indivar Dutta-Gupta
Co-Executive Director 
Georgetown Center on Poverty and Inequality
(480) 463-4827
id141@georgetown.edu

Douglas Holmes
President
UWC - Strategic Services on Unemployment & Workers' Compensation
holmesd@uwcstrategy.org
(614) 805-2208

Robert Pavosevich
Retired, Previous Lead Actuary of the U.S. Department of Labor Unemployment Insurance Office
yvo830@gmail.com 
William Rodgers III
Professor and Chief Economist 
Rutgers University
(609) 240-5555
wrodgers@ejb.rutgers.edu
Stephen Wandner
Senior Fellow
National Academy of Social Insurance
(269) 343-5541
stephen.wandner@gmail.com