Unemployment Insurance in a Crisis: Learning from Past Lessons
Michele Evermore, Senior Fellow
National Academy of Social Insurance
May 2025
Background and Introduction
During economic downturns, Congress tends to step in and improve unemployment insurance by improving core functions such as increasing benefit duration and amount. Founded on the heels of the Great Depression, Unemployment insurance (UI) serves several purposes. The most obvious is that people who lose work through no fault of their own are able to get a benefit to help make ends meet until they find a suitable replacement for their old job.
However, during mass layoffs and economic downturns, it is meant to serve as a macroeconomic stabilizer that keeps economic pain from spreading from one struggling sector to the rest of the economy by keeping consumer consumption up. The International Monetary Fund estimates that every dollar spent in unemployment benefits in the pandemic generated $1.92 in economic activity. It also serves an important role in helping people get back to work. In order to get UI benefits, claimants sign up with Employment Services and are connected to a variety of other supports. That is part of the reason Congress pays greater attention to the program when mass layoffs occur.
This issue brief explains the importance of unemployment insurance as a macroeconomic stabilizer during economic downturns and options policymakers have as they plan for an increasingly likely recession this year.