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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.