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Unemployment Insurance

Last Updated:2014-Jun-24
Principal Writer:Barry Shatzman

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Understanding The Issue
Issue Status
What You Can Do
More Information
The Rumor Mill

Reported News

Labor: Unemployment Insurance

Related Bills

Emergency Unemployment Compensation Act

2014 (S-2532)

Emergency Unemployment Compensation Act

2014 (HR-3979)

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What is Unemployment Insurance

When someone loses a job, they suddenly find themselves with no source of money to pay for necessities such as housing and food. If the loss occurred through no fault of their own - such as being laid off - unemployment insurance can replace part of that income until they can find new employment.

The basic unemployment insurance program was created by the 1935 Social Security Act. It was created for two reasons, according to Pres. Franklin D. Roosevelt's Committee on Economic Security

o To help laid-off workers pay for necessities while looking for new employment.

o To stimulate the economy during economic downturns. Recipients of unemployment benefits typically spend that money right away on goods. This increases demand for the products, creating the need for more jobs.

How does Unemployment Insurance work?

Laid-off workers typically receive about half of what their income had been. The average weekly benefit is about $300. The law requires them to be looking for new employment as long as they are receiving benefits. Unemployment Insurance actually is made up of several programs. Generally, the amount paid is the same in all of the programs. The programs simply determine how long a recipient can receive benefits. The various programs include...

o The basic, permanent unemployment insurance program that was created in 1935. It pays benefits for up to 6 months (depending on which state the laid-off employee had worked in). This is the program known as Unemployment Insurance.

o Temporary emergency extensions that are created by Congress. These bills are referred to as Emergency Unemployment Compensation.

o A separate permanent program extends those benefits by up to 20 weeks on a state-by-state basis. The duration is based on the state's unemployment rate. These state programs are referred to as Extended Benefits.

Currently, no states are providing Extended Benefits.

The most recent Emergency Unemployment Compensation expired at the end of 2013. Therefore, unless Congress approves a new extension, unemployment benefits will stop for anyone who has been receiving them for 26 weeks (the length of the permanent Unemployment Insurance program).

Where does the money come from?

Each state manages and pays for its own basic unemployment insurance program (with some oversight by the U.S. Department of Labor). The money comes from a state tax on employers. The Federal government pays for the administration of the state programs. The money for that comes from a federal tax on employers.

The state tax was designed to build up reserves during good economic times, so that there would be enough money to pay benefits during downturns. Many states, however, kept the tax rate too low to cover the cost of benefits when downturns occur. This has left those states with a few options...

o Raise the tax on employers at a time when they already are struggling.

o Restrict eligibility and/or benefits for those who lost their jobs.

o Borrow the money from the federal government.

The states are required to repay the federal government. If they can't - a position 18 states are finding themselves in - the federal government will increase the federal tax on employers to recoup the money.

Money for Emergency Unemployment Compensation extensions passed by Congress comes from the federal government.

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