UNEMPLOYMENT INSURANCE : Benefits, Problems and Issues

Benefits
The majority of states pay regular unemployment insurance benefits for a maximum of 26 weeks; the remaining states pay benefits for slightly longer periods. In most states, the amount of the weekly benefit is equal to a specified fraction of a worker's average wages for the calendar quarter of the base period during which the highest wages were earned. The typical fraction is 1/26, which yields a benefit equal to 50 percent of average weekly earnings for that quarter. Other states determine benefits as a percentage of average weekly wages or annual wages during the base period. Some states also modify their benefit formulas to provide relatively higher benefits (as a percentage of past earnings) to lower-paid workers. Benefits in all states are subject to minimum and maximum amounts. Minimum weekly benefits typically fall within the range of $20 to $75, maximum benefits in the range of $200 to $375, and the average benefit in the range of $150 to $225. In addition, a few states currently provide additional benefits if there are dependents who receive regular support from the worker.

States also provide reduced benefits for partial unemployment. Such a condition occurs if a worker is employed less than full-time and has a weekly income less than his or her weekly benefit amount for total unemployment.

Since 1970, there has been a permanent federal-state program of extended unemployment benefits for workers whose regular benefits are exhausted during periods of high unemployment. The availability of these benefits is automatically triggered by a state's unemployment rate exceeding a specifed level. The benefits are financed equally by the federal government and the states involved, and they can be paid for up to 13 weeks, as long as the total of regular and extended benefits does not exceed 39 weeks. This program is operable when the insured unemployment rate in a state exceeds a specified level. The insured unemployment rate is the percentage of workers covered by unemployment insurance who are receiving regular benefits. Benefits can also be triggered if a state's total unemployment rate exceeds specified criteria. In this case, an additional 20 weeks of benefits can be paid.

In periods of severe unemployment, the federal government often enacts legislation to provide additional benefits that are financed with federal revenue. The last such program expired in 1994.

Problems and Issues
The current system of unemployment insurance has become increasingly subject to criticism, especially regarding the level of benefits. At current levels, the majority of employees would receive benefits that are less than half of their former wages. Because of maximum limits on the amounts of benefits, higher-income employees would receive proportionately smaller benefits than lower-paid employees.

In addition to the level of benefits, the percentage of persons receiving benefits at any point in time has dropped over the last two decades. Typically, fewer than 40 percent of the unemployed are receiving benefits. Some persons have benefits denied because of more stringent rules, particularly those dealing with initial benefit disqualification. Other persons exhaust the benefits that are available. Of course, there are those who argue that without disqualifications and limits on benefits, there would be little incentive for many of the unemployed to seek work.

Few employers provide any type of supplemental unemployment benefits. The plans that do exist are in highly unionized industries and result from collective bargaining.

There seems to be a feeling among economists that unemployment insurance programs today are less effective in dealing with unemployment issues than they were in the past. In theory, unemployment compensation insurance should be a counterbalance against recessions. In practice this is often not the case, perhaps because of the low percentage of persons receiving benefits. In addition, the degree of experience rating has declined over time, reducing the incentive for employers to retain employees in bad times rather than laying them off. It also has shifted an increasing burden for financing the program to employers in industries with stable employment.