February 2002

Unemployment Insurance

The U.S. unemployment insurance system involves a complex network of coordinated state and federal programs designed to mitigate the loss of income.

Federal Laws

  • The Federal Unemployment Tax Act (FUTA), implemented as part of the Social Security Act of 1935, imposed a uniform federal tax on the payrolls of industrial and commercial employers with eight or more employees for at least 20 weeks per year. Employers that paid a tax to a state-level unemployment insurance program could offset up to 90 percent of the state tax against the federal tax as a business expense.

  • The Employment Security Amendments of 1970 and the Unemployment Compensation amendments of 1976, both federal laws, broadened this coverage to include all private employers in industry and commerce with one or more employees for at least 20 weeks during the current year or that pay $1,500 or more in wages and salaries during any calendar year. Agricultural and domestic employees face slightly modified eligibility standards. Eligibility for benefits is determined by an unemployed worker's previous attachment to the labor force as evidenced by a specified amount of work or earnings in covered employment and by the unemployed worker's ability and willingness to work.

Standard Benefits

  • Workers who are laid off involuntarily through no fault of their own are eligible for unemployment insurance. (Workers who are dismissed for gross misconduct or who quit working for their employer of their own volition are not eligible for benefits.) To be eligible, workers must meet the state requirements for wages earned or time worked during an established (one-year) period of time referred to as a "base period." (In most states, this is usually the first four out of the last five completed calendar quarters prior to the time a claim is filed.)

  • In general, benefits are based on a percentage of a worker's earnings over a recent 52-week period, up to a state maximum amount. Benefits can be paid for a maximum of 26 weeks in most states. Additional weeks of benefits may be available during times of high unemployment. Some states provide additional benefits for specific purposes. Benefits are subject to federal income taxes and must be reported on workers' federal income tax returns. Workers may elect to have the tax withheld by the state unemployment insurance agency.

Extended Benefits

  • Extended Benefits are available to workers who have exhausted regular unemployment insurance benefits during periods of high unemployment. The basic Extended Benefits program provides up to 13 additional weeks of benefits when a state is experiencing high unemployment. Some states have also enacted a voluntary program to pay up to seven additional weeks (20 weeks maximum) of Extended Benefits during periods of extremely high unemployment. Extended Benefits may start after an individual exhausts other unemployment insurance benefits. Not everyone who qualifies for regular benefits qualifies for Extended Benefits. The state agency advises workers of their eligibility for Extended Benefits.

Disaster Benefits

  • Disaster Unemployment Assistance provides financial assistance to individuals whose employment or self- employment has been lost or interrupted as a direct result of a major disaster declared by the president of the United States. Before an individual can be determined eligible for Disaster Unemployment Assistance, it must be established that the individual is not eligible for regular unemployment insurance benefits (either state or federal). The program is administered by states as agents of the federal government.

  • Disaster Unemployment Assistance is available to unemployed U.S. nationals and qualified aliens who worked or were self-employed, if they:
    • Worked or were self-employed in, or were scheduled to begin work or self-employment in, an area declared a federal disaster area.
    • Can no longer work or perform services as a direct result of a disaster.
    • Establish that the work or self-employment they can no longer perform was their primary source of income.
    • Do not qualify for regular unemployment insurance benefits from any state.
    • Cannot perform work or continue self-employment because of an injury or because they were incapacitated as a direct result of the disaster.
    • Became the breadwinner or major support of a household because of the death of the head of the household.
Suffering a monetary loss due to damage of property or crops does not automatically entitle an individual to Disaster Unemployment Assistance.
  • Disaster Unemployment Assistance is available to individuals for weeks of unemployment beginning after the date the major disaster began and for up to 26 weeks after the major disaster was declared by the president, as long as their unemployment continues to be a result of the disaster. The maximum weekly benefit amount is determined under the provisions of the state law for unemployment insurance in the state where the disaster occurred.

Unemployment Insurance Statistics

  • The United States had an unemployment rate of 4.0 percent as of year-end 2000, which started rising as economic conditions deteriorated in 2001. The national unemployment rate in November 2001 was 5.7 percent.

  • Unemployment rates vary by state. States with the highest unemployment rates in November 2001 were Oregon at 7.4 percent and Washington at 7.0 percent. States with the lowest unemployment rates were North Dakota at 2.4 percent and South Dakota at 2.9 percent.

  • Compared with other industrialized countries, the United States had the lowest unemployment rate (4.0 percent) at year-end 2000. Unemployment rates in other industrialized countries were Canada, 6.1 percent; Australia, 6.2 percent; Japan, 4.8 percent; France, 9.0 percent; Germany, 7.9 percent; Italy, 10.1 percent; Sweden, 5.1 percent; and the United Kingdom, 5.3 percent.

  • As of Oct. 1, 2001, the U.S. unemployment rate was 5.4 percent, compared with Canada at 6.5 percent; Australia at 7.1 percent; Japan at 5.4 percent; France at 8.8 percent; Germany at 8.2 percent; Italy at 9.5 percent (as of July 2001); Sweden at 5.2 percent; and the United Kingdom at 5.1 percent (as of August 2001).

  • In 1999, 102.6 million workers were covered by the U.S. unemployment insurance system. Also that year, 6.95 million workers received their first UI benefit payment and 2.30 million workers exhausted their benefit allowance.

  • Thirty-one percent of first-time U.I. claimants exhausted their benefit allowance in 1999. States with the highest percentage of claimants exhausting their benefit allowance were Texas, 54.6 percent; the District of Columbia, 51.8 percent; and New York, 45.5 percent. The states with the lowest percentage of claimants exhausting their benefit allowances were New Hampshire, 4.8 percent; South Dakota, 9.7 percent; and Vermont, 13.8 percent.

  • The national average duration of an individual receiving unemployment benefits was 14.5 weeks. The states with the longest average duration were the District of Columbia, 19.7 weeks; Puerto Rico, 19.3 weeks; and Washington, 18.4 weeks. States with the shortest durations were Georgia, 9.0 weeks; New Hampshire, 9.6 weeks; and North Carolina, 10.0 weeks.

  • The average U.S. weekly unemployment insurance benefit was $211.75 in 1999. States with the highest average weekly benefits were Massachusetts, $278.86; Minnesota, $278.76; and Washington, $275.82. States with the lowest average weekly benefits were Puerto Rico, $102.82; Mississippi, $153.30; and Alabama, $155.55.
For more information, contact Ken McDonnell, (202) 659-0670, or see EBRI's Web site at www.ebri.org

Source: U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings: November 2001 (Washington, DC: U.S. Government Printing Office, 2001), and U.S. Department of Labor, Employment and Training Administration, "Unemployment Insurance Program Letter no. 07-01 Change 1" (Dec. 11, 2000).