What is unemployment insurance?

The Unemployment Insurance Fund (UIF) gives short-term relief to workers when they become unemployed or are unable to work because of maternity, adoption and parental leave, or illness.

The federal-state unemployment insurance system (UI) helps many people who have lost their jobs by temporarily replacing part of their wages while they look for work.  Created in 1935, it is a form of social insurance in which taxes collected from employers are paid into the system on behalf of working people to provide them with income support if they lose their jobs.  The system also helps sustain consumer demand during economic downturns by providing a continuing stream of dollars for families to spend.

The basic unemployment insurance program is run by the states, although the U.S. Department of Labor oversees the system.  The basic program in most states provides up to 26 weeks of benefits to unemployed workers, replacing about half of their previous wages, on average.  States provide most of the funding and pay for the actual benefits provided to workers; the federal government pays only the administrative costs.  Although states are subject to a few federal requirements, they are generally able to set their own eligibility criteria and benefit levels.

The permanent Extended Benefits (EB) program typically provides an additional 13 or 20 weeks of compensation to jobless workers who have exhausted their regular benefits in states where the unemployment situation has worsened dramatically (regardless of whether the national economy is in recession).  The total number of weeks available depends on a state’s unemployment rate and its unemployment insurance laws.  Normally the federal government and the states split the cost of EB, but the 2009 Recovery Act authorized temporary full federal funding, which continued through 2013.

During recessions and while unemployment remains high during recoveries, the federal government has historically created temporary, wholly federally funded programs providing further weeks of benefits.  The most recent such program, Emergency Unemployment Compensation (EUC), ran from June 2008 through December 2013.  (Efforts to enact a further temporary extension have so far been unsuccessful.)  Some states also may offer additional benefits under separate state-funded programs. 

Temporary federal programs implemented during recessions are fully federally funded.  However, the length and depth of the protracted economic slump following the 2007-2009 Great Recession has exacerbated serious solvency problems in most states’ regular UI programs that they have not yet addressed.