Unemployment insurance in the United States

As many European countries created unemployment insurance programs in the early 20th century (beginning with Britain in 1912), Progressive Era reformers advocated for a similar policy in the United States, but to little avail. In the early 20th century, some trade unions and employers set up private unemployment insurance programs for workers, but these were only available to a small portion of the workforce. Following the onset of the Great Depression, advocates pushed Congress and state legislatures to create public unemployment insurance programs. Programs were created in other states following the passage of the federal Social Security Act of 1935. Under Title III of the Act, the federal government would levy a payroll tax on almost all employers to fund unemployment insurance programs run by state governments, conditional on states following certain minimum requirements concerning program administration. In states that levied their own taxes to administer programs that exceeded the requirements, the federal government would forgive this payroll tax. Additionally, FUTA provides a fund that states can borrow from when needed to continue paying UI benefits. In 1970, FUTA was amended to create an extended benefits program where the federal government pays half the cost of extended benefits triggered during periods of high state-level unemployment. In 2003, Rep. Philip English introduced legislation to repeal the taxation of unemployment compensation, but the legislation did not advance past committee. Most states with income tax consider unemployment compensation to be taxable. Under the American Recovery and Reinvestment Act of 2009, the first $2,400 worth of unemployment income received during the tax year of 2009 was exempted from being considered as taxable income on the federal level. == Structure ==

Taxation Unemployment insurance is funded by both federal and state payroll taxes. In most states, employers pay state and federal unemployment taxes if: (1) they paid wages to employees totaling $1,500 or more in any quarter of a calendar year, or (2) they had at least one employee during any day of a week for 20 or more weeks in a calendar year, regardless of whether those weeks were consecutive. Some state laws differ from the federal law. Employers who pay the state unemployment tax on time receive an offset credit of up to 5.4% regardless of the rate of tax they pay their state. Therefore, the net FUTA tax rate is generally 0.6% (6.0%–5.4%) on the taxable amount of $7,000, for a maximum FUTA tax of $42.00 per employee per year. State law determines individual state unemployment insurance tax rates and taxable wage bases. The taxable wage base ranges significantly, with Washington using the highest amount of $52,700. All states use experience rating to determine tax rates, meaning that employers using the system more often have to pay additional taxes. As such, the range of state unemployment tax rates varies widely. For example, as of 2020, the state employer tax range for unemployment insurance is 0.05%–6.42% in Arizona, 1.5%–6.2% in California, 0.94%–14.37% in Massachusetts, and 0.1%–5.5% in Oklahoma. An exception to the federal-state joint funding mechanism is the Pandemic Unemployment Insurance (PUA) program created during the COVID-19 pandemic, which is funded entirely by the federal government. Eligibility The federal government sets broad guidelines for coverage and eligibility, but states vary in how they determine benefits and eligibility. Generally, the following requirements apply: • A worker must have worked for at least one quarter in the previous year. Workers are normally not eligible if they were temporary workers or paid under the table. • A worker must meet state requirements for wages earned or time worked during an established period of time (referred to as a "base period") to be eligible for benefits. In most states, the base period is usually the first four out of the last five completed calendar quarters prior to the time that the claim is filed. • A worker must have been laid off by an employer. Workers are not normally eligible if they quit without good cause, are fired for misconduct, or became unemployed due to a labor dispute. If the employer demonstrates that the unemployed person quit or was fired for cause, the worker is required to pay back the benefits they received. • A worker must be available for work and must accept a suitable offer of employment If the worker's claim is denied, then they have the right to appeal. If the worker was fired for misconduct, then the employer has the burden to prove that the termination of employment is a misconduct defined by individual states laws. However, if the employee quit their job, then they must prove that their voluntary separation must be good cause. Benefit amount and duration Unemployment benefit amounts are based on reported covered quarterly earnings. The amount of earnings and the number of quarters worked are used to determine the length and value of the unemployment benefit. The national average weekly payment in 2020 was $378. Since 1987, unemployment compensation has been considered taxable income by the federal government. and remained in force through June 2, 2010, with the Extended Unemployment Compensation 2008 legislation. As a result of the American Recovery and Reinvestment Act passed in February 2009, many unemployed people receive up to 99 weeks of unemployment benefits, contingent on state legislation. In July 2010, legislation that provides an extension of federal extended unemployment benefits through November 2010 was signed by the president. The legislation extended benefits for 2.3 million unemployed workers who had exhausted their unemployment benefits. Application process It generally takes two weeks for benefit payments to begin, the first being a "waiting week", which is not reimbursed, and the second being the time lag between eligibility for the program and the first benefit actually being paid. To begin a claim, the unemployed worker must apply for benefits through a state unemployment agency. Disqualification and appeals If a worker's reason for separation from their last job is due to some reason other than a "lack of work," a determination will be made about whether they are eligible for benefits. Generally, all determinations of eligibility for benefits are made by the appropriate state under its law or applicable federal laws. If a worker is disqualified or denied benefits, they have the right to file an appeal within an established time-frame. The state will advise a worker of his or her appeal rights. An employer may also appeal a determination if they do not agree with the state's determination regarding the employee's eligibility. In the state of Oklahoma, claimants generally win 51.5% of the time in misconduct cases. In the State of New Jersey, claimants that were discharged as a result of a misconduct may still receive unemployment benefits after their disqualification period of six week has ended. Payment through prepaid debit cards Most states deliver unemployment benefits to recipients who do not have a bank account through a prepaid debit card. The federal government uses the Direct Express Debit Mastercard prepaid debit card offered by Mastercard and Comerica Bank to give some federal assistance payments to people who do not have bank accounts. Many states have similar programs for unemployment payments and other assistance. Participation rates Variations in eligibility requirements, time limits, time commitment for mandatory programs, the difficulty of filing successfully, and payout amounts have led to very different participation rates across the country. Immediately before the COVID-19 pandemic, 7.6% of unemployed people in Florida received benefits; 65.9% of unemployed people in Massachusetts did. Unemployment insurance programs have been criticized for being intentionally difficult to access. Improper payments and fraud If a worker receives benefit payments for which they are not eligible, the state is empowered to recoup the excess amount paid to the claimant (an overpayment). If a worker receives less benefits than they are eligible for, it is an underpayment. Both overpayments and underpayments are termed improper payments. In order to continue receiving federal funding for their unemployment insurance programs, states are required to maintain an improper payment rate of less than 10 percent and a recovery rate of at least 68 percent. Willfully misrepresenting or concealing relevant facts in order to get excess benefits is considered unemployment insurance fraud. The exact definition of fraud varies from state to state. Under federal law, states are required to impose a monetary penalty for unemployment fraud of at least 15 percent of the overpayment amount, although the penalty can be higher. Penalties for fraud can also include forfeiture of future benefits and criminal prosecution. Ignorance of the state's unemployment insurance laws may not be a valid defense against a claim of willful misrepresentation. Under federal law, states have discretion to waive non-fraud overpayments. For regular state UI programs, states must assess each waiver application individually and cannot grant blanket waivers to broad groups of claims, even when the overpayments were all due to one systemic problem or agency error. However, the U.S. Department of Labor authorizes blanket waivers for certain categories of overpayments made under the three temporary federal programs that were created during the COVID-19 pandemic (FPUC, PEUC, and PUA). == Special programs ==

Reemployment Services and Eligibility Assessment (RESEA) Reemployment Services and Eligibility Assessment (RESEA) is a federally funded program with the aims of improving employment outcomes for claimants and of preventing and detecting overpayments. Self-Employment Assistance Five states (Delaware, Mississippi, New Hampshire, New York, and Oregon) have Self-Employment Assistance (SEA) programs, which allow claimants to work full-time on starting a new business while continuing to claim unemployment benefits. In order to be eligible, claimants must already be eligible for UI under their state's laws. If a claimant is not in a SEA program, starting or operating a business may be considered employment and thereby render that person ineligible for unemployment benefits, either on a continuous basis or for the duration of time (i.e. the number of hours or days) that they worked on the business. ==Temporary benefit extensions==

Extended Benefits program In 1970, the unemployment insurance program was amended by Congress to allow for automatic temporary extensions of benefit durations during high levels of state-level unemployment. Temporary federal extensions During national recessions, the federal government often extends unemployment insurance benefits temporarily as part of a broader countercyclical economic policy. This has occurred in 1958, 1961, 1971, 1974, 1982, 1991, 2002, 2008, and 2020. On August 8, 2020, President Donald Trump signed an executive order that provided $300 to $400 extra benefits per week. Under the order, the federal government provided $300 in additional unemployment using Federal Emergency Management Agency (FEMA) funds, and states were responsible for contributing the remaining $100. States were given the option to choose how they would pay the remaining $100 and decide if they would even pay it. In the Consolidated Appropriations Act passed in December 2020, the federal government provided extra benefit payments of $300 per week for 11 weeks (through March 14, 2021). In January 2021, newly inaugurated President Joe Biden's administration announced a proposal that would further extend unemployment insurance with additional payments of $400 per week through September 2021. Under the American Rescue Plan passed in March 2021, extra benefit payments were increased to $400 per week and benefits were extended through September 6, 2021. While benefits are normally taxable, this law made the first $10,200 in unemployment benefits received in the fiscal year 2020 exempt from taxation. The surge of unemployment filings and eligibility changes during the pandemic created a massive backlog of claims. Unemployed people reported severe delays in contacting unemployment offices to resolve problems or to file non-traditional claims, with some being told to use Twitter or contact the governor to get problems resolved. Some people waited for several months to receive benefits after having been laid off. To better meet this substantial increase in claims and comply with federal fraud prevention requirements, states accelerated their plans for modernizing their unemployment insurance systems. Congress allocated $2 billion in the American Rescue Plan Act of 2021 to help states improve access to unemployment benefits, reduce payment delays, and combat fraud. Additionally, the U.S. Department of Labor announced in August 2021 that it was creating an Office of Unemployment Insurance Modernization to oversee this spending and assist states in updating their unemployment systems. ==Measurement==

Current data Each Thursday, the Department of Labor issues the Unemployment Insurance Weekly Claims Report. Its headline number is the seasonally adjusted estimate for initial unemployment claims filed during the previous week in the US. Since this statistic is published weekly, it is commonly depended on as a current indicator of the labor market and the economy generally. In 2016, the number of people on unemployment benefits fell to around 2.14 million, the lowest in the last 4 decades. In April 2020, claims reached 40 million, a new all-time high. Unemployment insurance outlook Twice a year, the Office of Management and Budget delivers an economic assessment of the unemployment insurance program as it relates to budgetary issues. As it relates to the FY 2012 budget, the OMB reports that the insured unemployment rate (IUR) is projected to average 3.6% in both FY 2011 and in FY 2012. State unemployment regular benefit outlays are estimated at $61 billion in FY 2011 and $64.3 billion in FY 2012, down somewhat from Midsession estimates. Outlays from state trust fund accounts are projected to exceed revenues and interest income by $16.0 billion in FY 2011 and $15.1 billion in FY 2012. State trust fund account balances, net of loans, are projected to continue to fall, from -$27.4 billion at the end of FY 2010 to -$62.7 billion at the end of FY 2013, before starting to grow again. Net balances are not projected to become positive again until well beyond FY 2016. Up to 40 states are projected to continue borrowing heavily from the Federal Unemployment Account (FUA) over the next few years. The aggregate loan balance is projected to increase from $40.2 billion at the end of FY 2010 to a peak end-of-year balance of $68.3 billion in FY 2013. Due to the high volume of state loans and increased EB payments, FUA and EUCA are projected to borrow $26.7 billion from the general fund in FY 2011 and an additional $19.4 billion in FY 2012, with neither account projected to return to a net positive balance before 2016. The general fund advances must be repaid with interest. == Criticisms and reform proposals ==

Systemic racism Advocates such as the National Employment Law Project (NELP) contend that the U.S. unemployment insurance system disproportionately excludes Black workers and other workers of color. They point out that policymakers in the New Deal era made intentional compromises "to make the program appealing for the strong base of conservative white Southern Democrats who held the most powerful seats in Congress." In particular, agricultural and domestic workers, which comprised 65 percent of Black workers, were excluded from unemployment benefits. Discouragement of work Both left- and right-wing critics allege that the structure of unemployment insurance discourages people from returning to work. Under various state laws, claimants who work part-time or earn more than a certain threshold are barred from receiving unemployment benefits for a given week, creating a welfare trap that discourages workers from taking part-time jobs while looking for full-time work. To mitigate this issue, states apply an "earnings disregard" process by ignoring some portion of a worker's income and reducing their benefit payments based on their earnings above that amount. Since 2021, New York has allowed workers to claim "partial benefits" when they work 30 hours or fewer in a given week. == See also ==