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Primer: Unemployment Insurance

Primer: Unemployment Insurance

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Primer from the American Action Forum's Director of Fiscal Policy on the Unemployment Insurance (UI) system.
Primer from the American Action Forum's Director of Fiscal Policy on the Unemployment Insurance (UI) system.

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Published by: American Action Forum on Jul 25, 2013
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Primer: Unemployment Insurance
The Unemployment Insurance system (UI), which was born out of the severity of theGreat Depression, has grown to become a staple of the American social welfare system,with over 4.5 million people currently enrolled. Comprised of three main programs,Regular UI, the Unemployment Compensation Program (EUC) and the Extended BenefitsProgram (EB), the UI system grew dramatically in the recent recession, as theunemployment rate rose to almost 10 percent and millions of people were added to theprogram. Congress also expanded the program by increasing the maximum duration of unemployment benefits up to 99 weeks and passing the American Reinvestment andRecovery Act (ARRA), which increased the maximum level of benefits. The economicrecession and the programmatic expansion of the UI system caused spending onunemployment insurance to more than double during the recession, peaking at over $8billion a month. The recovering economy and the expiration of benefit extensions havelowered monthly spending for the UI program, but spending levels remain above pre-recession levels.The academic literature suggests consensus that unemployment benefits increasethe average duration of unemployment spells, as well as the unemployment rate. Howeverthere is considerable disagreement over the magnitude and significance of these effects,with authors debating the effect of both an increase in benefit levels as well as the effect of an increase in the potential duration of UI benefits. Other authors have also examined thespike in exits from unemployment right before benefits are exhausted or discussed theimpact of the UI system on layoffs.
The Unemployment Insurance System
Under current law, the Unemployment Insurance system is comprised of multiplestages of unemployment assistance. According to the latest data, 4,519,501 Americansclaimed benefits from one of these stages of assistance.
The three largest unemployment insurance programs by participation are the regular Unemployment Insurance (UI)program, the federal Emergency Unemployment Compensation program (EUC08, or just EUC), and the Federal-State Extended Benefits (EB).
Figure 1: UI Claimants by Major Program
Regular Unemployment Insurance (UI) program
The regular UI program is a state-federal partnership. Federal law sets majorguidelines for program requirements; however, individual states design and administertheir individual programs. According to the Department of Labor, most states currently paybeneficiates for a maximum of 26 weeks, although Massachusetts and under certainconditions Washington (WA) pay 30 weeks. This program also includes compensation forindividuals recently separated from the Armed Services and other federal positions. Benefit payments are financed by state levies, principally on employers. According to the latest data, 2,805,062 individuals (62 percent of current claimants) were receiving benefitsthrough this system.
Unemployment Compensation program (EUC08, or EUC)
 The Emergency Unemployment Compensation program (EUC08) was created onJune 30, 2008, when then-President Bush signed the Supplemental Appropriations Act of 2008 (P.L. 110-252) into law. This law created what is the eighth federal temporaryprogram that extended unemployment compensation during economic distress, according
RegularEUCAll Other
to the Congressional Research Service. The program has subsequently been extendedseveral times, most recently on January 2, 2013.
 At present, the EUC08 program provides up to 14 weeks of benefits in every state,
and up to 33 additional weeks in states with “high unemployment” (for a maximum of 47
 weeks) through 4 tiers of eligibility. Tiers II, III, and IV are available to individuals in stateswith progressively higher total unemployment rates (TUR) of 6, 7 and 9 percent; providingcompensation for 14, 9, and 10 additional weeks (33 total), respectively.
The program isfinanced entirely by the federal government.
According to the Department of Labor:
benefits are available for weeks of unemployment ending on or before January 1, 2014.This means that the last payable week of EUC benefits in most states will be the week 
ending December 28, 2013.”
Accordingly, even if a recipient would otherwise be eligible forremaining benefits in a tier, their benefits will cease at the end of the year. This is a similar
“cliff” as was observed at the end of 2012.
According to the latest data, 1,636,731individuals (36 percent of claimants) were receiving benefits through this system.
Extended Benefits (EB)
The federal-state extended benefits program by the Federal-State ExtendedUnemployment Compensation Act of 1970 (EUCA). Under the Act, when the insuredunemployment rate in a state reaches a certain threshold, states must provide additionalstate UI benefits. Typically, the EB program is jointly financed. Under current law, thefederal government will pay 100 percent of most EB benefit costs for weeks of unemployment beginning after February 17, 2009, through December 31, 2013. As of July24th, only 433 claimed benefits under this program.
 Additional Programs
Additional programs are also available for certain eligible populations. Theseprograms include additional state programs, alternative and work-sharing programs, aswell as trade and disaster-related unemployment compensation. Collectively, 77,708 (2percent of claimants) individuals received benefits under these programs.
Budgetary Implications of the Unemployment Insurance System
Federal expenditures on unemployment compensation exceeded $90 billion in2012, while down from the 2010 all-time high of $157 billion, unemployment compsenation expenditures remain a sizeable share of the the federal budget.
This isattributable to economic factors, as well as benefit size and duration expansion.
For additional legislative history, see: http://ows.doleta.gov/unemploy/pdf/euc08.pdf  
OMB, Table 8.5
outlays for mandatory and related programs: 1962

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