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Unemployment insurance
| Unemployment insurance |
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| • Terms and definitions • Court cases • Unemployment insurance programs in the states • Reform proposals related to unemployment insurance • Reform activity in the states related to unemployment insurance • Index of articles about unemployment insurance |
| Click here for more coverage of unemployment insurance on Ballotpedia |
What is unemployment insurance?
Unemployment insurance is a joint federal and state program for eligible workers during a specified period of time. It provides weekly cash benefits while individuals seek new employment. These benefits are designed to replace a portion of lost wages, not to restore wages in full.[1][2] The federal government oversees the general administration of unemployment insurance programs. The states control specific features such as eligibility requirements and duration of benefits.[2]
Although the word insurance is in the term, a few key differences distinguish unemployment insurance from private insurance plans such as car insurance, or health insurance. In most states, employers—rather than individuals themselves—pay unemployment taxes that fund state unemployment insurance programs.
Why does it matter?
There is debate about how to most efficiently administer the unemployment insurance program due to its costs and benefits. In 2024, over $36 billion was paid out in unemployment insurance benefits across the US to more than 7.5 million workers.[3] The program also receives more attention nationwide at times of widespread layoffs and economic uncertainty.[4] In some states, the duration of benefits may be extended during periods of high unemployment.
What are the key arguments?
Arguments around the unemployment insurance program primarily center on two issues: its impact on the economy, and its effect on unemployed individuals. Supporters of the program argue that unemployment insurance benefits support the economy, boost economic recovery, and are vital to workers who have lost their jobs. Opponents argue that generous unemployment insurance benefits discourage people from searching for a job or taking certain jobs, damaging the economy and, over time, causing the unemployed persons' skills to atrophy, damaging their employment prospects.
Background
The joint federal-state unemployment insurance program provides temporary monetary payments to individuals who have lost employment through no fault of their own. Laid-off workers must actively seek new employment in order to receive unemployment benefits.
The unemployment insurance program was established in 1935 through the Social Security Act (SSA). Congress at the time aimed to develop a means to help mitigate the effects of widespread job losses that had occurred during the Great Depression. Due to concern that the U.S. Supreme Court would find a national unemployment insurance program unconstitutional, Congress designed a federal payroll tax mechanism that incentivized states to set up their own unemployment insurance programs under the direction of broad federal guidelines. According to the program, states deposit unemployment insurance tax funds into the Federal Unemployment Trust Fund, which the federal government then credits to state accounts to pay unemployment benefits.[1][5]
The federal government operates as a general overseer of state unemployment insurance programs in order to ensure proper program administration. States retain control over their specific programs and can determine state-specific conditions, such as eligibility requirements, benefit amounts, and duration of benefits. States with unemployment insurance programs that meet federal standards are eligible for federal grants to assist with administrative costs.[2][5]
Unemployment insurance: Funding, benefits, and eligibility
Funding and benefit mechanisms under the joint federal-state unemployment insurance program vary by state. The following sections provide general information about funding, benefits, and eligibility requirements for unemployment insurance recipients.
Funding
The unemployment insurance program is funded by state and federal taxes on employers, or unemployment taxes.
While state tax amounts vary, the Federal Unemployment Tax Act (FUTA) tax is 6% of the federal unemployment tax wage base—the first $7,000 of an employee's wages—as of April 2025. Employers can receive an offset of up to 5.4% of their FUTA tax when they pay state unemployment taxes on time. An employer that receives the full 5.4% FUTA credit, therefore, pays 0.6% of the first $7,000 of an employee's wages, or $42, in FUTA tax per qualifying employee.[6][2]
New employers begin paying into the unemployment insurance system at the new employer rate. Depending on state laws, employers that have paid unemployment insurance taxes for a set time period (usually a few years) receive an experience rating. The more unemployment claims an employer has, the higher their tax rate.[2]
States that exhaust their unemployment insurance program reserves can borrow from the federal Treasury through the Title XII program. States must repay their unemployment insurance program debts within two to three years or the federal taxes on employers in the state automatically increase until the debt is paid. In states that are overdue in repaying unemployment insurance debt to the federal Treasury, the FUTA tax offset is reduced.[6][2][7]
Length and amount of benefits
The standard term of unemployment benefits is 26 weeks, but specific terms vary by state. For example, Arkansas law provided for up to 16 weeks of benefits as of 2025. Montana, on the other hand, paid up to 28 weeks of benefits.[6]
The following table identifies the maximum length and the range of unemployment insurance benefits by state as of 2025, according to the Center on Budget and Policy Priorities:[8]
| Length of unemployment benefits by state, 2025 | |||
|---|---|---|---|
| State | Maximum length of unemployment insurance benefits (weeks) | Minimum weekly benefits | Maximum weekly benefits |
| Alabama | 14 | $45 | $275 |
| Alaska | 26 | $56 - $128 | $370 - $442 |
| Arizona | 26 | $216 | $320 |
| Arkansas | 16 | $81 | $451 |
| California | 26 | $40 | $450 |
| Colorado | 26 | $25 | $675 (low formula) |
| Connecticut | 26 | $15 - $30 | $703 - $778 |
| Delaware | 26 | $20 | $400 |
| Florida | 12 | $32 | $275 |
| Georgia | 14 | $55 | $365 |
| Hawaii | 26 | $5 | $763 |
| Idaho | 21 | $72 | $532 |
| Illinois | 26 | $51 - $77 | $578 - $787 |
| Indiana | 26 | $37 | $390 |
| Iowa | 16 | $82 - $99 | $551 - $676 |
| Kansas | 16 | $140 | $560 |
| Kentucky | 12 | $39 | $626 |
| Louisiana | 26 | $35 | $275 to $284 |
| Maine | 26 | $94 - $164 | $538 - $941 |
| Maryland | 26 | $50 - $90 | $430 |
| Massachusetts | 30 | $55 - $87 | $1,015 - $1,522 |
| Michigan | 20 | $160 - $190 | $362 |
| Minnesota | 26 | $33 | $552 (based on HQW) |
| Mississippi | 26 | $30 | $235 |
| Missouri | 20 | $35 | $320 |
| Montana | 28 | $194 | $657 |
| Nebraska | 26 | $70 | $514 |
| Nevada | 26 | $16 | $562 |
| New Hampshire | 26 | $32 | $427 |
| New Jersey | 26 | $156 - $179 | $830 |
| New Mexico | 26 | $101 - $151 | $542 - $592 |
| New York | 26 | $124 | $504 |
| North Carolina | 12 | $15 | $350 |
| North Dakota | 26 | $43 | $673 |
| Ohio | 26 | $157 | $561 - $757 |
| Oklahoma | 16 | $16 | $493 |
| Oregon | 26 | $183 | $783 |
| Pennsylvania | 26 | $68 - $76 | $605 - $613 |
| Rhode Island | 26 | $66 - $116 | $680 - $850 |
| South Carolina | 20 | $42 | $326 |
| South Dakota | 26 | $28 | $487 |
| Tennessee | 26 | $30 | $275 |
| Texas | 26 | $72 | $563 |
| Utah | 26 | $41 | $712 |
| Vermont | 26 | $80 | $668 |
| Virginia | 26 | $60 | $378 |
| Washington | 26 | $317 | $999 |
| Washington, D.C. | 26 | $50 | $444 |
| West Virginia | 26 | $24 | $630 |
| Wisconsin | 26 | $54 | $370 |
| Wyoming | 26 | $40 | $560 |
Extended benefits
- See also: Unemployment extension
During periods of high unemployment, extended benefits up to 13 weeks, depending on the state, are available to workers who have otherwise exhausted their unemployment insurance benefits. Extended benefits up to 20 weeks may also be available in some states during periods of extremely high unemployment.[9]
Eligibility
Eligibility criteria for unemployment insurance recipients vary by state. In general, recipients must have lost employment through no fault of their own. The unemployment insurance program does not cover individuals who voluntarily leave their positions, who are fired for just cause, or who are seeking to reenter the workforce after a voluntary exit. Nor do unemployment insurance programs generally cover first-time job seekers, students, self-employed individuals, gig workers, or undocumented workers.[1][6]
States also require that recipients meet certain work and wage thresholds. Unemployed workers in most states must have worked for a minimum amount of time or must have received a minimum amount of earnings from their employer to be eligible for benefits.[6]
States generally require individuals to perform the following tasks in order to maintain weekly eligibility, according to the U.S. Department of Labor:
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Recipients must report their unemployment insurance benefits as part of their gross income on their tax returns.[12]
Refusal of work
- See also: Refusal of work
State unemployment insurance programs require individuals to accept offers of suitable work unless, depending on the state, the individual can show good cause for refusal. Definitions of what constitutes suitable work and good cause vary by state. Individuals risk losing unemployment insurance benefits if they refuse suitable work.[13][14]
The federal government expanded unemployment insurance benefits during the coronavirus (COVID-19) pandemic in order to provide financial support to affected individuals and businesses.
The U.S. House of Representatives on March 27, 2020, passed the Coronavirus Aid Relief and Economic Security (CARES) Act to provide financial relief to individuals and businesses impacted by the coronavirus pandemic.[15] President Donald Trump (R) signed the legislation on March 27.[16] Among the provisions in the act, Congress earmarked roughly $260 billion to expand unemployment insurance benefits across the country.[17] The act supplemented state unemployment insurance payments by increasing the number of weeks an individual could receive benefits and by providing individuals with an additional $600 per week on top of what they would normally receive.[18]
American Rescue Plan
The American Rescue Plan, signed by President Joe Biden (D) on March 11, 2021, extended federal unemployment insurance programs related to the coronavirus (COVID-19) pandemic, including the federal government's $300 per week add-on to state unemployment benefits, through September 6, 2021.[19] The legislation also extended unemployment benefits for self-employed and gig workers, extended benefits for unemployed mixed earners (people who earned money through employment and self-employment), and extended the number of weeks individuals could receive unemployment.
Unemployment insurance program solvency
Federal unemployment insurance program guidelines recommend that states hold at least one year of projected benefit payments in reserves. States base the year of projected benefit payments on the highest level of unemployment insurance payments experienced during the last 20 years.[20]
States determine their program solvency by using the Average High Cost Multiple (AHCM)—the ratio of the state's trust fund balance to the average of its three highest years of unemployment insurance payments. States with an AHCM below 1.0 risk insolvency.[20]
As of a March 2024 report, 19 states had trust funds operating at or above the minimum solvency standard. Two states and the Virgin Islands had trust funds with the lowest (least solvent) AHCM value of 0.00.[21]
The map below identifies AHCM values by state as of March 2024. States shaded green have AHCM values above 1.0, while red states have AHCM values of 0.00. Gray states have AHCM values above 0.00 but below 1.0.[21]
Economists and policy scholars disagree with respect to the positive and negative effects of unemployment insurance. While some suggest that unemployment insurance can help boost economic recoveries, for example, others claim that unemployment insurance can discourage laid-off workers from obtaining new employment. The following selected arguments highlight areas of disputation concerning the effects of unemployment insurance.
Argument: Unemployment insurance can provide economic stability
Juan Sanchez, a senior economist at the Federal Reserve Bank of St. Louis, in a 2015 brief identified what, in his view, constitutes the primary benefits and disadvantages of unemployment insurance. Sanchez argued that the primary benefit of unemployment insurance is to sustain the economic consumption level of individuals who have lost employment:[25]
| “ | "Unemployment insurance benefits help individuals who have lost their job to sustain a desirable consumption level. An MIT economist, Jonathan Gruber, argues that private insurance or savings are not enough to prevent a large drop in the consumption of the unemployed. In particular, he estimated that in the absence of unemployment insurance, the consumption of the unemployed would fall by 22 percent. This drop would be more than three times the average fall in the presence of this program."[25][11] | ” |
Argument: Unemployment insurance can boost economic recovery
Heidi Shierholz, a senior economist and director of policy at the Economic Policy Institute, told Marketplace in June 2020 that expanded unemployment benefits can boost economic recovery. “Government spending on unemployment insurance benefits is one of the most, if not the most, effective things the federal government can do for stimulating the economy,” Shierholz said.
The Brookings Institution scholars Louise Sheiner and Manuel Alcalá Kovalski in a 2020 article claimed that since "more workers lose their jobs during economic downturns, [the unemployment insurance] program also provides needed economic stimulus that helps mitigate the severity of recessions."[6]
Argument: Unemployment insurance can discourage individuals from re-entering the workforce
Sanchez claimed that the primary disadvantage of unemployment insurance is that a program with generous benefits can discourage individuals from seeking new employment:[25]
| “ | "Perhaps the most important disadvantage is that unemployed individuals may be discouraged from searching for a job (or taking certain jobs) if unemployment benefits are too generous. Alan Krueger from Princeton University and Andreas Mueller from the Institute for International Economic Studies at Stockholm University found that across the 50 states and District of Columbia, job searches are inversely related to the generosity of unemployment benefits. In particular, the time devoted to job search drops by about 16 percent when unemployment benefits increase by 10 percent. The two economists also found that job search intensity increases prior to the exhaustion of benefits."[25][11] | ” |
Eileen Norcross and Emily Hamilton, research fellows at The Mercatus Center, in a 2010 brief claimed that unemployment insurance creates perverse incentives for individuals to remain out-of-work:[20]
| “ | The perverse incentives of unemployment benefits are well documented. Subsidizing unemployment draws out a job search. Generous benefits that subsidize "temporary idleness" may result in "chronic idleness."6 As the state makes chronic idleness more attractive, more and more people will choose that option over productive employment. As people remain unemployed, their decreased spending will slow production throughout the economy, and the system will become less and less sustainable.[20][11] | ” |
Argument: Unemployment insurance can hurt a recipient's future job prospects
Norcross and Hamilton also argue that unemployment insurance benefits can result in an individual's long-term unemployment:[20]
| “ | [U]nemployment benefits can create a more serious long-run consequence known as hysteresis, or systemic long-run unemployment. As workers remain out of the job market for longer periods, their skills become obsolete and the likelihood of remaining unemployed increases. As unemployment becomes acceptable, the natural rate of employment and production falls, resulting in a less-skilled workforce.
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Ballotpedia has identified nine types of reform proposals related to unemployment insurance. Click through the list below to learn more about each type of reform:
- Reduce length or amount of benefits: This approach argues that state governments should reduce the benefit amounts unemployment insurance claimants can receive or reduce the maximum length of time for which claimants can remain eligible to claim benefits.
- Increase benefits or expand eligibility: This approach argues that states should extend benefits to more workers or provide a mechanism for increasing payment amounts over time.
- Require recovery of unemployment insurance overpayments: This approach argues state agencies administering the unemployment insurance program in a state should take additional steps to recover all unemployment insurance overpayments.
- Require employer reporting of activities that would disqualify a person from unemployment insurance eligibility: This approach argues that states should require employers to report unemployed workers for activities that would disqualify them from receiving unemployment insurance benefits.
- Cross-check unemployment insurance claims: This approach argues that state agencies administering the unemployment insurance program in a state should cross-check unemployment insurance claims and claimant identities against other data sets to help prevent fraud.
- Tighten requirements around work search activities and job referral systems: This type of approach argues that states should increase requirements around work search activities, participation in mandatory job referral systems, and other programs designed to motivate and help people to find work.
- Stop automatically accepting federal unemployment insurance funding: This approach argues that states should stop automatically accepting federal funding to expand the unemployment insurance program.
- Repeal experience tax rating mandate: This approach argues that states should repeal experience tax rating mandates.
See also
- Unemployment filings during the coronavirus (COVID-19) pandemic, 2020-2021
- State government plans to end federal unemployment benefits related to the coronavirus (COVID-19) pandemic, 2021
External links
Footnotes
- ↑ 1.0 1.1 1.2 The Wall Street Journal, "How Does Unemployment Work?" February 22, 2021
- ↑ 2.0 2.1 2.2 2.3 2.4 2.5 Employment Law Firms, "How Unemployment Works," accessed May 18, 2021 Cite error: Invalid
<ref>tag; name "e" defined multiple times with different content - ↑ Urban Institute, "State Unemployment Programs Will Likely Face Budget Pressures Because of Federal Layoffs," April 3, 2025
- ↑ Google trends, "unemployment insurance," accessed March 31, 2025
- ↑ 5.0 5.1 Social Security Administration, "Unemployment Insurance, Then and Now 1935-1985," accessed May 19, 2021
- ↑ 6.0 6.1 6.2 6.3 6.4 6.5 6.6 6.7 Brookings, "How does unemployment insurance work? And how is it changing during the coronavirus pandemic?" July 20, 2020 Cite error: Invalid
<ref>tag; name "b" defined multiple times with different content Cite error: Invalid<ref>tag; name "b" defined multiple times with different content Cite error: Invalid<ref>tag; name "b" defined multiple times with different content - ↑ Cite error: Invalid
<ref>tag; no text was provided for refs namedreport - ↑ Center on Budget and Policy Priorities, "Policy Basics: How Many Weeks of Unemployment Compensation Are Available?" April 4, 2025
- ↑ United States Department of Labor, "Unemployment Insurance Extended Benefits," accessed May 19, 2021
- ↑ United States Department of Labor, "Unemployment Insurance Fact Sheet," accessed April 16, 2025
- ↑ 11.0 11.1 11.2 11.3 11.4 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
- ↑ Internal Revenue Service, "Topic No. 418 Unemployment Compensation," accessed April 16, 2025
- ↑ Michigan Department of Labor and Economic Opportunity, "Suitable work and refusal to work," accessed May 27, 2021
- ↑ Michigan Department of Labor and Economic Opportunity," "Returning to work and refusal to work—information for employers," accessed May 27, 2021
- ↑ The Hill, "House passes $2 trillion coronavirus relief bill, with Trump to sign quickly," March 27, 2020
- ↑ The Hill, "Trump signs $2T coronavirus relief package," March 27, 2020
- ↑ NPR, "What's Inside The Senate's $2 Trillion Coronavirus Aid Package," March 26, 2020
- ↑ The National Law Review, "CARES Act Expands Unemployment Insurance Benefits," April 5, 2020
- ↑ Forbes, "New Stimulus Package: Unemployment Benefits, $300 Per Week Extended Until September," accessed May 11, 2021
- ↑ 20.0 20.1 20.2 20.3 20.4 20.5 The Mercatus Center, "The Costs and Consequences of Unemployment Benefits on the States," January 25, 2010
- ↑ 21.0 21.1 U.S. Department of Labor, "State Unemployment Insurance Trust Fund Solvency Report 2024," March 2024
- ↑ United States Department of Labor, "Frequently Asked Questions (FAQ)," accessed April 22, 2020
- ↑ Paul Goldsmith-Pinkham and Aaron Sojourner, "Predicting Initial Unemployment Insurance Claims Using Google Trends," accessed May 1, 2020
- ↑ Economic Policy Institute, "Early state unemployment insurance data foreshadow the massive shock the coronavirus is having on state labor markets," March 27, 2020
- ↑ 25.0 25.1 25.2 25.3 Federal Reserve Bank of St. Louis, "What Are the Pros and Cons of Unemployment Benefits?" January 26, 2015
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