Off the Charts Blog | Center on Budget and Policy Priorities

Today, we sat down with Chad Stone, the Center’s Chief Economist, to discuss the policy basics of Unemployment Insurance.

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Chad, what is unemployment insurance?

Unemployment insurance, which was created in 1935 under President Roosevelt, is a government program that cushions the financial blow when workers lose their jobs through no fault of their own. “UI” as it is commonly known, replaces part of an eligible unemployed worker’s wages while he or she is looking for work.

Why is unemployment insurance necessary?

First, of course, because losing a job and the salary that goes with it is hard on workers and their families, and UI benefits are often the difference between being able to get by and suffering much more serious hardship. Second, by allowing unemployed workers to maintain something closer to their ordinary level of spending, UI helps sustain consumer demand during economic downturns. Economists believe that expanding unemployment insurance benefits is one of the best ways to fight a recession and stimulate a recovery.

How is unemployment insurance funded?

The basic unemployment insurance program is run by the states, although the U.S. Department of Labor oversees the system. In normal times, states provide most of the funding through taxes collected from employers, and the federal government finances administrative costs. During periods of high unemployment like now, the federal government enacts temporary programs to provide additional weeks of benefits that are federally funded.

How many weeks are provided?

The basic program typically provides up to 26 weeks of benefits to unemployed workers, replacing about half of their previous wages, up to a maximum weekly benefit set by each state. Although there are a few federal requirements, states generally set their own eligibility criteria and benefit levels. Right now, workers who exhaust their regular 26 weeks of benefits can receive additional weeks of benefits as they continue to look for work.

How many extra weeks are available?

The number of extra weeks available depends on the unemployment rate in the state and on state unemployment insurance laws. Workers in all states can get up to 34 additional weeks from the Emergency Unemployment Compensation program that was enacted in June 2008. The maximum number of weeks available under this program is higher in states with high unemployment rates, and workers in some states with high unemployment rates may be able to receive further weeks of benefits under the Extended Benefit program that is a part of federal unemployment insurance law. Putting it all together, workers in many of the states can receive up to 99 weeks of unemployment insurance benefits — 26 weeks from the regular program, 53 weeks from the temporary Emergency Unemployment Compensation program, and 20 weeks from the Extended Benefits program.

What’s the bottom line, Chad?

Clearly, unemployment insurance is an important program for workers who lose their jobs. But what we should remember is that it’s also an important program for making the economy stronger.

Learn more about Unemployment Insurance here.  You can also download a podcast of this conversation on iTunes.