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December 12, 2018 

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AGGREGATE MARKET SHOCKS: Disruptions of the equilibrium in the aggregate market (or AS-AD model) caused by shifts of the aggregate demand, short-run aggregate supply, or long-run aggregate supply curves. Shocks of the aggregate market are associated with, and thus used to analyze, assorted macroeconomic phenomena such as business cycles, unemployment, inflation, stabilization policies, and economic growth. The specific analysis of aggregate market shocks identifies changes in the price level (GDP price deflator) and real production (real GDP). However, changes in the price level and real production have direct implications for the unemployment rate, the inflation rate, national income, and a host of other macroeconomic measures.

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UNEMPLOYMENT COMPENSATION:

A joint federal-state government system, created by the Social Security Act (1935), that provides income benefits to unemployed workers. Funding is obtained by taxes on employers. The system is mandated by the federal government, but operated by each state. While, the amount and duration of benefits differ from state to state, recipients generally receive about 50 to 70 percent of weekly wages for 26 to 39 weeks.
Unemployment compensation is a system of income support payments designed to assist workers who are involuntarily unemployed, especially those laid off during business-cycle contractions.

An Overview

Unemployment compensation is a joint federal-state program that provides assistance to workers who are involuntarily (and usually temporarily) unemployed. The federal end of the system establishes the basic guidelines of the system, and each state is then responsible for administering the system in their particular locale.

About 90 percent of the civilian labor force is covered by unemployment compensation, but on average only about half of those unemployed receive financial assistance. The portion of unemployed receiving assistance tends to be higher during business-cycle contractions (up to 80 percent) and lower during expansions (down to 30 percent).

The standard duration of benefits is 26 weeks. In states with high unemployment rates, benefits can be extended an additional 13 weeks. Those who qualify for benefits generally receive between 50 and 70 percent of the average weekly salary earned while working.

The funds used for benefits are obtained from a combined federal and state tax of 6.2 percent on the first $7,000 of wage or salary income annually paid to employees. For each full time worker, this is $434 per year or about 21 cents hour. While it can vary from state to state, in general, the federal portion of this tax is 0.8 percent and the state portion is the remaining 5.4 percent.

A Little Social Security Background

During the Great Depression of the 1930s, three groups suffered serious personal hardships--elderly and disabled (primarily elderly widows), single mothers with small children, and unemployed workers. The Social Security Act of 1935 was created to provide these three groups with financial assistance, to help them through a difficult decade. This act had three main components designed to provide financial assistance to each group:
  • Elderly and disabled received support from the Social Security "retirement" system.

  • Single mothers received support from the Aid to Families with Dependent Children "welfare" system.

  • Unemployed workers received support from the Unemployment Compensation system.
The framework of the modern system of unemployment compensation was created by the Social Security Act with modifications by the Federal Unemployment Tax Act of 1939.

Purpose

The general purpose of the unemployment compensation system is the provide financial assistance to unemployed workers. The modern system, however, has two interrelated functions.
  • Financial Assistance: First, it does provide needed financial assistance to workers who are involuntarily unemployed. This need tends to be most acute during business-cycle contractions, but it is valuable during all periods. Without such assistance, workers who are unemployed only temporarily are likely encounter serious financial and personal hardships (bankruptcy, home foreclosure, etc.) from which they might never recover.

  • Economic Stability: Second, it helps stabilize the macroeconomy during business-cycle contractions. Because unemployed workers continue to receive income, they are able to continue consumption expenditures, which prevents aggregate production from dropping as much as it might have otherwise. This, as such, prevents the economy from slipping deeper into a business-cycle contraction.

Qualification Criteria

Not every unemployed worker is eligible to receive unemployment compensation benefits. While each state has its own eligibility criteria, the general considerations are:
  • Recent Employment and Earnings: First, unemployed workers must have been employed for a minimum period (usually six months out of the past year) and received a minimum amount of earnings (ranging from $200 to $3,000 per week).

  • Willingness and Ability to Work: Second, unemployed workers must demonstrate both the willingness and ability to work. This criterion is often satisfied by registering at the local unemployment office, pursuing job interviews, etc. Moreover, unemployed workers must have valid reasons for turning down or not pursuing available jobs (low wages, wrong skills or training, dangerous work, etc.)

  • Reason for Unemployment: Third, unemployed workers must have been involuntarily terminated or laid off from a job (so-called job losers) rather than voluntarily quitting a job (job leavers).

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Recommended Citation:

UNEMPLOYMENT COMPENSATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: December 12, 2018].


Check Out These Related Terms...

     | cyclical unemployment | unemployed persons | employed persons | not in the labor force | discouraged workers | marginally-attached workers | part-time workers | labor force | civilian labor force |


Or For A Little Background...

     | unemployment | unemployment rate | unemployment sources | transfer payments | business cycles | contraction | expansion | labor | unemployment reasons | macroeconomic problems | macroeconomic goals | factors of production | full employment |


And For Further Study...

     | natural unemployment | unemployment problems | unemployment rate, measurement problems | employment rate | employment-population ratio | labor force participation rate | unemployment, production possibilities | full employment, production possibilities | Current Population Survey | Bureau of Labor Statistics | gross domestic product | resource markets | inflation | stabilization policies | government functions | underground economy | business cycle indicators |


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     | Social Security Administration |


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