An Overview

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

• 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.

Purpose

• 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

• 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).