Unemployment Insurance: Legislative Background, Funding, and Eligibility

  • Legislative Background of Unemployment Insurance (UI)

    • The roots of unemployment insurance in the U.S. trace back to the 1935 Social Security Act.

    • This Act, drafted by Francis Perkins and advised by Harry Hopkins, included not only major programs like Social Security and Supplemental Security Income (SSI) but also smaller programs such as unemployment assistance.

    • This is the first time the program's inclusion within the Social Security Act has been highlighted.

  • Federal Requirement vs. State Administration

    • A key distinction: While Social Security and SSI are federal programs that are uniform across the entire country, unemployment insurance is federally required but state-run.

    • Every state must have an unemployment program, but each state designs and administers its own unique version.

    • This means benefits, eligibility rules, and other specifics can vary significantly for individuals living on opposite sides of a state line, even in the same metropolitan area (e.g., Boyd example).

    • States do not have the option to opt out of having an unemployment program due to the Social Security Act's requirement, but they have broad latitude in defining its specifics.

  • Funding Mechanism of Unemployment Insurance

    • Administration Costs: The federal government pays for the administration of each state's UI program using federal tax dollars.

    • This covers expenses like the director's salary, benefit workers, infrastructure, and building maintenance.

    • Benefit Payments: Benefits are paid through an unemployment tax that differs from state to state.

    • This tax is paid 100% by the employer; employees generally do not pay unemployment insurance tax (e.g., in Wisconsin, the employer pays, not the employee from their paycheck).

    • Employer Tax Variation: The amount of tax an employer pays varies based on the number of claims made against the fund by their former or current employees over time.

    • Employers with higher turnover or more employees filing for unemployment will pay a higher tax rate.

    • Example: A seasonal roofing company that lays off workers in winter would likely pay higher taxes than a stable, year-round business like Starbucks.

    • This system creates an incentive for employers to maintain a stable workforce and be