Unemployment insurance during a downturn

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for August 15, 2001.

Unemployment insurance during a downturn
Unemployment insurance (UI) provides temporary income for workers who lose their job through no fault of their own. Unfortunately, fewer laid-off workers receive UI benefits now than in the 1970s. From 1967 to 1979 the percent of workers who lost their jobs receiving UI benefits averaged 94%. By 1983 this percentage had declined to 54% -- only slightly more than half of all laid off workers. From 1993 to 2000 the percentage of laid off workers receiving UI benefits increased from 57% to 85%. This is good news for workers but potentially bad news for state UI finances.

During the 1990s the United States saw historically low levels of unemployment. Many state UI programs operated generously, and the percentage of laid off workers receiving benefits increased. With so many people employed, state UI trusts funds were raising more money than they paid out. During these relative good times, most states significantly lowered unemployment insurance taxes levied on businesses.

High proportions of displaced workers applying for benefits coupled with low levels of UI tax revenues may spell disaster for unemployed workers. As unemployment increases, so does the drain on the system, placing it in double jeopardy. Higher unemployment rates raise the costs of state UI systems (due to benefit pay-outs), while, at the same time, the lower employment levels reduce the amount of revenue need to fund UI. States that failed to amass sizable UI trust funds during the economic good times will be in the unpopular position of cutting or denying benefits, raising taxes, or borrowing money to cover the expenses of the system. Since many states try to avoid debts and taxes at all costs, the brunt of these bad financing decisions is likely to be borne by the unemployed, which is too bad -- they are the ones that can afford it the least.

This week's Snapshot by EPI Economist Jeff Wenger.

Check out the archive for past Economic Snapshots.