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Unemployment insurance claims in decline

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Snapshot for February 21, 2001.

Unemployment insurance claims in decline
With the possibility of a recession looming and unemployment on the rise, more workers will come to rely on unemployment insurance (UI). The figure below, however, demonstrates a trend over the last several business cycles in which the number of the unemployed filing claims to receive benefits has fallen in relation to total unemployment. In 1975, 55% of unemployed workers filed for benefits from the UI system, but by 1993 that number had declined to 35%.

Percentage of total unemployed filing for unemployment insurance

There are many reasons for the decline in unemployed workers filing for UI benefits. The steady decline in manufacturing and unionization has resulted in fewer workers being aware of their right to unemployment compensation. Migration from rustbelt states — where UI benefits are higher — to the lower-paying southern states has reduced the value of benefits and thus the incentive to file. And the sporadic nature of employment in temporary help and contract work makes qualifying for UI difficult.

But apart from these reasons, some states’ UI laws have not kept pace with the changes in the U.S. labor force. Some states have difficult-to-satisfy earnings and hours requirements and often don’t consider a worker’s most recent earnings and hours when determining eligibility. As a result, the unemployment insurance claims vary considerably from state to state. For example, nearly 70% of those unemployed in Massachusetts file UI claims, while only 25% of the unemployed in Colorado file.

As the figure above indicates, only 43% of those who are unemployed are currently filing for benefits in the UI system. As this number declines, more workers and their families are vulnerable to the economic hardships associated with unemployment. This prospect is particularly daunting as the economy seems to be slowing.

This week’s Snapshot by EPI economist Jeffrey Wenger, with research assistance by Matthew Walters.

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