Unemployment Compensation in the United States

Social Security Programs Unemployment Compensation

Introduction to Unemployment Compensation

The Unemployment Compensation program provides monetary support for people who have lost jobs. The Employment Service program (established prior to the Social Security Act) provides training and job-finding services for people seeking work. The two programs are controlled cooperatively by the federal and state governments. Titles III and IX of the Social Security Act authorized the federal government to grant money to states to administer unemployment compensation, and established a federal unemployment insurance trust fund. The Federal Unemployment Tax Act of 1939 authorized the collection of both federal and state payroll taxes from employers and specified how these funds were to be used. Most of the federal tax can be offset by employer contributions to state funds under an approved state unemployment compensation law. The federal government uses its small portion of the tax to pay for the administrative costs of the Unemployment Compensation and Employment Service programs, and for loans to states whose funds run low.

State financing and benefit laws vary widely. In general, unemployment compensation benefits under state laws are intended to replace about 50 percent of the wages previously earned by a worker. Maximum weekly benefits provisions, however, result in benefits equal to less than 50 percent of wages for most higher-earning workers. All states pay benefits for up to 26 weeks to qualified recipients. In some states, the duration of benefits depends on the amount earned and the number of weeks worked in a previous year. In others, all recipients are entitled to benefits for the same length of time. During periods of heavy unemployment, federal law authorizes extended benefits, in some cases up to 39 weeks. For example, in 1975, during a period of high unemployment, extended benefits were payable for up to 65 weeks. Federal payroll taxes help to finance such extended benefits. See also Unemployment Insurance.” (1)

Unemployment compensation Background