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I.
INTRODUCTION
Unemployment Insurance, form of social insurance, designed to provide income to persons who have lost their jobs. Unemployment insurance is wage related and is payable as a matter of right to any insured eligible worker. The system has two major goals: to prevent unemployed persons from undergoing severe hardships and to get the unemployed back to work. Unemployment compensation benefits account for approximately 1 percent of personal income in most developed Western nations.
II.
UNEMPLOYMENT INSURANCE IN THE U.S.
The need for a compulsory unemployment insurance program in the U.S. became apparent during the depression of the 1930s. Before that time, only a few companies had adopted voluntary unemployment insurance plans, and even fewer had capital funds strong enough to withstand the strain of prolonged unemployment. Some trade unions tried to cope with the problem by building up their own unemployment funds. Benefits, however, were small and for a limited period. The first state to set up an unemployment insurance system was Wisconsin in 1932.
The basis for nationwide unemployment insurance was the Social Security Act of 1935, which established a federal-state cooperative program designed to provide insured workers with partial replacement of wages lost by involuntary unemployment .The program was financed by taxes levied on business payrolls. Under the Social Security Act, the federal share of these taxes covers the cost of administering the unemployment insurance and employment service programs; the state share may be used only for benefit costs. Each state sets its own rules and has charge of program administration. State laws vary regarding eligibility for benefits, amount of benefits, and number of weeks during which they may be paid.
Initially, eligible workers had to wait from 2 to 4 weeks before receiving benefits, which could then be drawn for a maximum of 20 weeks. Because coverage was limited to certain industries, only half of all workers were eligible for benefits if they were laid off. Changes in legislation and administrative practice have altered these original features. Many states do not require a waiting period before benefits may begin, and in none does the wait exceed one week. Since 1970 extensions of benefits for up to 39 weeks go into effect automatically when the unemployment rate rises more than a certain amount. Emergency legislation in recessions extends the maximum duration still further; for example, in the 1981-82 recession, people were able to draw benefits for up to 55 weeks. States have liberalized benefits by granting an increased fraction of workers eligibility for up to 26 weeks of benefits at all times. In 1976 the program's coverage was amended to make laid-off workers in all industries eligible for benefits if they meet the state's requirements.
METHODS
State unemployment compensation laws establish a fund, financed by contributions from employers, from which weekly unemployment benefits are paid for a specified number of weeks. Employers' contributions are based on experience rating; that is, they are related to the amount of benefits received in the past by workers laid off from the business. A few states also require contributions from employees. To be eligible for benefits, an unemployed worker must have earned a given amount of wages within a specific period of time. In addition, a worker must file a claim, register for work at the state employment service, be able to work, and be available for suitable work. A claimant may be disqualified from benefits for varying periods if he or she left a job voluntarily without good cause, was dismissed for misconduct, or refused an offer of suitable work. Until another job is found or the benefit period ends, a worker receives a weekly payment by reporting at scheduled intervals to the local unemployment office.
In the U.S., unemployment insurance replaces about half of the aftertax wages lost each week up to a prescribed maximum; the higher the worker's usual earnings, the lower is this fraction. The average beneficiary draws benefits for about 15 weeks (longer during recessions). Less than half of the unemployed receive benefits, mainly because many unemployed workers do not have sufficient employment experience to qualify for benefits. Fewer than one-third of all beneficiaries fail to return to work before exhausting their benefits.
UNEMPLOYMENT INSURANCE IN OTHER COUNTRIES
Nineteen European nations had compulsory unemployment insurance programs before the U.S. program was established. The first was instituted in Britain in 1911, and it expanded rapidly to cover most low-wage, nonfarm workers. By the late 1920s potential duration of benefits was unlimited, and requirements for eligibility had been relaxed so that some workers could draw two weeks of benefits for each week they had been employed. The British have also altered their system over time and have introduced a redundancy payment, a one-time benefit paid at the time of layoff.
Most nations have some form of compulsory unemployment insurance. These programs differ from that in the U.S. in important ways. Potential duration is longer in many developed countries and shorter in most developing nations. Benefits generally are financed at least partly by income taxes rather than by taxes on employers alone. Where taxes on employers are used, they are not related to past records of layoffs.
.
ISSUES AND TRENDS
Evidence from studies in the U.S., Canada, Britain, and other countries indicates that higher benefits encourage some workers to stay unemployed longer. The failure to base taxes completely on an employer's record of past layoffs contributes to greater instability of employment. Thus, it is likely that some small part of total unemployment is induced by unemployment insurance. Taxing benefits, as is now done in the U.S., is one possible solution to this detrimental side effect of unemployment insurance.
With the higher unemployment rates in Western nations since 1973, the protection offered by unemployment insurance has increased in importance. If unemployment stays high, pressures for extensions of potential duration and for increased weekly benefits are likely to grow, while public concern about preventing payment to those not seriously seeking work expands. In the future as in the past, interest in a country's unemployment insurance program will be directly related to the degree of the unemployment problem.
I.
INTRODUCTION
Unemployment Insurance, form of social insurance, designed to provide income to persons who have lost their jobs. Unemployment insurance is wage related and is payable as a matter of right to any insured eligible worker. The system has two major goals: to prevent unemployed persons from undergoing severe hardships and to get the unemployed back to work. Unemployment compensation benefits account for approximately 1 percent of personal income in most developed Western nations.
II.
UNEMPLOYMENT INSURANCE IN THE U.S.
The need for a compulsory unemployment insurance program in the U.S. became apparent during the depression of the 1930s. Before that time, only a few companies had adopted voluntary unemployment insurance plans, and even fewer had capital funds strong enough to withstand the strain of prolonged unemployment. Some trade unions tried to cope with the problem by building up their own unemployment funds. Benefits, however, were small and for a limited period. The first state to set up an unemployment insurance system was Wisconsin in 1932.
The basis for nationwide unemployment insurance was the Social Security Act of 1935, which established a federal-state cooperative program designed to provide insured workers with partial replacement of wages lost by involuntary unemployment .The program was financed by taxes levied on business payrolls. Under the Social Security Act, the federal share of these taxes covers the cost of administering the unemployment insurance and employment service programs; the state share may be used only for benefit costs. Each state sets its own rules and has charge of program administration. State laws vary regarding eligibility for benefits, amount of benefits, and number of weeks during which they may be paid.
Initially, eligible workers had to wait from 2 to 4 weeks before receiving benefits, which could then be drawn for a maximum of 20 weeks. Because coverage was limited to certain industries, only half of all workers were eligible for benefits if they were laid off. Changes in legislation and administrative practice have altered these original features. Many states do not require a waiting period before benefits may begin, and in none does the wait exceed one week. Since 1970 extensions of benefits for up to 39 weeks go into effect automatically when the unemployment rate rises more than a certain amount. Emergency legislation in recessions extends the maximum duration still further; for example, in the 1981-82 recession, people were able to draw benefits for up to 55 weeks. States have liberalized benefits by granting an increased fraction of workers eligibility for up to 26 weeks of benefits at all times. In 1976 the program's coverage was amended to make laid-off workers in all industries eligible for benefits if they meet the state's requirements.
METHODS
State unemployment compensation laws establish a fund, financed by contributions from employers, from which weekly unemployment benefits are paid for a specified number of weeks. Employers' contributions are based on experience rating; that is, they are related to the amount of benefits received in the past by workers laid off from the business. A few states also require contributions from employees. To be eligible for benefits, an unemployed worker must have earned a given amount of wages within a specific period of time. In addition, a worker must file a claim, register for work at the state employment service, be able to work, and be available for suitable work. A claimant may be disqualified from benefits for varying periods if he or she left a job voluntarily without good cause, was dismissed for misconduct, or refused an offer of suitable work. Until another job is found or the benefit period ends, a worker receives a weekly payment by reporting at scheduled intervals to the local unemployment office.
In the U.S., unemployment insurance replaces about half of the aftertax wages lost each week up to a prescribed maximum; the higher the worker's usual earnings, the lower is this fraction. The average beneficiary draws benefits for about 15 weeks (longer during recessions). Less than half of the unemployed receive benefits, mainly because many unemployed workers do not have sufficient employment experience to qualify for benefits. Fewer than one-third of all beneficiaries fail to return to work before exhausting their benefits.
UNEMPLOYMENT INSURANCE IN OTHER COUNTRIES
Nineteen European nations had compulsory unemployment insurance programs before the U.S. program was established. The first was instituted in Britain in 1911, and it expanded rapidly to cover most low-wage, nonfarm workers. By the late 1920s potential duration of benefits was unlimited, and requirements for eligibility had been relaxed so that some workers could draw two weeks of benefits for each week they had been employed. The British have also altered their system over time and have introduced a redundancy payment, a one-time benefit paid at the time of layoff.
Most nations have some form of compulsory unemployment insurance. These programs differ from that in the U.S. in important ways. Potential duration is longer in many developed countries and shorter in most developing nations. Benefits generally are financed at least partly by income taxes rather than by taxes on employers alone. Where taxes on employers are used, they are not related to past records of layoffs.
.
ISSUES AND TRENDS
Evidence from studies in the U.S., Canada, Britain, and other countries indicates that higher benefits encourage some workers to stay unemployed longer. The failure to base taxes completely on an employer's record of past layoffs contributes to greater instability of employment. Thus, it is likely that some small part of total unemployment is induced by unemployment insurance. Taxing benefits, as is now done in the U.S., is one possible solution to this detrimental side effect of unemployment insurance.
With the higher unemployment rates in Western nations since 1973, the protection offered by unemployment insurance has increased in importance. If unemployment stays high, pressures for extensions of potential duration and for increased weekly benefits are likely to grow, while public concern about preventing payment to those not seriously seeking work expands. In the future as in the past, interest in a country's unemployment insurance program will be directly related to the degree of the unemployment problem.
