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 (see Social Security). 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.