Topics in Unemployment Insurance Financing

Topics in Unemployment Insurance Financing

Topics in Unemployment Insurance Financing

Topics in Unemployment Insurance Financing

Excerpt

Unemployment insurance is an important and long-standing social insurance program in the United States. Created by the Social Security Act of 1935, UI pays benefits to 15 to 20 million claimants in most years, benefits financed mainly by payroll taxes levied on covered employers. Employer contributions deposited into state trust fund accounts at the U.S. Treasury are the source for cash benefit payments to claimants.

Unemployment insurance is often described as having three primary objectives. First among these is to [alleviate the hardships that result from loss of wage income during unemployment] (Haber and Murray 1966, p. 26). The cash benefits paid provide partial wage-loss replacement and help to maintain the income and purchasing power of eligible unemployed persons and their families. Payments typically are made to individuals who have lost jobs through no fault of their own, that is, those on layoff, and benefits are received for temporary periods. The second objective is to help stabilize the macroeconomy through the maintenance of aggregate consumer purchasing power during recessions, when the production of goods and services declines. The third objective is to help stabilize employment by experience-rating of individual, covered employers. Employers who, through layoffs and other job separations, cause large payments in UI benefits then pay higher UI taxes than employers who initiate fewer job separations.

THE LEGAL AND INSTITUTIONAL FRAMEWORK

In the United States, unemployment insurance features a blend of federal and state responsibilities. The states administer benefit payments and tax collections and determine most of the statutory provisions related to those activities. There are also federal responsibilities, the most important of which charges the U.S. Secretary of Labor with ensuring the prompt and efficient administration of the UI program.

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