Updated February 8, 2019
The Fundamentals of Unemployment Compensation
A Joint Federal-State Program
UC in a Snapshot, FY2018
The joint federal-state Unemployment Compensation (UC)
program provides income support through UC benefit
1.8M
$354
15.4 weeks
5.3M
payments. Although there are broad requirements under
Average
Average
Average
New
federal law regarding UC benefits and financing, the
Weekly
Weekly
Duration
UC
specifics are set out under each state’s laws. States
Claims
Benefit
of Claim
Beneficiaries
administer UC benefits with U.S. Department of Labor
(DOL) oversight, resulting in 53 different UC programs
operated in the states, the District of Columbia, Puerto
Rico, and the Virgin Islands.
Revenues (estimated): $43.4B
Federal Unemployment Tax (FUTA): $6.3B
Total UC expenditures include benefits and administrative
State Unemployment Tax (SUTA): $37.1B
costs. During economic expansions, states fund
approximately 85%-90% of all UC expenditures—as almost
all of the benefits are state-financed by state unemployment
taxes. In comparison, federal expenditures are relatively
small during these expansions (approximately 10%-15%) in
Outlays (estimated): $32.5B
which federal expenditures are primarily administrative
Administration (FUTA financed): $3.8B
grants to the states financed by federal unemployment
Regular UC Benefit (SUTA financed): $28.2B
taxes.
UC Federal Employees (UCFE, Agency pays): $0.2B
UC Ex-Servicemembers (UCX, Service pays): $0.3B
Objectives
Source: U.S. Department of Labor (DOL), Employment
The UC program’s two main objectives are
and Training Administration, Office of Unemployment
Insurance. Totals may not add up due to rounding.
1. to provide temporary partial wage
replacement to involuntarily unemployed
workers and
Benefits
2. to stabilize the economy during
The UC program pays benefits to workers who become
recessions.
involuntarily unemployed for economic reasons and meet
These objectives are reflected in the current UC program’s
state-established eligibility rules. The UC program
funding and benefit structure. During economic expansions,
generally does not provide UC benefits to
UC program revenue rises through increased tax revenue
whereas UC program spending falls as fewer workers are
the self-employed, those who are unable to work, or
unemployed and receive benefits. The effect of collecting
those who do not have a recent earnings history.
more taxes than are spent on benefits dampens demand in
the economy. This also creates a surplus of funds or a
States usually disqualify claimants who
“cushion” of available funds for the UC program to draw
upon during a recession. In a recession, UC tax revenue
lost their jobs because of inability to work, voluntarily
falls and UC program spending rises as more workers lose
quit without good cause, were discharged for job-related
their jobs and receive UC benefits. The increased amount of
misconduct, or refused suitable work without good
UC payments to unemployed workers dampens the
cause.
economic effect of lost earnings by injecting additional
funds into the economy.
To receive UC benefits, claimants must
Authorization
have enough recent earnings (distributed over a
The underlying framework of the UC system is contained in
specified period) to meet their state’s earnings
the Social Security Act. Title III of the act authorizes state
requirements; and
grants for administering state UC laws; Title IX authorizes
the various components of the federal Unemployment Trust
be able, available, and actively searching for work.
Fund (UTF); and Title XII authorizes advances or loans to
insolvent state programs. UC is financed by federal taxes
For more details on UC eligibility and benefits, see CRS
under the Federal Unemployment Tax Act (FUTA) and by
Report RL33362, Unemployment Insurance: Programs and
state payroll taxes under the State Unemployment Tax Acts
Benefits.
(SUTA).
https://crsreports.congress.gov
The Fundamentals of Unemployment Compensation
Most states provide up to a maximum of 26 weeks of UC
of 1970 (EUCA; P.L. 91-373) (26 U.S.C. §3304, note). For
benefits. Under current state laws, the maximum duration of
more details on the EB program, see CRS Report RL33362,
UC benefits range from up to 12 weeks (under certain
Unemployment Insurance: Programs and Benefits.
economic conditions in Florida and North Carolina) to up to
30 weeks (Massachusetts). For information on UC benefit
Temporary Programs
duration in states, see CRS Report R41859, Unemployment
Congress has created federal temporary programs that
Insurance: Consequences of Changes in State
extended unemployment benefits eight different times.
Unemployment Compensation Laws.
Most recently, the EUC08 program was created by the
Supplemental Appropriations Act of 2008 (P.L. 110-252).
Former federal workers may be eligible for unemployment
State UC agencies administered the EUC08 benefit along
benefits through the Unemployment Compensation for
with regular UC and EB benefits. Amended 11 times, at the
Federal Employees (UCFE) program. Former U.S. military
program’s peak, four tiers of EUC08 benefits were
servicemembers may be eligible for unemployment benefits
available to unemployed workers in states with high
through the Unemployment Compensation for Ex-
unemployment rates; in states in which all four tiers of
Servicemembers (UCX) program. For more information on
EUC08 benefits were available, eligible unemployed
the UCX program, see CRS Report RS22440,
workers could receive up to 99 weeks of benefits combined
Unemployment Compensation (Insurance) and Military
from the regular UC, EB, and EUC08 programs. The
Service.
program ended the last week of December 2013.
In FY2018, states paid $28.6 billion in UC benefits and
For more details on the EUC08 program, see CRS Report
federal agencies paid $0.55 billion in UCFE/UCX benefits,
R42444, Emergency Unemployment Compensation
which are considered on-budget, mandatory expenditures.
(EUC08): Status of Benefits Prior to Expiration. For more
The UC program’s administrative costs, which go through
details on all temporary UC programs, see CRS Report
the federal appropriations process, were estimated to total
RL34340, Extending Unemployment Compensation
$4 billion.
Benefits During Recessions.
Financing
Job Search and Return to Work
The UC program is financed by federal payroll taxes under
The job search behavior of the unemployed can be
the FUTA and by state payroll taxes under SUTA. The
influenced by changing the timing, generosity, and duration
0.6% effective net FUTA tax paid by employers on the first
of UC benefits. The availability of benefits may create a
$7,000 of each employee’s earnings (no more than $42 per
disincentive to search for and accept reemployment,
worker per year) funds federal and state administrative
increasing unemployment and unemployment duration.
costs, loans to insolvent state UC accounts, the federal
share (50%) of Extended Benefit (EB) payments, and state
Although most economists would agree that UC benefits
employment services. For FY2018, an estimated $6.3
create some disincentives to find work quickly, these
billion was collected in federal FUTA taxes, whereas an
disincentives are somewhat balanced by a relatively low
estimated $39.1 billion was collected in SUTA taxes to
replacement rate of wages by UC benefits and a recognition
finance UC benefits.
that proper allocation of human resources and human
capital requires adequate job search time.
For more details on UC financing, see CRS Report R44527,
Unemployment Compensation: The Fundamentals of the
For more analysis of the interaction between job search and
Federal Unemployment Tax (FUTA) and CRS Report
UC receipt, including policy proposals to return UC
RS22077, Unemployment Compensation (UC) and the
claimants to work, see CRS Report R43044, Expediting the
Unemployment Trust Fund (UTF): Funding UC Benefits.
Return to Work: Approaches in the Unemployment
Compensation Program.
Unemployment Benefits for the Long-
Term Unemployed
Program Integrity
In response to economic recessions, the federal government
Program integrity continues to be of concern to the UC
sometimes has augmented the regular UC benefit with both
program. The Office of Management and Budget (OMB)
permanent (the EB program) and temporary unemployment
has designated UC as one of 19 “high-error” programs. In
benefits (including the Emergency Unemployment
FY2017, the UC improper payment rate was 12.5%, with a
Compensation of 2008 [EUC08] program).
total of $4.1 billion in improper payments. Although states
currently have authority to recover UC overpayments
Extended Benefits
through a variety of means, there may be legislative
UC benefits may be extended at the state level by the
proposals in the 116th Congress to further address this issue.
permanent law EB program if high unemployment exists
For more information on program integrity proposals, see
within the state. After regular unemployment benefits are
CRS Report R45478, Unemployment Insurance: Legislative
exhausted, the EB program may provide up to an additional
Issues in the 116th Congress .
13 or 20 weeks of benefits, depending on worker eligibility,
state law, and economic conditions in the state. The EB
Julie M. Whittaker, Specialist in Income Security
program is funded 50% by the federal government and 50%
Katelin P. Isaacs, Analyst in Income Security
by the states. The EB program was established by the
Federal-State Extended Unemployment Compensation Act
IF10336
https://crsreports.congress.gov
The Fundamentals of Unemployment Compensation
Disclaimer
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Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
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