[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Program Descriptions]
[Section 4. Unemployment Compensation]
[From the U.S. Government Printing Office, www.gpo.gov]
[1998 Green Book] SECTION 4. UNEMPLOYMENT COMPENSATION
CONTENTS
Overview
Benefits
Coverage
Number of Covered Workers
Eligibility
Amount and Duration of Weekly Benefits
Extended Benefits
Benefit Exhaustion
Supplemental Benefits
Hypothetical Weekly Benefit Amounts for Various Workers in the
Regular State Programs
The Unemployment Trust Fund
Financial Condition of the Unemployment Trust Fund
The Federal Unemployment Tax
State Unemployment Taxes
Administrative Financing and Allocation
Legislative History
References
OVERVIEW
The Social Security Act of 1935 (Public Law 74-271)
created the Federal-State Unemployment Compensation (UC)
Program. The program has two main objectives: (1) to provide
temporary and partial wage replacement to involuntarily
unemployed workers who were recently employed; and (2) to help
stabilize the economy during recessions. The U.S. Department of
Labor oversees the system, but each State administers its own
program. Because Federal law defines the District of Columbia,
Puerto Rico, and the Virgin Islands as States for the purposes
of UC, there are 53 State programs.
The Federal Unemployment Tax Act of 1939 (Public Law 76-
379) and titles III, IX, and XII of the Social Security Act
form the framework of the system. The Federal Unemployment Tax
Act (FUTA) imposes a 6.2 percent gross tax rate on the first
$7,000 paid annually by covered employers to each employee.
Employers in States with programs approved by the Federal
Government and with no delinquent Federal loans may credit 5.4
percentage points against the 6.2 percent tax rate, making the
minimum net Federal unemployment tax rate 0.8 percent. Since
all States have approved programs, 0.8 percent is the effective
Federal tax rate. This Federal revenue finances administration
of the system, half of the Federal-State Extended Benefits
Program, and a Federal account for State loans. The individual
States finance their own programs, as well as their half of the
Federal-State Extended Benefits Program.
In 1976, Congress passed a surtax of 0.2 percent of taxable
wages to be added to the permanent FUTA tax rate (Public Law
94-566). Thus, the current effective 0.8 percent FUTA tax rate
has two components: a permanent tax rate of 0.6 percent, and a
surtax rate of 0.2 percent. The surtax has been extended five
times, most recently by the Taxpayer Relief Act of 1997 (Public
Law 105-34) through December 31, 2007.
FUTA generally determines covered employment. FUTA also
imposes certain requirements on the State programs, but the
States generally determine individual qualification
requirements, disqualification provisions, eligibility, weekly
benefit amounts, potential weeks of benefits, and the State tax
structure used to finance all of the regular State benefits and
half of the extended benefits.
The Social Security Act provides for the administrative
framework: title III authorizes Federal grants to the States
for administration of the State UC laws; title IX authorizes
the various components of the Federal unemployment trust fund;
title XII authorizes advances or loans to insolvent State UC
Programs.
Table 4-1 provides a statistical overview of the UC
Program.
BENEFITS
Coverage
In order to qualify for benefits, an unemployed person
usually must have worked recently for a covered employer for a
specified period of time and earned a certain amount of wages.
About 118 million individuals were covered by all UC Programs
in 1995, representing 97 percent of all wage and salary workers
and 89 percent of the civilian labor force.
FUTA covers certain employers that State laws also must
cover for employers in the States to qualify for the 5.4
percent Federal credit. Since employers in the States would
lose this credit and their employees would not be covered if
the States did not have this coverage, all States cover the
required groups: (1) except for nonprofit organizations, State-
local governments, certain agricultural labor, and certain
domestic service, FUTA covers employers who paid wages of at
least $1,500 during any calendar quarter or who employed at
least one worker in at least 1 day of each of 20 weeks in the
current or prior year; (2) FUTA covers agricultural labor for
employers who paid cash wages of at least $20,000 for
agricultural labor in any calendar quarter or who employed 10
or more workers in at least 1 day in each of 20 different weeks
in the current or prior year; and (3) FUTA covers domestic
service employers who paid cash wages of $1,000 or more for
domestic service during any calendar quarter in the current or
prior year.
TABLE 4-1.--UNEMPLOYMENT COMPENSATION PROGRAM DATA, FISCAL YEARS 1987-98
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Fiscal years
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Statistic 1997 1998
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 (estimated) (projected) \1\
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Total civilian unemployment rate (percent).................... 6.4 5.6 5.3 5.4 6.5 7.3 7.0 6.3 5.6 5.5 5.3 5.5
Insured unemployment rate (percent) \2\....................... 2.5 2.2 2.1 2.3 3.1 3.1 2.7 2.6 2.3 2.3 2.3 2.3
Coverage (millions)........................................... 98.0 101.2 104.3 106.1 105.1 104.9 106.6 109.7 112.9 114.9 116.6 117.7
Average weekly benefit amount:
Current dollars.......................................... 134 140 145 154 163 167 172 175 179 182 187 195
In 1997 dollars \3\...................................... 191 192 189 192 193 192 192 190 189 187 187 189
State unemployment compensation:
Beneficiaries (millions)................................. 7.5 6.8 7.0 8.1 10.2 9.6 7.8 8.2 7.9 8.1 8.2 8.6
Regular benefit exhaustions (millions)................... 2.5 1.9 1.9 2.2 3.2 3.9 3.3 3.1 2.7 2.7 2.6 2.6
Regular benefits paid (billions of dollars).............. 15.0 13.2 13.5 16.8 24.4 25.6 21.9 21.7 20.9 22.0 22.4 24.2
Extended benefits (State share: billions of dollars)..... 0.04 0.04 (\6\) 0.03 0.01 0.02 0.00 0.15 0.04 0.01 0.02 0.03
State tax collections (billions of dollars).............. 19.1 18.3 17.3 16.0 15.3 17.6 21.0 22.5 23.2 22.7 23.5 24.5
State trust fund impact (income-outlays: billions of
dollars) \4\............................................. +4.11 +5.12 +3.80 -0.88 -9.13 -8.03 -0.93 +0.66 +2.24 +0.75 +1.15 +0.29
Federal unemployment compensation accounts:
Federal tax collections (billions of dollars) \5\........ 5.08 5.50 4.45 5.36 5.33 5.41 \7\ 4.23 5.46 5.70 5.85 5.92 5.98
Outlays: Federal EB share plus Federal supplemental
benefits (billions of dollars)........................... 0.04 0.04 (\6\) 0.03 0.01 11.15 13.17 4.37 0.05 \8\ -0.0
1 0.02 0.03
State administrative costs (billions of dollars):
Unemployment Insurance Service........................... 1.56 1.61 1.71 1.74 1.95 2.49 2.52 2.43 2.38 2.31 2.34 2.55
Employment Service....................................... 0.90 0.95 1.00 1.01 1.05 1.02 0.90 0.90 1.05 1.06 1.02 1.01
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Total administrative costs........................... 2.46 2.56 2.71 2.75 3.00 3.51 3.42 3.33 3.43 3.36 3.36 3.56
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\1\ Based on the President's fiscal year 1998 budget.
\2\ The average number of workers claiming State unemployment compensation benefits as a percent of all workers covered.
\3\ Adjusted using CPI-U.
\4\ Excludes interest earned.
\5\ Net of reduced credits.
\6\ Less than $5 million.
\7\ Reflects a book adjustment of minus $967 million.
\8\ Reflects reclaimed benefits in excess of benefits paid.
Source: U.S. Department of Labor. (1997d, February). UI Outlook: Fiscal Year 1998 President's Budget. Washington, DC.
FUTA requires coverage of nonprofit organization employers
of at least four workers for 1 day in each of 20 different
weeks in the current or prior year and State-local governments
without regard to the number of employees. Nonprofit and State-
local government organizations are not required to pay Federal
unemployment taxes; they may choose instead to reimburse the
system for benefits paid to their laid-off employees.
States may cover certain employment not covered by FUTA,
but most States have chosen not to expand FUTA coverage
significantly. The following employment is therefore generally
not covered: (1) self-employment; (2) certain agricultural
labor and domestic service; (3) service for relatives; (4)
service of patients in hospitals; (5) certain student interns;
(6) certain alien farmworkers; (7) certain seasonal camp
workers; and (8) railroad workers (who have their own
unemployment program).
Number of Covered Workers
Although the UC system covers 97 percent of all wage and
salary workers, table 4-2 shows that on average only 36 percent
of unemployed persons were receiving UC benefits in 1996. This
compares with a peak of 81 percent of the unemployed receiving
UC benefits in April 1975 and a low point of 26 percent in June
1968 and in October 1987. Despite high unemployment during the
early 1980s, there was a downward trend in the proportion of
unemployed persons receiving regular State benefits until the
mid-1980s. The proportion receiving UC rose sharply in December
1991 due to the temporary Emergency Unemployment Compensation
(EUC) Program.
In May 1988, Mathematica Policy Research, Inc. (MPR), under
contract to the U.S. Department of Labor, released a study on
the decline in the proportion of the unemployed receiving
benefits during the 1980s. This analysis did not find a single
predominant cause for the decline but instead found statistical
evidence that several factors contributed to the decline (the
figures in parentheses show the share of the decline attributed
to each factor):
1. The decline in the proportion of the unemployed from
manufacturing industries (4-18 percent);
2. Geographic shifts in composition of the unemployed among
regions of the country (16 percent);
3. Changes in State program characteristics (22-39 percent):
--Increase in the base period earnings requirements (8-15
percent);
--Increase in income denials for UC receipt (10 percent);
and
--Tightening up other nonmonetary eligibility requirements
(3-11 percent);
4. Changes in Federal policy such as partial taxation of UC
benefits (11-16 percent); and
5. Changes in unemployment as measured by the Current
Population Survey (CPS) (1-12 percent).
TABLE 4-2.--INSURED UNEMPLOYMENT AS A PERCENT OF TOTAL UNEMPLOYMENT, BY MONTH, 1967-96
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Year Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Avg.
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1967............................................ 52 52 54 54 50 30 39 41 33 33 35 47 43
1968............................................ 57 50 52 50 45 26 34 38 33 34 38 48 42
1969............................................ 54 54 52 48 43 27 35 36 31 33 40 51 41
1970............................................ 57 54 52 53 53 36 42 45 42 44 48 53 48
1971............................................ 58 58 61 59 56 42 45 48 44 46 47 55 52
1972............................................ 56 58 56 52 49 36 41 38 33 34 38 47 45
1973............................................ 51 46 46 44 43 31 36 37 34 38 38 48 41
1974............................................ 53 54 57 60 54 40 43 44 39 42 48 60 50
1975............................................ 66 73 77 81 79 72 77 79 73 74 76 80 75
1976............................................ 78 75 76 73 72 58 66 66 60 59 60 63 67
1977............................................ 67 66 66 66 59 45 52 49 47 48 49 57 56
1978............................................ 54 54 50 47 44 36 39 42 35 37 34 43 43
1979............................................ 48 48 47 47 42 33 39 38 36 38 40 49 42
1980............................................ 51 51 53 52 49 45 49 49 54 49 49 54 50
1981............................................ 54 50 49 46 40 35 37 37 36 34 37 41 41
1982............................................ 47 44 48 49 45 40 42 42 43 48 49 47 45
1983............................................ 50 52 50 53 52 40 39 36 34 33 39 41 44
1984............................................ 40 38 38 36 34 30 31 30 30 31 31 38 34
1985............................................ 40 41 41 39 32 28 30 30 28 27 32 37 34
1986............................................ 38 36 37 35 32 29 32 32 29 30 32 37 33
1987............................................ 37 37 38 35 31 28 30 29 28 26 29 34 32
1988............................................ 37 37 37 35 31 28 30 29 27 27 30 34 32
1989............................................ 35 35 40 37 30 29 33 33 29 31 29 38 33
1990............................................ 40 42 44 41 37 33 36 34 32 34 34 40 37
1991............................................ 47 46 48 49 41 37 39 37 35 34 38 51 42
1992............................................ 56 54 59 59 54 46 48 48 49 50 50 51 52
1993............................................ 50 48 51 52 48 43 47 48 47 44 46 49 48
1994............................................ 43 48 43 38 36 31 33 33 30 32 34 39 37
1995............................................ 39 41 40 37 35 32 35 34 32 34 31 40 36
1996............................................ 41 43 42 40 34 33 34 34 32 31 33 39 36
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Source: U.S. Department of Labor, Division of Actuarial Services.
The group of unemployed most likely to be insured are job
losers. Chart 4-1 shows the number of unemployment compensation
claimants measured as a percentage of the number of job losers.
This coverage ratio remained fairly stable from 1968 through
1979. Over that 12-year span, there were from 90 to 110
recipients of regular State UC for every 100 job losers. This
ratio fluctuated somewhat over the business cycle, but it was
otherwise quite stable.
CHART 4-1. RATIO OF INSURED UNEMPLOYMENT TO JOB LOSERS (YEARLY
AVERAGES), 1968-96
Note._Insured unemployment data include the Virgin Islands
and Puerto Rico, but the data for job losers do not include
these territories.
Source: Chart prepared by the Congressional Research
Service based on data from Economic Report of the President,
various years.
Beginning in 1980, the ratio of UC recipients to job
losers fell sharply, reaching an all-time low in 1983 when
there were fewer than 60 regular UC recipients for every 100
job losers. After 1983, the coverage ratio increased somewhat,
so that there were about 75 regular UC claimants for every 100
job losers in 1990. However, the ratio declined again with the
1990-91 recession. It has since returned to the prerecession
level.
Eligibility
States have developed diverse and complex methods for
determining UC eligibility. In general there are three major
factors used by States: (1) the amount of recent employment and
earnings; (2) demonstrated ability and willingness to seek and
accept suitable employment; and (3) certain disqualifications
related to a claimant's most recent job separation or job offer
refusal.
Monetary qualifications
Table 4-3 shows the State monetary qualification
requirements in the base year for the minimum and maximum
weekly benefit amounts, and for the maximum total potential
benefits. The base year is a recent 1-year period that most
States (48) define as the first 4 of the last 5 completed
calendar quarters before the unemployed person claims benefits.
Most States require employment in at least 2 calendar quarters
of the base year. Qualifying annual wages for the minimum
weekly benefit amount vary from $130 in Hawaii to $3,400 in
Florida. For the maximum weekly benefit amount, the range is
$5,450 in Nebraska to $29,432 in Colorado. The range of
qualifying wages for the maximum total potential benefit, which
is the product of the maximum weekly benefit amount and the
maximum potential weeks of benefits, is from $6,080 in Puerto
Rico to $32,850 in Washington.
TABLE 4-3.--MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM WEEKLY BENEFIT AMOUNTS AND MAXIMUM TOTAL
POTENTIAL BENEFITS, 1997 \1\
----------------------------------------------------------------------------------------------------------------
Required total earnings in base year
---------------------------------------- Minimum work
State For minimum For maximum For maximum in base year
weekly weekly potential (quarters) \3\
benefit benefit benefits \2\
----------------------------------------------------------------------------------------------------------------
Alabama................................................ $1,032 $8,616 $14,039 2Q
Alaska.................................................. 1,000 26,750 26,750 2Q
Arizona................................................. 1,500 6,919 14,429 2Q
Arkansas................................................ 1,323 14,196 21,294 2Q
California.............................................. 1,125 9,542 11,958
Colorado................................................ 1,000 29,432 29,432
Connecticut............................................. 600 14,120 14,120 2Q
Delaware................................................ 966 13,800 13,800
District of Columbia.................................... 1,950 14,001 18,668 2Q
Florida................................................. 3,400 9,750 25,998 2Q
Georgia................................................. 1,350 10,750 22,358 2Q
Hawaii.................................................. 130 9,126 9,126 2Q
Idaho................................................... 1,430 8,417 21,885 2Q
Illinois................................................ 1,600 13,481 13,481 2Q
Indiana................................................. 2,750 6,468 20,150 2Q
Iowa.................................................... 1,173 6,641 18,018 2Q
Kansas.................................................. 1,950 8,100 21,060 2Q
Kentucky................................................ 1,500 20,717 20,717 2Q
Louisiana............................................... 1,200 7,237 18,583 2Q
Maine................................................... 3,042 16,614 16,614 2Q
Maryland................................................ 900 9,000 9,000 2Q
Massachusetts........................................... 2,000 10,860 30,167
Michigan................................................ 2,020 12,060 21,105 2Q
Minnesota............................................... 1,250 10,205 24,492 2Q
Mississippi............................................. 1,200 7,200 14,040 2Q
Missouri................................................ 1,500 5,833 13,650 2Q
Montana................................................. 1,356 23,000 23,000 2Q
Nebraska................................................ 1,200 5,450 14,352 2Q
Nevada.................................................. 600 9,262 19,266 2Q
New Hampshire........................................... 2,800 27,500 27,500 2Q
New Jersey.............................................. 2,020 12,467 21,817 2Q
New Mexico.............................................. 1,421 7,085 9,447 2Q
New York................................................ 1,600 11,980 11,980 2Q
North Carolina.......................................... 2,603 12,090 24,180 2Q
North Dakota............................................ 2,795 16,315 20,883 2Q
Ohio.................................................... 2,640 10,280 13,364 2Q
Oklahoma................................................ 1,500 9,412 16,315 2Q
Oregon.................................................. 1,000 25,120 25,120 2Q
Pennsylvania............................................ 1,320 14,400 14,400 2Q
Puerto Rico............................................. 280 6,080 6,080 2Q
Rhode Island............................................ 1,780 10,909 24,267 2Q
South Carolina.......................................... 900 8,619 17,238 2Q
South Dakota............................................ 1,288 8,602 14,586 2Q
Tennessee............................................... 1,560 11,440 22,880 2Q
Texas................................................... 1,628 9,842 26,611 2Q
Utah.................................................... 1,800 10,608 26,000 2Q
Vermont................................................. 1,723 9,765 9,765
Virginia................................................ 3,250 11,200 22,400 2Q
Virgin Islands.......................................... 1,287 9,009 18,018 2Q
Washington.............................................. 1,950 9,125 32,850
West Virginia........................................... 2,200 28,000 28,000 2Q
Wisconsin............................................... 1,590 8,460 18,330 2Q
Wyoming................................................. 1,750 7,375 19,666 2Q
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\1\ Based on benefits for total unemployment. Amounts payable can be stretched out over a longer period in the
case of partial unemployment.
\2\ Based on maximum weekly benefit amount paid for maximum number of weeks. Total potential benefits equal a
worker's weekly benefit amount times this potential duration.
\3\ Number of quarters of work in base year required to qualify for minimum benefits. ``2Q'' denotes that State
directly or indirectly requires work in at least 2 quarters of the base year. States without an entry have the
minimum work requirement specified as a wage amount.
Source: U.S. Department of Labor.
A Federal court in Pennington v. Doherty overturned the
base year definition in use by most States. The court agreed
with the plaintiff's contention that Illinois could have used
an alternative base period (the last 4 completed quarters) and
that this alternative would better carry out Federal law, which
requires States to use administrative methods that ensure full
payment of UC ``when due.'' This alternative method would
impose greater costs on the States affected. The Balanced
Budget Act of 1997 (Public Law 105-33) revised the Federal law
that was central to the court's decision so that States have
full authority to set base periods for determining eligibility.
From 1996 to 1997, 11 States increased the required
earnings in the base year to qualify for the minimum weekly
benefit amount, and 1 State decreased it. Forty States
increased and one decreased the qualification requirement for
the maximum weekly benefit amount. Thirty-nine States increased
(and two decreased) their qualification requirements for
maximum potential benefits.
Ability to work and availability for work
All State laws provide that a claimant must be both able to
work and available for work. A claimant must meet these
conditions continually to receive benefits.
Only minor variations exist in State laws setting forth
the requirements concerning ``ability to work.'' A few States
specify that a claimant must be mentally and physically able to
work.
``Available for work'' is translated to mean being ready,
willing, and able to work. In addition to registration for work
at a local employment office, most State laws require that a
claimant seek work actively or make a reasonable effort to
obtain work. Generally, a person may not refuse an offer of, or
referral to, ``suitable work'' without good cause.
Most State laws list certain criteria by which the
``suitability'' of a work offer is to be tested. The usual
criteria include the degree of risk to a claimant's health,
safety, and morals; the physical fitness and prior training,
experience, and earnings of the person; the length of
unemployment and prospects for securing local work in a
customary occupation; and the distance of the available work
from the claimant's residence. Generally, as the length of
unemployment increases, the claimant is required to accept a
wider range of jobs.
In addition, Federal law requires States to deny benefits
provided under the Extended Benefit (see below) Program to any
individual who fails to accept any work that is offered in
writing or is listed with the State employment service, or who
fails to apply for any work to which he is referred by the
State agency, if the work: (1) is within the person's
capabilities; (2) pays wages equal to the highest of the
Federal or any State or local minimum wage; (3) pays a gross
weekly wage that exceeds the person's average weekly
unemployment compensation benefits plus any supplemental
unemployment compensation (usually private) payable to the
individual; and (4) is consistent with the State definition of
``suitable'' work in other respects. Public Law 102-318
suspended these provisions from March 7, 1993, until January 1,
1995.
States must refer extended benefits claimants to any job
meeting these requirements. If the State, based on information
provided by the individual, determines that the individual's
prospects for obtaining work in her customary occupation within
a reasonably short period are good, the determination of
whether any work is ``suitable work'' is made in accordance
with State law rather than the criteria outlined above.
There are certain circumstances under which Federal law
provides that State and extended benefits may not be denied. A
State may not deny benefits to an otherwise eligible individual
for refusing to accept new work under any of the following
conditions: (1) if the position offered is vacant directly due
to a strike, lockout, or other labor dispute; (2) if the wages,
hours, or other conditions of the work offered are
substantially less favorable to the individual than those
prevailing for similar work in the locality; or (3) if, as a
condition of being employed, the individual would be required
to join a union or to resign from or refrain from joining any
bona fide labor organization. Benefits may not be denied solely
on the grounds of pregnancy. The State is prohibited from
canceling wage credits or totally denying benefits except in
cases of misconduct, fraud, or receipt of disqualifying income.
There are also certain conditions under which Federal law
requires that benefits be denied. For example, benefits must be
denied to professional and administrative employees of
educational institutions during summer (and other vacation
periods) if they have a reasonable assurance of reemployment;
to professional athletes between sport seasons; and to aliens
not permitted to work in the United States.
Disqualifications
The major causes for disqualification from benefits are
not being able to work or available for work, voluntary
separation from work without good cause, discharge for
misconduct connected with the work, refusal of suitable work
without good cause, and unemployment resulting from a labor
dispute. Disqualification for one of these reasons may result
in a postponement of benefits for some prescribed period, a
cancellation of benefit rights, or a reduction of benefits
otherwise payable.
Of the 17.3 million ``monetarily eligible'' initial UC
claims in 1996, 23.7 percent were disqualified. This figure
subdivides into 4.4 percent not being able to work or available
for work, 6.3 percent voluntarily leaving a job without good
cause, 4.1 percent being fired for misconduct on the job, 0.3
percent refusing suitable work, and 8.7 percent committing
other disqualifying acts. The total disqualification rate
ranged from a low of 7.5 percent in Tennessee to a high of
114.8 percent in Nebraska, with Colorado the next highest at
68.7 percent. (Note that a claimant can be disqualified for any
week claimed, so it is possible for a claimant to be
disqualified more times than the total number of that
claimant's initial claims in the benefit year.)
Federal law requires that benefits provided under the
Extended Benefits Program be denied to an individual for the
entire spell of his unemployment if he was disqualified from
receiving State benefits because of voluntarily leaving
employment, discharge for misconduct, or refusal of suitable
work. These benefits will be denied even if the
disqualification were subsequently lifted with respect to the
State benefits prior to reemployment. The person could receive
extended benefits, however, if the disqualification were lifted
because he became reemployed and met the work or wage
requirement of State law. Public Law 102-318 suspended the
restrictions on extended benefits under Federal law, however,
from March 7, 1993, until January 1, 1995. The Advisory Council
on Unemployment Compensation was required to study these
provisions, and it recommended that the Federal rules be
eliminated. However, Congress has taken no action on this
recommendation.
Ex-service members
The Emergency Unemployment Compensation Act of 1991 (Public
Law 102-164) provided that ex-members of the military be
treated the same as other unemployed workers with respect to
the waiting period for benefits and benefit duration. Before
this 1991 action, Congress had placed restrictions on benefits
for ex-service members, so that the maximum number of weeks of
benefits an ex-service member could receive based on employment
in the military was 13 (as compared with 26 weeks under the
regular UC Program for civilian workers). In addition to a
number of restrictive eligibility requirements, ex-service
members had to wait 4 weeks from the date of their separation
from the service before they could receive benefits.
Pension offset
The Unemployment Compensation Amendments of 1976 (Public
Law 94-566) required all States to reduce an individual's UC by
the amount of any government or private pension or retirement
pay received by the individual.
Public Law 96-364, enacted in 1980, modified this offset
requirement. Under the modified provision, States are required
to make the offset only in those cases in which the work-
related pension was maintained or contributed to by a ``base
period'' or ``chargeable'' employer. Entitlement to and the
amount and duration of unemployment benefits are based on work
performed during this State-specified base period. A
``chargeable'' employer is one whose account will be charged
for UC received by the individual. However, the offset must be
applied for Social Security benefits without regard to whether
base period employment contributed to the Social Security
entitlement.
States are allowed to reduce the amount of these offsets by
amounts consistent with any contributions the employee made
toward the pension. This policy allows States to limit the
offset to one-half of the amount of a Social Security benefit
received by an individual who qualifies for unemployment
benefits.
Taxation of unemployment insurance benefits
The Tax Reform Act of 1986 (Public Law 99-514) made all UC
taxable after December 31, 1986. The Revenue Act of 1978 first
made a portion of UC benefits taxable beginning January 1,
1979.
Table 4-4 illustrates the projected effect of taxing all
UC benefits for calendar year 1998. This table understates the
impact of taxation because this analysis uses data collected
from a sample of households for the Current Population Survey
(CPS), which is known to have a problem with respondents
underestimating their annual income from various sources. In
particular, total UC benefits reported in the CPS are equal to
about two-thirds of benefits actually paid out. Because of this
underreporting of UC benefits in the CPS and, consequently,
underestimates of benefits paid in 1998, taxes collected on
benefits probably will be about twice as high as the $4.0
billion shown in table 4-4.
TABLE 4-4.--PROJECTED EFFECT OF TAXING UNEMPLOYMENT COMPENSATION BENEFITS BY INCOME LEVEL, CALENDAR YEAR 1998
----------------------------------------------------------------------------------------------------------------
In thousands In millions
------------------------- -------------------------
Number Percent Taxes as
Number of affected affected Total amount Total a
Level of individual or couple income \1\ recipients by by of amount of percent
of taxation taxation unemployment taxes on of total
unemployment of compensation benefits benefits
compensation benefits benefits
----------------------------------------------------------------------------------------------------------------
Less than $10,000......................... 1,118 477 42.7 $2,090 $117 5.6
$10,000-$15,000........................... 820 648 79.0 2,071 202 9.8
$15,000-$20,000........................... 658 610 92.8 1,890 284 15.0
$20,000-$25,000........................... 649 636 98.0 1,926 383 19.9
$25,000-$30,000........................... 552 540 97.7 1,389 294 21.1
$30,000-$40,000........................... 955 948 99.3 3,141 560 17.8
$40,000-$50,000........................... 697 695 99.8 2,277 392 17.2
$50,000-$100,000.......................... 1,417 1,415 99.9 4,867 1,058 21.7
At least $100,000......................... 250 250 100.0 2,447 751 30.7
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All................................... 7,115 6,220 87.4 22,097 4,041 18.3
----------------------------------------------------------------------------------------------------------------
\1\ Cash income (based on income tax filing unit) plus capital gains realizations.
Source: Congressional Budget Office tax simulation model.
Amount and Duration of Weekly Benefits
In general, the States set weekly benefit amounts as a
fraction of the individual's average weekly wage up to some
State-determined maximum. The total maximum duration available
nationwide under permanent law is 39 weeks. The regular State
programs usually provide up to 26 weeks. The permanent Federal-
State Extended Benefits Program provides up to 13 additional
weeks in States where unemployment rates are relatively high.
An additional 7 weeks is available under a new optional trigger
enacted in 1992, but only 7 States have adopted this trigger as
of July 31, 1997. The temporary Emergency Unemployment
Compensation (EUC) Program, which operated from November 1991
through April 1994, provided either 7 or 13 additional weeks of
benefits during its final months of operation. A State offering
this temporary program could not have offered the extended
benefits simultaneously, however.
The State-determined weekly benefit amounts generally
replace between 50 and 70 percent of the individual's average
weekly pretax wage up to some State-determined maximum. The
average weekly wage is often calculated only from the calendar
quarter in the base year in which the claimant's wages were
highest. Individual wage replacement rates tend to vary
inversely with the claimant's average weekly pretax wage, with
high wage earners receiving lower wage replacement rates. Thus,
the national average weekly benefit amount as a percent of the
average weekly covered wage was only 35 percent in the quarter
ending December 31, 1996.
Table 4-5 shows the minimum and maximum weekly benefit
amounts and potential duration for each State program. In 1996,
the national average weekly benefit amount was $189 and the
average duration was 14.9 weeks, making the average total
benefits $2,820. The minimum weekly benefit amounts for 1997
vary from $5 in Hawaii to $87 in Indiana. The maximum weekly
benefit amounts range from $152 in Puerto Rico to $543 in
Massachusetts.
TABLE 4-5.--AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS, 1996
AND 1997
----------------------------------------------------------------------------------------------------------------
1996 1997 weekly 1996 1997 potential
average benefit amount \1\ average duration (weeks)
State weekly -------------------- duration -----------------
benefit Minimum Maximum (weeks) Minimum Maximum
----------------------------------------------------------------------------------------------------------------
Alabama................................................ $142 $22 $180 10 15 26
Alaska................................................. 172 44-68 248-320 15 16 26
Arizona................................................ 151 40 185 14 12 26
Arkansas............................................... 170 49 273 12 9 26
California............................................. 152 40 230 17 14 26
Colorado............................................... 208 25 283 12 13 26
Connecticut............................................ 222 15-25 353-403 16 26 26
Delaware............................................... 224 20 300 17 24 26
District of Columbia................................... 236 50 309 19 20 26
Florida................................................ 178 32 250 14 26 26
Georgia................................................ 166 37 215 10 9 26
Hawaii................................................. 270 5 351 18 26 26
Idaho.................................................. 182 44 259 12 10 26
Illinois............................................... 213 51 257-341 17 26 26
Indiana................................................ 187 87 217 11 8 26
Iowa................................................... 200 34-41 231-283 12 11 26
Kansas................................................. 202 67 270 14 10 26
Kentucky............................................... 171 22 246 12 15 26
Louisiana.............................................. 128 10 193 15 26 26
Maine.................................................. 171 36-54 210-315 14 26 26
Maryland............................................... 195 25-33 250 16 26 26
Massachusetts.......................................... 254 14-21 362-543 16 10 30
Michigan............................................... 205 60 300 11 15 26
Minnesota.............................................. 234 38 314 14 10 26
Mississippi............................................ 141 30 180 14 13 26
Missouri............................................... 154 45 175 13 11 26
Montana................................................ 165 57 230 14 8 26
Nebraska............................................... 161 20 184 12 20 26
Nevada................................................. 194 16 247 14 12 26
New Hampshire.......................................... 153 32 228 10 26 26
New Jersey............................................. 255 60 374 17 15 26
New Mexico............................................. 157 43 218 16 19 26
New York............................................... 206 40 300 19 26 26
North Carolina......................................... 193 25 310 10 13 26
North Dakota........................................... 175 43 251 12 12 26
Ohio................................................... 202 66 257-345 14 20 26
Oklahoma............................................... 175 16 251 13 20 26
Oregon................................................. 191 73 314 15 4 26
Pennsylvania........................................... 219 35-40 362-370 17 16 26
Puerto Rico............................................ 94 7 152 18 26 26
Rhode Island........................................... 228 41-51 336-420 16 15 26
South Carolina......................................... 165 20 221 11 15 26
South Dakota........................................... 150 28 187 11 15 26
Tennessee.............................................. 155 30 220 12 12 26
Texas.................................................. 189 44 266 16 9 26
Utah................................................... 198 17 272 11 10 26
Vermont................................................ 168 31 217 14 26 26
Virginia............................................... 173 65 224 10 12 26
Virgin Islands......................................... 150 32 231 27 13 26
Washington............................................. 209 78 365 19 16 30
West Virginia.......................................... 176 24 296 15 26 26
Wisconsin.............................................. 202 53 282 12 12 26
Wyoming................................................ 181 17 236 14 12 26
--------------------------------------------------------
U.S. average...................................... 189 NA NA 15 NA NA
----------------------------------------------------------------------------------------------------------------
\1\ A range of amounts is shown for those States that provide dependents' allowances.
NA--Not applicable.
Source: U.S. Department of Labor.
Most States vary the duration of benefits with the amount
of earnings the claimant has in the base year. Twelve States
provide the same duration for all claimants. The minimum
durations range from 4 weeks in Oregon to 26 weeks in 12
States. The maximum duration is 26 weeks in 51 States
(including the District of Columbia, Puerto Rico, and the
Virgin Islands). Two States have longer maximum durations.
Massachusetts and Washington both provide up to 30 weeks.
From 1996 to 1997, 13 States increased (and none
decreased) their minimum weekly benefit amounts. Forty-one
States raised their maximum weekly benefit amounts, while one
State decreased them. No States lowered their minimum potential
durations, but two States raised their minimum duration.
EXTENDED BENEFITS
The Federal-State Extended Benefits Program available in
every State provides one-half of a claimant's total State
benefits up to 13 weeks in States with an activated program,
for a combined maximum of 39 weeks of regular and extended
benefits. Weekly benefit amounts are identical to the regular
State UC benefits for each claimant, and Federal funds pay half
the cost. The program activates in a State under one of two
conditions: (1) if the State's 13-week average insured
unemployment rate (IUR) in the most recent 13 weeks is at least
5.0 percent and at least 120 percent of the average of its 13-
week IURs in the last 2 years for the same 13-week calendar
period; or (2) at State option, if its current 13-week average
IUR is at least 6.0 percent. All but 12 State programs have
adopted the second, optional condition. The 13-week average IUR
is calculated from the ratio of the average number of insured
unemployed persons under the regular State programs in the last
13 weeks to the average covered employment in the first 4 of
the last 5 completed calendar quarters.
In addition to the two automatic triggers, States have the
option of electing an alternative trigger authorized by the
Unemployment Compensation Amendments of 1992 (Public Law 102-
318). This trigger is based on a 3-month average total
unemployment rate (TUR) using seasonally adjusted data. If this
TUR average exceeds 6.5 percent and is at least 110 percent of
the same measure in either of the prior 2 years, a State can
offer 13 weeks of EB. If the average TUR exceeds 8 percent and
meets the same 110-percent test, 20 weeks of EB can be offered.
Analysis of historical data shows that this TUR trigger would
have made EB more widely available in the past than did the IUR
trigger. As of July 31, 1997, the TUR trigger had been
authorized by seven States (Alaska, Connecticut, Kansas,
Oregon, Rhode Island, Vermont, and Washington). As of September
1997, EB was active only in Puerto Rico using the 6.0 percent
IUR trigger.
BENEFIT EXHAUSTION
Due to the limited duration of UC benefits, some
individuals exhaust their benefits. For the regular State
programs, 2.7 million individuals exhausted their benefits in
fiscal year 1996, or 33 percent of claimants who began
receiving UC during the 12 months ending March 31, 1996.
A study of exhaustees was completed in September 1990 by
Corson and Dynarski, under contract to the U.S. Department of
Labor. The purpose of this study was to examine the
characteristics and behavior of exhaustees and nonexhaustees
and to explore the implications of this information. The
samples were chosen from individuals who began collecting
benefits during the period October 1987 through September 1988.
Overall, 1,920 exhaustees and 1,009 nonexhaustees were
interviewed.
The study's authors reached three general conclusions:
1. A large proportion of UC recipients expected to be recalled
to their previous jobs. The unemployment spells of
these job-attached workers were considerably shorter
than those of workers who suffered permanent job
losses, and few job-attached workers exhausted their UC
benefits. Workers who were not job-attached--in
particular, workers who were dislocated from their
previous jobs or who had low skill levels--were likely
to experience long unemployment spells, and a
significant proportion of these workers exhausted their
UC benefits.
2. Most workers who exhausted their benefits were still
unemployed more than a month after receiving their
final payment, and a majority were still unemployed 2
months after receiving their final payment. Moreover,
workers who found jobs after exhausting their UC
benefits were generally receiving lower wages than on
their prior jobs.
3. State exhaustion rate trigger mechanisms would not be
clearly superior to the State insured unemployment rate
(IUR) triggers in targeting extended benefits to areas
with high cyclical unemployment. Substate trigger
mechanisms for extended benefits would do a poor job of
targeting extended benefits to local areas with high
structural unemployment.
SUPPLEMENTAL BENEFITS
The Extended Benefits (EB) Program was enacted to provide
unemployment compensation benefits to workers who had exhausted
their regular benefits during periods of high unemployment.
Before enactment of a permanent EB Program, Congress authorized
two temporary programs, during 1958 and 1959 and again in 1961
and 1962. The Federal-State Extended Unemployment Compensation
Act of 1970 authorized a permanent mechanism for providing
extended benefits. Extended benefits rules were amended by the
Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35)
and the Unemployment Compensation Amendments of 1992 (Public
Law 102-318).
During the 1970s and 1980s, temporary programs provided
supplemental benefits to UC recipients who had exhausted both
their regular and extended benefits during three periods of
high unemployment: (1) the Emergency Unemployment Compensation
Act of 1971, which provided benefits until March 31, 1973; (2)
the Federal Supplemental Benefits (FSB) Program, first
authorized by the Emergency Unemployment Compensation Act of
1974, and subsequently extended in 1975 (twice) and in 1977;
and (3) the Federal Supplemental Compensation (FSC) Program,
created by the Tax Equity and Fiscal Responsibility Act of
1982, which was subsequently extended and modified six times
and finally expired on June 30, 1985.
More recently, Congress passed the Emergency Unemployment
Compensation Act of 1991 (Public Law 102-164) authorizing a
temporary Emergency Unemployment Compensation (EUC) Program.
The EUC Program, which was extended four times, effectively
superseded the EB Program and entitled individuals whose
regular unemployment compensation benefits had run out to
additional weeks of assistance. At its peak in 1992, the EUC
Program provided benefits for 26 or 33 weeks. The EUC Program
ended on April 30, 1994.
Benefits under the EUC Program were originally financed
from spending authority in the extended unemployment
compensation account (EUCA) of the unemployment trust fund.
However, depletion of EUCA led Congress to fund EUC from
general revenue from July 1992 to October 1993. States that
qualified for extended benefits while EUC was in effect could
elect to trigger off extended benefits. This reduced the State
funding burden because 50 percent of extended benefit costs are
financed from State UC accounts while EUC was entirely
federally funded.
Table 4-6 shows several estimates of the cost of the EUC
Program at different points in time. A comparison of cost
estimates at the time of enactment with later reviews shows
that actual costs far exceeded anticipated costs due to three
factors: exhaustions from the regular State program were
unexpectedly near record levels; claimants were staying on EUC
longer than expected; and large numbers of claimants eligible
for both regular benefits and EUC were choosing EUC. As a
result, for the periods fiscal year 1992 and fiscal year 1993
alone, OMB cost estimates rose from $11.4 billion on the dates
of enactment to $12.8 billion in July 1992, $18.2 billion in
January 1993, $23.4 billion in April 1993, $23.8 billion in
July 1993, and finally $24.3 billion in January 1994--113
percent higher than originally estimated. Including fiscal year
1994 costs, the Clinton administration's budget released in
July 1994 estimated the final 3-year cost of EUC benefits to be
$28.5 billion, $13.7 billion more than OMB and $9.9 billion
more than CBO had estimated on the date of enactment.
TABLE 4-6.--CHANGES IN EMERGENCY UNEMPLOYMENT COMPENSATION OUTLAY
ESTIMATES, FISCAL YEARS 1992-94
[In billions of dollars]
------------------------------------------------------------------------
Fiscal years
Source and time of estimate ----------------------- Total
1992 1993 1994
------------------------------------------------------------------------
Estimates at time of enactment
By OMB:
Public Law 102-164, Public Law 102-
182................................. $3.0 ($0.1) 0 $2.9
Public Law 102-244................... 2.5 0.3 0 2.8
Public Law 102-318................... 0.6 2.0 0 2.6
Public Law 103-6..................... 0 3.1 $2.3 5.4
Public Law 103-152................... 0 0 1.1 1.1
------------------------------
Total.............................. 6.1 5.3 3.4 14.8
==============================
By CBO:
Public Law 102-164, Public Law 102-
182................................. 4.3 (\1\) 0 4.3
Public Law 102-244................... 2.7 0.6 0 3.3
Public Law 102-318................... 1.0 3.4 0 4.4
Public Law 103-6..................... 0 3.2 2.3 5.5
Public Law 103-152................... 0 0 1.1 1.1
------------------------------
Total.............................. 8.0 7.2 3.4 18.6
==============================
OMB fiscal year 1993 Midsession review,
July 1992............................... 9.7 3.1 0 12.8
OMB fiscal year 1994 baseline, January
1993.................................... 11.1 7.1 0 18.2
OMB fiscal year 1994 Clinton budget,
April 1993.............................. 11.1 12.3 2.1 25.5
OMB fiscal year 1994 Midsession review,
July 1993............................... 11.1 12.7 1.8 25.6
OMB fiscal year 1995 baseline, January
1994.................................... 11.1 13.2 3.7 28.0
OMB fiscal year 1995 Midsession review,
July 1994............................... 11.1 13.2 4.2 28.5
------------------------------------------------------------------------
\1\ Less than $50,000,000.
Source: Office of Management and Budget (OMB) and Congressional Budget
Office (CBO).
HYPOTHETICAL WEEKLY BENEFIT AMOUNTS FOR VARIOUS WORKERS IN THE REGULAR
STATE PROGRAMS
Table 4-7 illustrates benefit amounts for various full-
year workers in regular State programs for January 1997. These
benefit amounts are set by the legislatures of the respective
States. Column A of the table is for a full-time worker earning
the minimum wage of $5.15 per hour; column B is for a worker
earning $6 per hour; column C shows benefit amounts for a
worker earning $9 per hour; and column D shows a part-time
worker earning the minimum wage and working 20 hours per week.
All four cases are assumed to have a nonworking spouse and
column C assumes the worker has two children. The weekly
benefit amount for the full-time minimum wage worker (column A)
varies from $65 in North Dakota to $216 in Connecticut. The
maximum amount a worker earning $9 per hour can receive (column
C) varies considerably, from $142 per week in California to
$383 in Connecticut.
TABLE 4-7.--WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS, JANUARY 1997
----------------------------------------------------------------------------------------------------------------
Hypothetical worker \1\
State -------------------------------------------------------
A B C D
----------------------------------------------------------------------------------------------------------------
Alabama................................................. $180 $180 $180 $112
Alaska.................................................. 120 134 232 78
Arizona................................................. 107 125 185 54
Arkansas................................................ 206 240 240 103
California.............................................. 94 105 142 55
Colorado................................................ 123 144 216 61
Connecticut............................................. 216 250 383 113
Delaware................................................ 117 135 203 58
District of Columbia.................................... 108 125 195 56
Florida................................................. 103 120 180 51
Georgia................................................. 107 124 187 53
Hawaii.................................................. 128 149 223 64
Idaho................................................... 103 120 180 51
Illinois................................................ 118 141 237 60
Indiana................................................. 120 142 204 60
Iowa.................................................... 122 142 234 60
Kansas.................................................. 113 132 198 67
Kentucky................................................ 127 148 222 63
Louisiana............................................... 100 117 176 50
Maine................................................... 128 138 229 67
Maryland................................................ 112 130 203 56
Massachusetts........................................... 103 120 230 51
Michigan................................................ NA NA NA NA
Minnesota............................................... 103 120 180 51
Mississippi............................................. 103 120 180 51
Missouri................................................ 120 140 175 60
Montana................................................. 107 124 187 53
Nebraska................................................ 110 128 184 56
Nevada.................................................. 107 124 187 53
New Hampshire........................................... 115 130 173 59
New Jersey.............................................. 131 154 248 66
New Mexico.............................................. 103 120 180 51
New York................................................ 103 120 180 52
North Carolina.......................................... 103 120 180 51
North Dakota............................................ 65 120 180 0
Ohio.................................................... 123 144 238 0
Oklahoma................................................ 107 124 187 53
Oregon.................................................. 133 156 234 73
Pennsylvania............................................ 114 132 197 61
Puerto Rico............................................. 104 120 152 52
Rhode Island............................................ 123 144 236 61
South Carolina.......................................... 103 120 180 51
South Dakota............................................ 103 120 180 51
Tennessee............................................... 205 220 220 102
Texas................................................... 108 125 188 54
Utah.................................................... 104 120 180 52
Vermont................................................. 119 138 208 59
Virginia................................................ 107 123 186 0
Virgin Islands.......................................... 108 120 180 54
Washington.............................................. 214 249 365 107
West Virginia........................................... 112 131 198 57
Wisconsin............................................... 107 124 187 53
Wyoming................................................. 107 124 187 53
----------------------------------------------------------------------------------------------------------------
\1\ Hypothetical workers:
A. $5.15/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.
B. $6.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.
C. $9.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; two children.
D. $5.15/hr. wage; 20 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.
NA--Not available. Michigan computes benefits based on aftertax wages.
Source: U.S. Department of Labor.
THE UNEMPLOYMENT TRUST FUND
The unemployment trust fund has 59 accounts. The accounts
consist of 53 State UC benefit accounts, the railroad
unemployment insurance account, the railroad administration
account, and four Federal accounts. (The railroad accounts are
discussed in section 5 of this document.) The Federal unified
budget accounts for all Federal-State UC outlays and taxes in
the Federal unemployment trust fund.
The four Federal accounts in the trust fund are: (1) the
employment security administration account (ESAA), which funds
administration; (2) the extended unemployment compensation
account (EUCA), which funds the Federal half of the Federal-
State Extended Benefits Program; (3) the Federal unemployment
account (FUA), which funds loans to insolvent State UC
Programs; and (4) the Federal employee compensation account
(FECA), which funds benefits for Federal civilian and military
personnel authorized under 5 U.S.C. 85. The 0.8 percent Federal
share of the unemployment tax finances the ESAA, EUCA, and FUA,
but general revenues finance the FECA. Present law authorizes
interest-bearing loans to ESAA, EUCA, and FUA from the general
fund. The three accounts may receive noninterest-bearing
advances from one another to avoid insufficiencies.
Financial Condition of the Unemployment Trust Fund
Federal accounts
At the end of fiscal year 1996, the employment security
administration account (ESAA) exceeded its fiscal year 1997
ceiling of $1.4 billion. The 1997 budget bill provides for the
distribution of up to $100 million of excess funds at the end
of fiscal years 1999-2001. The funds will be made available to
each State in the same proportion as the State's share of funds
appropriated for administration for that fiscal year. This
action effectively limits transfers (known as ``Reed Act''
transfers) to State accounts that would occur if trust fund
surpluses continued to mount in future years.
The extended unemployment compensation account (EUCA)
balance was below its ceiling of $13.4 billion by $3.9 billion
at the end of fiscal year 1997; the Federal unemployment
account (FUA) balance was slightly above its $6.7 billion
ceiling. Under the administration's fiscal year 1998 budget
assumptions, the EUCA balance will continue to fall short of
its ceiling until fiscal year 1999. The 1997 legislation raised
the ceiling on FUA assets from 0.25 to 0.5 percent of wages in
covered employment for fiscal year 2002 and subsequent years.
Like the capping of annual distributions at $100 million as
described above, that change is designed to prevent Reed Act
transfers to State accounts in coming years.
State accounts
The State accounts had recovered substantially from the
financial problems that began in the 1970s and continued
through the early 1980s, but the 1990-91 recession reversed
that trend. Table 4-8 shows that the State accounts at the
beginning of 1997 held $38.6 billion, which represents a marked
improvement over the balance of $28.8 billion in 1992.
The balances in the State accounts are well below the
balances in the early 1970s after adjusting for inflation,
before serious financial problems began for most States. State
reserve ratios (trust fund balances divided by total wages paid
in the respective States during the year) show that a number of
State accounts are at risk of financial problems in major
recessions. The third column from the right margin of table 4-8
shows that these State ratios are only 48 percent of their
levels in 1970. However, no State presently has outstanding
Federal loans to its account.
The second-to-last column of table 4-8 shows for each State
the 1996 ``high-cost multiple,'' the ratio of the State's
reserve ratio to its highest cost rate. The highest cost rate
is determined by choosing the highest ratio of costs to total
covered wages paid in a prior year. States with high-cost
multiples of at least 1.0 have reserves that could withstand a
recession as bad as the worst one they have experienced
previously. States with high-cost multiples below 1.0 may face
greater risk of insolvency during recessions.
Thirty-eight States had high-cost multiples below 1.0; 29
had high-cost multiples below 0.8; and 13 had high-cost
multiples below 0.5. Based on this most stringent measure,
States with the highest risk factor were Arkansas, California,
Connecticut, the District of Columbia, Illinois, Maine,
Massachusetts, Michigan, Missouri, New York, Rhode Island,
Texas, and West Virginia.
TABLE 4-8.--FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS, SELECTED YEARS 1970-96
--------------------------------------------------------------------------------------------------------------------------------------------------------
Net reserves (end of calendar year) Reserve ratios High-cost
--------------------------------------------------------------------------------------------------- multiple
States [In millions of dollars] [Percent] 1996/ ------------
--------------------------------------------------------------------------------------------------- 1970
1970 1975 1979 1982 1996 1970 1975 1979 1982 1996 1996 Rank
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.......................... $130 $(2) $118 $9 $483 2.96 (0.03) 0.98 0.06 1.42 48 0.65 34
Alaska........................... 35 75 65 134 194 5.51 3.07 2.78 2.94 3.42 62 0.79 25
Arizona.......................... 119 67 226 215 627 4.25 1.35 2.36 1.66 1.64 39 0.66 33
Arkansas......................... 49 2 24 (77) 203 2.26 0.04 0.37 (1.00) 1.11 49 0.41 45
California....................... 1,219 546 2,738 2,708 2,877 2.91 0.88 2.51 1.83 0.90 31 0.40 46
Colorado......................... 91 47 137 (4) 511 2.54 0.70 1.11 (0.02) 1.24 49 0.99 18
Connecticut...................... 252 (232) (267) (252) 278 0.08 (2.27) (1.70) (1.21) 0.62 775 0.19 52
Delaware......................... 22 0 (30) (35) 258 1.72 0 (1.06) (0.96) 2.96 172 1.15 11
District of Columbia............. 74 (3) (44) (57) 99 3.22 (0.09) (1.05) (1.03) 0.80 25 0.43 43
Florida.......................... 268 80 665 865 1,948 2.60 0.42 2.13 1.89 1.59 61 0.85 24
Georgia.......................... 340 268 447 397 1,634 4.74 2.28 2.28 1.49 2.19 46 1.03 15
Hawaii........................... 44 5 79 108 211 2.90 0.23 2.24 2.43 2.04 70 0.96 20
Idaho............................ 46 54 93 29 266 5.16 3.21 3.20 0.85 3.06 59 0.96 19
Illinois......................... 401 (31) (460) (2,069) 1,639 1.55 (0.08) (0.80) (3.18) 1.19 77 0.45 42
Indiana.......................... 326 198 418 63 1,273 3.13 1.31 1.69 0.23 2.19 70 1.22 10
Iowa............................. 125 63 155 (63) 719 3.19 0.96 1.45 (0.55) 3.00 94 1.14 12
Kansas........................... 84 135 238 142 651 3.00 2.65 2.75 1.29 2.58 86 1.31 9
Kentucky......................... 175 137 159 (121) 501 4.21 1.95 1.36 (0.90) 1.67 40 0.60 36
Louisiana........................ 146 141 238 (102) 1,131 2.91 1.58 1.51 (0.47) 3.45 119 1.12 13
Maine............................ 39 1 0 (4) 112 2.86 0.07 0 (0.09) 1.22 43 0.43 44
Maryland......................... 213 29 273 220 691 3.26 0.29 1.83 1.11 1.52 47 0.69 29
Massachusetts.................... 378 (99) 132 436 915 3.04 (0.61) 0.51 1.23 1.17 38 0.37 47
Michigan......................... 491 (286) 112 (2,186) 1,831 2.49 (1.05) 0.25 (4.64) 1.74 70 0.47 41
Minnesota........................ 119 (35) 70 (288) 513 1.76 (0.33) 0.41 (1.36) 0.99 56 0.51 39
Mississippi...................... 85 90 231 257 553 3.87 2.25 3.47 3.12 3.13 81 1.59 4
Missouri......................... 264 95 296 (64) 308 3.03 0.75 1.47 (0.27) 0.61 20 0.31 51
Montana.......................... 26 8 16 9 126 3.33 0.57 0.65 0.27 2.10 63 0.69 30
Nebraska......................... 55 29 81 72 195 2.87 0.84 1.58 1.14 1.40 49 0.90 23
Nevada........................... 39 5 95 122 348 3.20 0.22 2.31 2.02 1.87 58 0.68 31
New Hampshire.................... 55 29 82 75 268 4.62 1.56 2.42 1.60 2.32 50 0.92 22
New Jersey....................... 448 (348) (507) (423) 2,029 2.76 (1.54) (1.50) (0.97) 2.06 75 0.62 35
New Mexico....................... 40 33 80 101 386 3.45 1.61 2.14 1.98 3.46 100 2.11 2
New York......................... 1,693 574 403 819 470 3.76 1.02 0.51 0.78 0.23 6 0.09 53
North Carolina................... 414 342 564 400 1,336 5.22 2.71 2.71 1.52 1.92 37 0.78 26
North Dakota..................... 13 22 21 11 50 2.53 1.94 1.13 0.46 1.20 47 0.51 38
Ohio............................. 693 294 513 (1,658) 1,751 3.01 0.91 1.02 (3.04) 1.56 52 0.51 40
Oklahoma......................... 55 27 177 108 564 1.69 0.46 1.56 0.62 2.43 144 1.77 3
Oregon........................... 122 24 320 161 941 3.39 0.40 3.00 1.37 3.19 94 0.99 17
Pennsylvania..................... 852 (86) (1,091) (2,145) 2,032 3.53 (0.25) (2.18) (3.75) 1.85 52 0.55 37
Puerto Rico...................... 85 (26) (33) (47) 596 4.90 (0.95) (0.88) (1.11) 5.91 121 1.34 8
Rhode Island..................... 75 (41) (96) (76) 116 4.34 (1.76) (2.75) (1.81) 1.38 32 0.32 49
South Carolina................... 166 95 195 50 603 4.61 1.61 1.96 0.40 1.95 42 0.67 32
South Dakota..................... 8 20 16 9 50 3.81 1.96 0.95 0.43 1.01 27 0.95 21
Tennessee........................ 212 200 264 15 827 3.57 1.95 1.63 0.08 1.63 46 0.75 27
Texas............................ 337 231 396 142 642 1.90 0.71 0.65 (0.16) 0.36 19 0.31 50
Utah............................. 51 32 67 10 524 3.55 1.22 1.43 0.16 3.12 88 1.55 5
Vermont.......................... 26 (25) (21) (27) 218 3.72 (2.53) (1.30) (1.29) 4.63 124 1.46 6
Virginia......................... 218 122 103 14 897 3.41 1.08 0.56 0.06 1.40 41 1.07 14
Virgin Islands................... NA NA (7) (3) 42 NA NA (2.96) (0.55) 7.42 NA 2.57 1
Washington....................... 226 (67) 297 150 1,333 3.73 (0.71) 1.66 0.70 2.66 71 0.69 28
West Virginia.................... 108 78 39 (145) 157 4.07 1.70 0.56 (1.85) 1.36 33 0.34 48
Wisconsin........................ 322 121 465 (413) 1,557 4.29 0.99 2.37 (1.53) 3.10 72 0.99 16
Wyoming.......................... 19 31 69 46 147 4.29 3.02 3.15 1.51 4.32 101 1.43 7
----------------------------------------------------------------------------------------------------------------------
Total........................ 11,903 3,070 8,583 (2,645) 38,632 3.11 0.53 0.91 (0.24) 1.48 48 0.67 ....
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA--Not available.
Source: U.S. Department of Labor. (1997b, March). 4th quarter CY96 UI data summary. Washington, DC.
Table 4-9 summarizes the beginning balances in the various
unemployment trust fund accounts for selected fiscal years. At
the start of fiscal year 1998, the 4 Federal accounts and the
53 State benefit accounts had a total balance of $63.0 billion.
In real terms this represents a level 14 percent higher than
that of 1971. This increase in real dollars does not allow for
the erosion implied by the large increase in the labor force
over this time period (although table 4-2 shows that an average
of 36 percent of unemployed workers was covered, compared with
48 percent in 1970). Overall, a better measure is the ratio of
the 1996-70 reserve ratios in table 4-8, which shows that
aggregate reserves in 1996 relative to wages were a little less
than half the 1970 level.
TABLE 4-9.--BEGINNING-OF-YEAR BALANCES IN UNEMPLOYMENT TRUST FUND ACCOUNTS, SELECTED FISCAL YEARS 1971-98
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------
Account 1971 1976 1980 1983 1997
----------------------------------------------------------------------------------------------------------------
Employment security administration................................. $65 $365 $572 $545 $2,899
Extended unemployment compensation................................. 0 116 764 483 9,466
Federal unemployment (reserve for State loans)..................... 575 9 567 599 6,747
Federal employee compensation...................................... (\1\) (\1\) (\1\) 24 262
State unemployment compensation \2\................................ 12,409 6,145 8,272 720 43,657
--------------------------------------------
Total: Nominal dollars......................................... 13,049 6,635 10,175 2,371 63,031
--------------------------------------------
Total: Real dollars \3\........................................ 55,305 20,510 23,126 3,977 63,031
----------------------------------------------------------------------------------------------------------------
\1\ There was no separate account for Federal employee compensation for this year.
\2\ Figures are net of loans from Federal funds.
\3\ Real dollars are obtained using CPI-U for the preceding fiscal years.
Source: U.S. Department of the Treasury, Bureau of Public Debt.
Whether the State trust fund balances are adequate is
ultimately a matter about which each State must decide. States
have a great deal of autonomy in how they establish and run
their unemployment system. However, the framework established
by the Federal Government requires States to actually pay the
level of benefits they determine to be appropriate; in budget
terms, unemployment benefits are an entitlement (although the
program is financed by a dedicated tax imposed on employers and
employees and not by general revenues). Thus, if a recession
hits a given State and results in a depletion of that State's
trust account, the State is legally required to continue paying
benefits. To do so, the State will be forced to borrow money
from the Federal unemployment account. As a result, not only
will the State be required to continue paying benefits, it will
also be required to repay the funds plus interest it has
borrowed from the Federal loan account. Such States will
probably be forced to raise taxes on their employers, an action
that dampens economic growth and job creation. In short, States
have strong incentives to keep adequate funds in their trust
fund accounts.
The Federal Unemployment Tax
FUTA imposes a minimum, net Federal payroll tax on
employers of 0.8 percent on the first $7,000 paid annually to
each employee. The current gross FUTA tax rate is 6.2 percent,
but employers in States meeting certain Federal requirements
and having no delinquent Federal loans are eligible for a 5.4
percent credit, making the current minimum, net Federal tax
rate 0.8 percent. Since most employees earn more than the
$7,000 taxable wage ceiling, the FUTA tax typically is $56 per
worker ($7,000 0.8 percent), or 3 cents per hour for
a full-time worker. The 1997 budget bill extended the 0.2
percent surtax through 2007.
The wage base was held constant at $3,000 until 1971, and
then was increased on three occasions.
Chart 4-2 depicts the historical trends in the statutory
and effective Federal unemployment tax rates. The effective tax
rate equals FUTA revenue as a percent of total covered wages.
Although the statutory tax rate doubled from 0.4 percent in the
late 1960s to 0.8 percent in the late 1980s, the effective tax
rate has fluctuated between 0.2 and 0.3 percent in most of
those years.
CHART 4-2. HISTORY OF FEDERAL UNEMPLOYMENT TAX RATE, 1954-96
Source: Chart prepared by the Congressional Research
Service based on data from the U.S. Department of Labor.
State Unemployment Taxes
The States finance their programs and half of the
permanent Extended Benefits Program with employer payroll taxes
imposed on at least the first $7,000 paid annually to each
employee.\1\ States have adopted taxable wage bases at least as
high as the Federal level because they otherwise would lose the
5.4 percent credit to employers on the difference between the
Federal and State taxable wage bases. Table 4-10 shows that, as
of January 1997, 41 States had taxable wage bases higher than
the Federal taxable wage base, ranging up to $26,000 in Hawaii.
---------------------------------------------------------------------------
\1\ Alaska, New Jersey, and Pennsylvania also tax employees
directly.
---------------------------------------------------------------------------
Although the standard State tax rate is 5.4 percent, State
tax rates based on unemployment experience can range from zero
on some employers in 17 States up to a maximum as high as 10
percent in 3 States.
TABLE 4-10.--STATE UNEMPLOYMENT TAX BASES AND RATES, 1996-97
----------------------------------------------------------------------------------------------------------------
Estimated 1996 1997 experience
average tax rates rates \1\
as a percent of-- 1997 tax ---------------------
State --------------------- base
Taxable All Minimum Maximum
wages wages
----------------------------------------------------------------------------------------------------------------
Alabama................................................... 1.0 0.4 $8,000 0.14 6.74
Alaska.................................................... 2.2 1.5 24,200 1.00 6.50
Arizona................................................... 1.7 0.4 7,000 0.10 5.40
Arkansas.................................................. 2.0 1.0 9,000 0.00 6.00
California................................................ 3.8 1.0 7,000 0.10 5.40
Colorado.................................................. 1.1 0.4 10,000 0.00 5.40
Connecticut............................................... 4.0 1.2 12,000 0.50 6.40
Delaware.................................................. 2.6 0.8 8,500 0.10 8.00
District of Columbia...................................... 3.4 0.9 9,000 0.10 7.40
Florida................................................... 1.6 0.5 7,000 0.10 5.40
Georgia................................................... 1.4 0.5 8,500 0.01 8.64
Hawaii.................................................... 2.2 1.6 26,000 0.00 5.40
Idaho..................................................... 1.8 1.2 22,800 0.10 6.80
Illinois.................................................. 2.7 0.8 9,000 0.20 6.40
Indiana................................................... 1.4 0.4 7,000 0.20 5.70
Iowa...................................................... 0.9 0.5 15,200 0.00 9.00
Kansas.................................................... 0.9 0.3 8,000 0.02 5.40
Kentucky.................................................. 2.0 0.7 8,000 0.30 10.00
Louisiana................................................. 1.7 0.7 7,700 0.30 6.00
Maine..................................................... 3.7 1.2 7,000 0.50 7.50
Maryland.................................................. 2.3 0.8 8,500 0.10 9.20
Massachusetts............................................. 3.7 1.3 10,800 0.60 9.30
Michigan.................................................. 4.4 1.4 9,500 0.00 10.00
Minnesota................................................. 1.4 0.7 16,300 0.10 9.00
Mississippi............................................... 1.3 0.5 7,000 0.10 5.40
Missouri.................................................. 2.0 0.5 8,000 0.00 8.70
Montana................................................... 1.2 0.8 16,000 0.00 6.40
Nebraska.................................................. 0.6 0.2 7,000 0.00 5.40
Nevada.................................................... 1.5 0.9 17,200 0.30 5.40
New Hampshire............................................. 1.0 0.3 8,000 0.01 6.50
New Jersey................................................ 2.6 1.2 18,600 0.40 6.47
New Mexico................................................ 1.4 0.6 14,200 0.10 5.40
New York.................................................. 4.4 1.0 7,000 0.00 5.40
North Carolina............................................ 0.3 0.1 12,100 0.00 5.70
North Dakota.............................................. 1.0 0.5 14,200 0.10 5.40
Ohio...................................................... 2.6 0.9 9,000 0.10 6.50
Oklahoma.................................................. 1.1 0.4 11,100 0.10 6.20
Oregon.................................................... 2.1 1.3 20,000 0.50 5.40
Pennsylvania.............................................. 4.1 1.2 8,000 0.30 9.20
Puerto Rico............................................... 2.9 0.9 7,000 1.00 5.40
Rhode Island.............................................. 3.7 2.1 17,600 0.80 8.40
South Carolina............................................ 2.0 0.7 7,000 0.19 5.40
South Dakota.............................................. 0.5 0.2 7,000 0.00 9.50
Tennessee................................................. 1.8 0.6 7,000 0.00 10.00
Texas..................................................... 1.5 0.5 9,000 0.00 6.00
Utah...................................................... 0.8 0.5 17,800 (\2\) 8.00
Vermont................................................... 2.6 0.9 8,000 0.40 8.40
Virginia.................................................. 1.2 0.4 8,000 0.00 6.20
Virgin Islands............................................ 1.8 1.2 14,400 0.10 9.50
Washington................................................ 2.0 1.2 21,300 0.36 5.40
West Virginia............................................. 3.0 1.1 8,000 0.00 7.50
Wisconsin................................................. 2.2 0.9 10,500 0.00 8.90
Wyoming................................................... 1.4 0.7 12,200 0.00 8.50
-----------------------------------------------------
U.S. average.......................................... 2.4 0.8 NA NA NA
----------------------------------------------------------------------------------------------------------------
\1\ Actual rates could be higher if State has an additional tax.
\2\ Not specified.
NA--Not applicable.
Note.--This table shows State unemployment tax levels. It does not include the Federal unemployment tax.
Source: U.S. Department of Labor.
Estimated national average State tax rates on taxable
wages and total wages for 1996 were 2.4 and 0.8 percent,
respectively. Estimated average State tax rates on taxable
wages ranged from 0.3 percent in North Carolina to 4.4 percent
in Michigan and New York. Estimated average State tax rates on
total wages varied from 0.1 percent in North Carolina to 2.1
percent in Rhode Island.
Table 4-11 shows recent State data on unemployment
compensation covered employment, wages, taxable wages, the
ratio of taxable to total wages, and average weekly wages. The
ratio of taxable wages to total wages varied from 0.17 in New
York to 0.62 in Montana.
TABLE 4-11.--TWELVE-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY STATE UNEMPLOYMENT TAXATION FOR PERIOD ENDING
SEPTEMBER 1996
----------------------------------------------------------------------------------------------------------------
Ratio of
Covered Taxable taxable Average
State employment Total wages wages wages to weekly
(thousands) (millions) (millions) total total
wages wages
----------------------------------------------------------------------------------------------------------------
Alabama............................................. 1,723 $41,953 $12,278 0.29 $468
Alaska.............................................. 239 7,767 3,731 0.48 625
Arizona............................................. 1,829 47,254 12,575 0.27 497
Arkansas............................................ 1,036 22,546 7,993 0.35 419
California.......................................... 12,747 397,619 82,400 0.21 600
Colorado............................................ 1,803 49,963 16,440 0.33 533
Connecticut......................................... 1,532 55,240 13,807 0.25 693
Delaware............................................ 360 10,817 2,698 0.25 579
District of Columbia................................ 413 16,209 3,468 0.21 754
Florida............................................. 6,016 151,072 40,331 0.27 483
Georgia............................................. 3,354 90,174 25,658 0.28 517
Hawaii.............................................. 502 13,462 7,422 0.55 516
Idaho............................................... 476 10,934 5,933 0.54 442
Illinois............................................ 5,448 167,370 42,701 0.26 591
Indiana............................................. 2,700 70,086 17,480 0.25 499
Iowa................................................ 1,319 30,637 13,036 0.43 447
Kansas.............................................. 1,166 28,078 10,808 0.38 463
Kentucky............................................ 1,569 37,473 10,800 0.29 459
Louisiana........................................... 1,714 41,180 11,511 0.28 462
Maine............................................... 518 12,002 3,086 0.26 446
Maryland............................................ 2,035 58,885 14,707 0.25 557
Massachusetts....................................... 2,900 96,530 28,913 0.30 640
Michigan............................................ 4,200 130,584 33,198 0.25 598
Minnesota........................................... 2,321 65,608 25,467 0.39 544
Mississippi......................................... 1,039 22,112 6,603 0.30 409
Missouri............................................ 2,418 62,892 17,376 0.28 500
Montana............................................. 334 6,805 4,193 0.62 391
Nebraska............................................ 793 18,070 4,678 0.26 438
Nevada.............................................. 812 22,104 11,269 0.51 523
New Hampshire....................................... 530 14,381 3,670 0.26 521
New Jersey.......................................... 3,455 122,120 46,075 0.38 680
New Mexico.......................................... 638 14,587 6,133 0.42 440
New York............................................ 7,625 276,803 45,594 0.16 698
North Carolina...................................... 3,432 85,359 32,364 0.38 478
North Dakota........................................ 279 5,752 2,373 0.41 397
Ohio................................................ 5,089 138,829 38,315 0.28 525
Oklahoma............................................ 1,267 28,578 10,869 0.38 434
Oregon.............................................. 1,423 37,577 18,561 0.49 508
Pennsylvania........................................ 5,024 142,653 33,427 0.23 546
Puerto Rico......................................... 946 14,837 4,680 0.32 302
Rhode Island........................................ 423 11,268 4,724 0.42 512
South Carolina...................................... 1,614 38,071 10,368 0.27 454
South Dakota........................................ 321 6,439 1,857 0.29 386
Tennessee........................................... 2,411 60,943 15,891 0.26 486
Texas............................................... 7,866 216,516 62,489 0.29 529
Utah................................................ 881 21,054 10,002 0.48 460
Vermont............................................. 264 6,326 1,708 0.27 461
Virginia............................................ 2,888 77,734 20,808 0.27 518
Virgin Islands...................................... 40 971 341 0.35 472
Washington.......................................... 2,305 64,995 30,375 0.47 542
West Virginia....................................... 641 15,037 4,187 0.28 451
Wisconsin........................................... 2,480 63,452 20,248 0.32 492
Wyoming............................................. 206 4,571 1,677 0.37 427
----------------------------------------------------------
United States................................... 115,362 3,254,281 917,298 0.28 542
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor. (1997c, May). 1st quarter CY97 UI data summary. Washington, DC.
ADMINISTRATIVE FINANCING AND ALLOCATION
State unemployment compensation administrative expenses
are federally financed. A portion of revenue raised by FUTA is
designated for administration and for maintaining a system of
public employment offices.
As explained above, FUTA revenue flows into three Federal
accounts in the unemployment trust fund. One of these accounts,
the employment security administration account (ESAA), finances
administrative costs associated with Federal and State
unemployment compensation and employment services.
Under current law, 80 percent of FUTA revenue is allocated
to ESAA and 20 percent to another Federal account (chart 4-3).
Funds for administration are limited to 95 percent of the
estimated annual revenue that is expected to flow to ESAA from
the FUTA tax. Funds for administration may be augmented by
three-eighths of the amount in ESAA at the beginning of the
fiscal year, or $150 million, whichever is less, if the rate of
insured unemployment is at least 15 percent higher than it was
over the corresponding calendar quarter in the immediately
preceding year.
Title III of the Social Security Act authorizes payment to
each State with an approved unemployment compensation law of
such amounts as are deemed necessary for the proper and
efficient administration of the UC Program during the fiscal
year. Allocations are based on: (1) the population of the
State; (2) an estimate of the number of persons covered by the
State unemployment insurance law; (3) an estimate of the cost
of proper and efficient administration of such law; and (4)
such other factors as the Secretary of Labor finds relevant.
CHART 4-3. FLOW OF FUTA FUNDS UNDER EXISTING FEDERAL STATUTES
Source: Chart prepared by the National Foundation for
Unemployment Compensation & Workers' Compensation.
Subject to the limit of available resources, the allocation
of State grants for administration is the sum of resources made
available for two major areas, the Unemployment Insurance
Service (UI) and the Employment Service (ES). Each area has its
own allocation methodology subject to general constraints set
forth in the Social Security Act and the Wagner-Peyser Act.
Each year, as part of the development of the President's
budget, the Department of Labor, in conjunction with the
Department of Treasury, estimates revenue expected from FUTA
and the appropriate amount to be available for administration.
The estimate of FUTA revenues is based on several factors: (1)
a wage base of $7,000 per employee; (2) a tax rate of 0.8
percent (0.64 percentage points for administration and 0.16
percentage points for extended benefits); (3) the
administration's projection of the level of unemployment and
the growth in wages; and (4) the level of covered employment
subject to FUTA. In addition, a determination is made based on
the administration's forecast for unemployment as to whether
the rate will increase by at least 15 percent.
Each year the President's budget sets forth an estimate of
national unemployment in terms of the volume of unemployment
claims per week. This is characterized as average weekly
insured unemployment (AWIU). A portion of AWIU is expressed as
``base'' and the remainder as ``contingency.'' At the present
time, the base is set at the level of resources required to
process an average weekly volume of 2.8 million weeks of
unemployment.
Resources available to each State to administer its UC
Program (i.e., process claims and pay benefits) are provided
from either ``base'' funds or ``contingency'' funds. At the
beginning of the fiscal year, only the base funds are
allocated, while contingency funds are allocated on a needs
basis as workload materializes. Base funds are distributed to
the State for use throughout the fiscal year and are available
regardless of the level of unemployment (workload) realized. If
a State processes workloads in excess of the base level, it
receives contingency funds determined by the extent of the
resources required to process the additional workload.
The allocation of the base UC grant funds to each State is
made by:
1. Projecting the workloads that each State is expected to
process;
2. Determining the staff required to process each State's
projected workload;
3. Multiplying the final staff-year allocations for each State
by the cost per staff year (i.e., State salary and
benefit level) to determine dollar funding levels; and
4. Allocating overhead resources (administrative and
management staff and nonpersonal services).
Each Department of Labor regional office may redistribute
resources among the States in its area with national office
approval. The 1997 budget bill authorized funds over 5 years
specifically for program integrity activities such as claims
review and employer tax audits to assist the States in
strengthening their efforts to reduce administrative error and
fraud.
In Public Law 102-164, Congress required the Department of
Labor to study the allocation process and recommend
improvements. Public Law 102-318 extended the study deadline to
December 31, 1994. The Department has not yet submitted the
report to Congress.
LEGISLATIVE HISTORY
Major Federal laws passed by Congress since 1990 and their
key provisions are as follows:
The Omnibus Budget Reconciliation Act of 1990 (Public Law
101-508) extended the 0.2 percent FUTA surtax for 5 years
through 1995.
The Emergency Unemployment Compensation Act of 1991
(Public Law 102-164) established temporary emergency
unemployment compensation (EUC) benefits through July 4, 1992.
It returned to States the option of covering nonprofessional
school employees between school terms and restored benefits for
ex-military members to the same duration and waiting period
applicable to other unemployed workers. It extended the 0.2
percent FUTA surtax for 1 year through 1996.
The Unemployment Compensation Amendments of 1992 (Public
Law 102-318) extended EUC for claims filed through March 6,
1993, and reduced the benefit periods to 20 and 26 weeks. The
law also gave claimants eligible for both EUC and regular
benefits the right to choose the more favorable of the two.
States were authorized, effective March 7, 1993, to adopt an
alternative trigger for the Federal-State EB Program. This
trigger is based on a 3-month average total unemployment rate
and can activate either a 13- or a 20-week benefit period
depending on the rate.
The Emergency Unemployment Compensation Amendments of 1993
(Public Law 103-6) extended EUC for claims filed through
October 2, 1993. The law also authorized funds for automated
State systems to identify permanently displaced workers for
early intervention with reemployment services.
The Omnibus Budget Reconciliation Act of 1993 (Public Law
103-66) extended the 0.2 percent FUTA surtax for 2 years
through 1998.
The Unemployment Compensation Amendments of 1993 (Public
Law 103-152) extended EUC for claims filed through February 5,
1994, and set the benefit periods at 7 and 13 weeks. It
repealed a provision passed in 1992 that allowed claimants to
choose between EUC and regular State benefits. It required
States to implement a ``profiling'' system to identify UI
claimants most likely to need job search assistance to avoid
long-term unemployment.
The North American Free Trade Agreement Implementation Act
(Public Law 103-182) gave States the option of continuing UC
benefits for claimants who elect to start their own businesses.
Authorization expires in December 1998.
The Balanced Budget Act of 1997 (Public Law 105-33) gave
States complete authority in setting base periods for
determining eligibility for benefits, authorized appropriations
for program integrity activities, limited trust fund
distributions to States in fiscal years 1999-2001, and raised
the ceiling on FUA assets from 0.25 percent to 0.5 percent of
wages in covered employment starting in fiscal year 2002. The
Taxpayer Relief Act of 1997 (Public Law 105-34) extended the
0.2 percent FUTA surtax through 2007.
REFERENCES
Corson, W. & Dynarski, M. (1990, September). A study of
unemployment insurance recipients and exhaustees:
Findings from a national survey. (Occasional Paper 90-
3). Washington, DC: U.S. Department of Labor.
Corson, W. & Nicholson, W. (1988). An examination of declining
UI claims during the 1980s (Occasional Paper 88-3).
Washington, DC: U.S. Department of Labor.
Executive Office of the President. (1997, February). Economic
Report of the President. Washington, DC: U.S.
Government Printing Office.
Pennington v. Doherty, Congressional Clearing House
Unemployment Insurance Report, paragraph 22,184
(Northern District of Illinois, February 25, 1997).
U.S. Department of Labor. (1997a, February). UI Outlook: Fiscal
Year 1998 President's Budget. Washington, DC: Author.
U.S. Department of Labor, Employment and Training
Administration. (1997b, March). UI Data Summary (4th
quarter, calendar year 1996). Washington, DC: Author.
U.S. Department of Labor, Employment and Training
Administration. (1997c, May). UI Data Summary (1st
quarter, calendar year 1997). Washington, DC: Author.
U.S. Department of Labor, Employment and Training
Administration. (1997d, August). UI Outlook: FY 1998
Midsession Review. Washington, DC.