[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]



Number of Covered Workers
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


	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 (EB) 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.



	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 128 million 
individuals were covered by all UC Programs in 2001, representing 
99.7 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 
	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 

YEARS 1990-2003


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).


	Although the UC system covers 99.7 percent of all wage and 
salary workers, Table 4-2 shows that on average only 44 percent of 
unemployed persons were receiving UC benefits in 2002. 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., 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 non-monetary 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).
	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.

BY MONTH, 1967-2002




	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 before rising throughout the 
remainder of the 1990s.  The current ratio is higher than it has been 
since the late 1970s.  


	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 define as the first 4 of the last 5 
completed calendar quarters before the unemployed person claims 
benefits. On average, workers must have worked in two quarters and 
earned $1,770 to qualify for a minimum monthly benefit. Qualifying 
annual wages for the minimum weekly benefit amount vary from $130 
in Hawaii to $3,586 in North Carolina. For the maximum weekly benefit
amount, the range is $5,320 in Puerto Rico to $30,888 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 $5,320 in Puerto Rico 
to $44,408 in Minnesota.



	In February 1996, 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 four 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.  In 2003, 24 States used an alternative or extended base 
period to determine benefit eligibility.  
	From 1999 to 2003, 12 States increased the required earnings in 
the base year to qualify for the minimum weekly benefit amount, and 
7 States decreased it. Thirty States increased, 16 remained the same, 
and 7 decreased the qualification requirement for the maximum weekly 
benefit amount. Forty-two States increased and one 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 Benefits Program (see below) to any 
individual who fails to accept 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 their 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.

	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 20.5 million "monetarily eligible" initial UC claims 
in 2002,  24.1 percent were disqualified. This figure subdivides into 
4.0 percent not being able to work or available for work, 6.4 percent 
voluntarily leaving a job without good cause, 4.8 percent being fired 
for misconduct on the job, 0.2 percent refusing suitable work, and 
8.7 percent committing other disqualifying acts. The total 
disqualification rate ranged from a low of 12.0 percent in Tennessee 
to a high of 102.0 percent in Nebraska, with Colorado the next highest 
at 94.1 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.

U.S. Department of Labor Proposal to Use Unemployment Compensation 
Benefits for Family Leave
	On December 3, 1999, the U.S. Department of Labor (DOL) issued 
a Notice of Proposed Rulemaking to create, by regulation, a voluntary 
experimental program that would give States the option of extending UC 
eligibility to parents who take time off from employment after the 
birth or placement for adoption of a child under the Family Medical 
Leave Act of 1993 (Public Law 103-3). The program is referred to as 
the birth and adoption UC experiment, also known colloquially as 
"baby UI." The proposal immediately drew criticism from opponents 
who argued that  the proposal creates a benefit that the Congress 
did not intend when it created the Family and Medical Leave Act and 
such benefits would be contrary to the purpose of UC benefits as 
stated in the law. Some opponents argued that the proposal could 
not be implemented without a new law being enacted by the Congress. DOL 
disagreed with this assessment and cited the fact that much of the 
basic structure of the UC system, including the requirement that 
individuals be able and available for work, was established by 
regulatory guidance, rather than statute. DOL also suggested the 
change was needed to allow the UC system to keep pace with the 
changing nature of the work force, particularly the dramatic increase 
in the number of working mothers. The final rule was published in the 
Federal Register on June 13, 2000.
	On December 4, 2002, the Bush Administration reviewed the 
rule.  As a result of the review, DOL concluded that the BAA-UC 
experiment was "poor policy and a misapplication of federal UC law 
relating to" the requirements that beneficiaries be able and available 
for work.  Since no State had enacted a  BAA-UC program, DOL determined 
that terminating the experiment would not result in any State 
withdrawing benefits it had previously granted.  According to DOL, the 
only effect of the removal of the regulations would be that would 
reduce State flexibility since a State could no longer elect to use 
its unemployment fund to pay BAA-UC.  A final decision by DOL 
repealing this rule was issued on October 9, 2003, and goes into 
effect November 10, 2003.

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 
	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 Compensation 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 the 2003 tax law using 2000 population and incomes. 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 2003, taxes collected on benefits probably will be about twice 
as high as the $2.0 billion shown in Table 4-4.


	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 seven weeks is available under 
a new optional trigger enacted in 1992, but only nine 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, initially provided 26 to 33 weeks of Federal 
extended benefits and then provided 7 to 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 Temporary Extended Unemployment Compensation Act of 2002 
(TEUC) was signed into law March 9, 2003, as a part of P.L. 107-147.   
TEUC provides up to 13 weeks of additional federally funded UC 
benefits to individuals in all states who exhaust their regular UC 
benefits.  TEUC also provides a second tier of up to an additional 
13 weeks of benefits to individuals who exhaust their benefits in a 
high-unemployment State (TEUC-X).  The TEUC program has been extended 
through March 31, 2004, by P.L. 108-1 and P.L. 108-26, with a 
phasing-out of benefits after December 31, 2003.  On April 16, 2003, 
P.L. 108-11 was signed into law, creating a parallel TEUC program 
called TEUC-A, which provides up to 39 weeks of benefits for 
displaced airline workers, and provides a second tier (TEUC-AX) of 
benefits to individuals exhausting their TEUC-A benefits in a 
high-unemployment State.
	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 
37.5 percent in the quarter ending December 31, 2002.
	Table 4-5 shows the minimum and maximum weekly benefit 
amounts and potential duration for each State program. In 2002, 
the national average weekly benefit amount was $257 and the 
average duration was 17 weeks, making the average total benefits 
$4,369. The minimum weekly benefit amounts for 2003 vary 
from $1 in Vermont to $107 in Washington. The maximum weekly benefit 
amounts range from $133 in Puerto Rico to $760 in Massachusetts.
	Most States vary the duration of benefits with the amount of 
earnings the claimant has in the base year. Nine States provide the 
same duration for all claimants. The minimum durations range from 
3 weeks in Oregon to 26 weeks in  9 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 2000 to 2003, 23 States increased and 2 decreased their 
minimum weekly benefit amounts. Forty-seven States raised their 
maximum weekly benefit amounts, while no State decreased them. 
Seven States lowered their minimum potential durations, and 3 States 
raised their minimum duration.


	The Federal-State Extended Benefits Program is available in 
every State  and 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 four of the last five 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 5, 2003, the  TUR trigger had been 
authorized by nine States (Alaska, Connecticut, Kansas,  New Hampshire, 
North Carolina, Oregon, Rhode Island, Vermont, and Washington). As of 
July 2003, EB is active in three States.


	Due to the limited duration of UC benefits, some individuals 
exhaust their benefits. For the regular State programs, 4.4 million 
individuals exhausted their benefits during 12 months ending June 30, 
2003, or 43.6 percent of claimants who began receiving UC during the 
12 months ending December 2002.

	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 
	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 
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 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 


	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 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 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.
	In the 1990s, 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, 
depending on the level of unemployment in the respective States. 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 revenues 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, the 
Office of Management and Budget (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.
	Most recently, Congress enacted the Temporary Extended 
Unemployment Compensation Act of 2002 (TEUC), signed into law 
March 9, 2002, as part of P.L. 107-147.  TEUC provides up to 13 weeks 
of additional federally funded benefits to individuals in all States who 
exhaust their regular UC benefits.  TEUC also provides a second tier of 
13 weeks of benefits to individuals who exhaust their benefits in a 
high-unemployment state (TEUC-X).  On January 8, 2003, Congress passed 
S. 23 (P.L. 108-1) extending the TEUC program through August 30, 2003, 
and phasing-out benefits after May 31, 2003.  On April 16, 2003, P.L. 
108-11 was signed into law, creating a parallel TEUC program called 
TEUC-A.  TEUC-A provides up to 39 weeks of benefits for displaced 
airline and related workers, and provides a second tier (TEUC-AX) of 
benefits to individuals exhausting their TEUC-A benefits in a high-
unemployment state.  The Congress passed H.R. 2185, extending the 
TEUC program through March 31, 2004, and the President signed  the bill
into law on May 28, 2003 (P.L. 108-26).  




	Table 4-7 illustrates benefit amounts for various full-year 
workers in regular State programs for January 2003. 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 $82 in 
North Dakota to $140 in Kentucky. The maximum amount a worker earning 
$9 per hour (column C) can receive varies considerably, from $133 per 
week in Puerto Rico to $256 in Alaska.




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 volume.) 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 
Employees' 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.


Federal Accounts
	At the end of fiscal year 2003, the Employment Security 
Administration Account (ESAA) exceeded its fiscal year 2003 ceiling 
of $1.6 billion.  The Extended Unemployment Compensation Account (EUCA) 
balance was below its ceiling of $19.2 billion by $11.0 billion at the 
end of fiscal year 2003; the FUA balance was slightly below its $19.2 
billion ceiling by $7.8 billion. Under the administration's fiscal year 
2004 budget assumptions, the EUCA balance will not exceed its ceiling 
until fiscal year 2007, then begin to have end-of-year balances which 
slightly exceed its ceiling.  The Balanced Budget Act (BBA) of 1997  
(P.L. 105-33) 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 in the
same law, that change was designed to limit Reed Act transfers to 
State accounts in coming years. The reason Congress took these actions 
to increase ceilings and limit outflows from the Federal funds is that 
excess funds in the Unemployment Trust Fund are included in the unified 
Federal budget and offset deficits or increase surpluses.  However, 
in an effort to provide States additional resources to assist 
unemployed workers,  P.L. 107-147 included a record $8 billion Reed 
Act transfer of funds from the Federal trust fund accounts into the 
State accounts.  In March 2003 the General Accounting Office reported 
that this flexible funding source prevented State unemployment taxes 
from rising in 30 States.  The FUA balance is not projected to 
exceed its statutorily set ceiling through fiscal year 2008.

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 and 2001 recessions reversed that trend.  
Table 4-8 shows that the State accounts at the end of 2002 held $36.0 
billion, which represents a modest decrease from the balances of $38.6 
billion at the end of 1996.
	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 in 2002 are only 
32 percent of their levels in 1970. 
	The second-to-last column of Table 4-8 shows for each State 
the 2002 average "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 average 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 average high-cost 
multiples below 1.0 may face greater risk of insolvency during 
	Thirty-one States had average high-cost multiples below 1.0; 
26 had average high-cost multiples below 0.8; and 11 had average 
high-cost multiples at or below 0.5. Based on this measure, States 
with the highest risk factor were Alabama, Arkansas, Illinois, 
Massachusetts, Minnesota, Missouri, New York, North Carolina, 
North Dakota, Oregon and Texas.
	Table 4-9 summarizes the beginning balances in the various  
Unemployment Trust Fund accounts for selected fiscal years. At the 
start of fiscal year 2003,the 4 Federal accounts and the 53 State 
benefit accounts had a total balance of $69.3 billion.  In real terms 
this represents a level 20 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. Overall, a 
better measure of readiness for a recession is the ratio of the 
2002:1970 reserve ratios in Table 4-8, which shows that aggregate 
reserves in 2002 relative to wages were a significantly less than 
one third the 1970 level.
	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.


	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 X 0.8 percent), or three cents per hour for a full-time 
worker. The 1997 budget bill extended the 0.2 percent surtax through 
	The wage base for the Federal tax was held constant at $3,000 
until 1971, and then was increased on three occasions, most recently in 
	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.








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 2003, 42 States had taxable wage bases 
higher than the Federal taxable wage base, ranging up to $30,200 in 
In most States the standard tax rate for employers is 5.4 percent.  
However, State employer taxes are based on employers experience with the 
unemployment compensation system.  This experience rated State tax can 
range from zero on some employers in 13 States up to a maximum as high 
as 10 percent in 4 States  and over 10 percent in 3 States.  
	Estimated national average State tax rates on taxable wages and 
total wages for 2003 were 2.1 and 0.6 percent, respectively. Estimated 
average State tax rates on taxable wages ranged from 0.3 percent in 
Virginia to 4.2 percent in New York and Pennsylvania.  Estimated average 
State tax rates on total wages varied from 0.1 percent in Virginia to 
1.5 percent in Washington.

1 Alaska, New Jersey, and Pennsylvania also tax employees directly.



	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 0.16 in New York and the District of Columbia to 
0.57 in Montana.




	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. However, 
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 the U.S. Department 
of Labor (DOL) finds relevant.
	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 
	Each year, as part of the development of the President's budget, 
the DOL, 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 2.0 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 DOL 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 DOL 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.
	Total grants to States for administrative costs represent about 
53 percent of total FUTA tax collections in fiscal year 2002. In 
addition, the Reed Act transfer of $8 billion provided to states under 
P.L. 107-147 could be used by states for administrative purposes.  
There continues to be considerable interest among State Employment 
Security Agencies in recent years in having more of the FUTA revenue 
returned to the States for administrative expenses. In the 108th 
Congress, legislation has been introduced which would change the 
administrative financing of the UC Program.


	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.
	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.
	The Temporary Extended Unemployment Compensation Act of 2002 
 (P.L. 107-147) established a program to provide temporary extended 
unemployment compensation (TEUC) benefits of up to 13 weeks to 
individuals in all States who exhaust their regular UC benefits. TEUC 
benefits are fully federally funded and available in all States. TEUC 
also provides a second tier of up to  13 weeks of additional benefits 
to individuals in high-unemployment States  (TEUC-X).  The program has 
been extended twice (P.L. 108-1, P.L. 108-26) and is authorized 
through March 31, 2004, with benefits phasing-out after  December 31, 
2003.  In addition, P.L. 108-11 created a parallel program for displaced 
airline workers called TEUC-A.  TEUC-A provides up to 39 weeks of 
benefits and provides a second tier (TEUC-AX) of benefits to individuals 
exhausting their TEUC-A benefits in a high-unemployment State.  


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insurance recipients and exhaustees: Findings from a national survey. 
(Occasional Paper 90-3). Washington, DC: U.S. Department of Labor.

Office of the President. (2003, February). Economic Report of the 
President. Washington, DC: U.S. Government Printing Office.

Pennington v. Doherty. Unemployment Insurance Reporter (&22,184). 
Chicago, IL: Commerce Clearing House.

U.S. Department of Labor. (January 2003). UI Outlook: Fiscal Year 
2004 President's Budget. Washington, DC: Author.

U.S. Department of Labor, Employment and Training Administration. 
 (April 2003). UI Data Summary (Fourth quarter, calendar year 2002). 
Washington, DC: Author.

U.S. General Accounting Office.  (2003) Unemployment Insurance:  
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