Unemployment Insurance


Unemployment insurance is a means of protecting workers who are out of work and looking for employment. These unemployed workers receive cash payments, usually each week for a limited period. Besides aiding individual workers, unemployment insurance may help limit slumps in business activity by enabling unemployed people to buy goods and services. Such purchases help preserve existing jobs. Most industrial nations have government-sponsored unemployment insurance systems.

The first known unemployment insurance plan was adopted in Baisle Town (now Basel), Switzerland, in 1789. In 1911, Britain set up an unemployment insurance system that required the participation of workers and employers.

In 1932, Wisconsin adopted the first unemployment insurance law in the United States. A federal-state unemployment insurance plan was established by the Social Security Act of 1935. By 1937, all the states had unemployment insurance laws that met the requirements of the Social Security Act. Canada adopted an unemployment insurance program in 1940.

United States plan. The states administer the U.S. unemployment insurance system and determine the benefits. However, federal law requires that the states maintain a system that meets certain standards.

Unemployment insurance is financed chiefly by payroll taxes on employers. Both the federal and the state governments levy unemployment taxes.

Unemployment insurance taxes. The Federal Unemployment Tax Act levies a payroll tax on businesses that (1) employ one or more workers for a minimum number of weeks in a year or (2) have a quarterly payroll of a certain minimum amount. The money received by the U.S. government is used for state and federal administrative expenses, for paying extended benefits during a recession, and for loans to states that have exhausted their funds for paying benefits.

The states collect an unemployment insurance tax from employers. Employees contribute a small amount in a few states. Unemployment taxes collected by the states go into a state fund for paying benefits to workers.

Coverage and benefits. Unemployment insurance protection covers most workers in industry and commerce and includes civilian federal employees. Some state systems cover more workers than the federal law requires. Railroad workers have their own system.

Each state has different benefit provisions. The unemployed worker typically must apply at state offices both for benefit payments and for help finding work. All states require workers to be able to work and to be available for work in order to qualify. Most states require unemployment insurance recipients to actively seek work. A worker must also have done a certain amount of covered work in a preceding period, usually a year. Most states have a short waiting period before benefits are payable, and a maximum period during which unemployed workers may collect benefits. Some states pay extra benefits to unemployment insurance recipients with dependents.

Canadian plan. Canada’s federal government administers the Canadian unemployment insurance program. The program applies in all provinces and territories and covers nearly all Canadian workers. People must work a minimum number of hours before they become eligible for benefits. Under the plan, some unemployed workers receive extra benefits if they are sick, pregnant, or have children. Employers and workers pay special taxes to finance the Canadian plan. The program is administered by a federal agency called Human Resources and Skills Development Canada.