[Excerpt] The joint federal-state Unemployment Compensation (UC) program provides income support through UC benefit payments. Although there are broad requirements under federal law regarding UC benefits and financing, the specifics are set out under each state’s laws. States administer UC benefits with U.S. Department of Labor (DOL) oversight, resulting in 53 different UC programs operated in the states, the District of Columbia, Puerto Rico, and the Virgin Islands.
Total UC expenditures include benefits and administrative costs. During economic expansions, states fund approximately 85%-90% of all UC expenditures—as almost all of the benefits are state-financed by state unemployment taxes. In comparison, federal expenditures are relatively small during these expansions (approximately 10%-15%) in which federal expenditures are primarily administrative grants to the states financed by federal unemployment taxes

Isaacs, Katelin P

Whittaker, Julie M

English

DigitalCommons@ILR

Cornell University ILR School 
DigitalCommons@ILR 
Federal Publications Key Workplace Documents 
2-8-2019 
The Fundamentals of Unemployment Compensation 
Julie M. Whittaker 
Congressional Research Service 
Katelin P. Isaacs 
Congressional Research Service 
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The Fundamentals of Unemployment Compensation 
Abstract 
[Excerpt] The joint federal-state Unemployment Compensation (UC) program provides income support 
through UC benefit payments. Although there are broad requirements under federal law regarding UC 
benefits and financing, the specifics are set out under each state’s laws. States administer UC benefits 
with U.S. Department of Labor (DOL) oversight, resulting in 53 different UC programs operated in the 
states, the District of Columbia, Puerto Rico, and the Virgin Islands. 
Total UC expenditures include benefits and administrative costs. During economic expansions, states 
fund approximately 85%-90% of all UC expenditures—as almost all of the benefits are state-financed by 
state unemployment taxes. In comparison, federal expenditures are relatively small during these 
expansions (approximately 10%-15%) in which federal expenditures are primarily administrative grants to 
the states financed by federal unemployment taxes. 
Keywords 
Unemployment Compensation, UC, federal aid, income support 
Comments 
Suggested Citation 
Whittaker, J. M., & Isaacs, K. P. (2019). The fundamentals of unemployment compensation (CRS In Focus 
IF I 0336). Washington, D.C.: Congressional Research Service. 
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/key_workplace/2087 
 www.crs.gov  |  7-5700 
Updated February 8, 2019
The Fundamentals of Unemployment Compensation
A Joint Federal-State Program 
The joint federal-state Unemployment Compensation (UC) 
program provides income support through UC benefit 
payments. Although there are broad requirements under 
federal law regarding UC benefits and financing, the 
specifics are set out under each state’s laws. States 
administer UC benefits with U.S. Department of Labor 
(DOL) oversight, resulting in 53 different UC programs 
operated in the states, the District of Columbia, Puerto 
Rico, and the Virgin Islands.  
Total UC expenditures include benefits and administrative 
costs. During economic expansions, states fund 
approximately 85%-90% of all UC expenditures—as almost 
all of the benefits are state-financed by state unemployment 
taxes. In comparison, federal expenditures are relatively 
small during these expansions (approximately 10%-15%) in 
which federal expenditures are primarily administrative 
grants to the states financed by federal unemployment 
taxes.  
Objectives 
The UC program’s two main objectives are 
1. to provide temporary partial wage 
replacement to involuntarily unemployed 
workers and  
2. to stabilize the economy during 
recessions. 
These objectives are reflected in the current UC program’s 
funding and benefit structure. During economic expansions, 
UC program revenue rises through increased tax revenue 
whereas UC program spending falls as fewer workers are 
unemployed and receive benefits. The effect of collecting 
more taxes than are spent on benefits dampens demand in 
the economy. This also creates a surplus of funds or a 
“cushion” of available funds for the UC program to draw 
upon during a recession. In a recession, UC tax revenue 
falls and UC program spending rises as more workers lose 
their jobs and receive UC benefits. The increased amount of 
UC payments to unemployed workers dampens the 
economic effect of lost earnings by injecting additional 
funds into the economy.  
Authorization 
The underlying framework of the UC system is contained in 
the Social Security Act. Title III of the act authorizes state 
grants for administering state UC laws; Title IX authorizes 
the various components of the federal Unemployment Trust 
Fund (UTF); and Title XII authorizes advances or loans to 
insolvent state programs. UC is financed by federal taxes 
under the Federal Unemployment Tax Act (FUTA) and by 
state payroll taxes under the State Unemployment Tax Acts 
(SUTA). 
 UC in a Snapshot, FY2018  
 1.8M 
Average 
Weekly 
Claims 
$354 
Average 
Weekly 
Benefit 
15.4 weeks 
Average 
Duration 
of Claim 
5.3M 
New  
UC 
Beneficiaries 
 
 
 
Revenues (estimated): $43.4B 
Federal Unemployment Tax (FUTA): $6.3B 
State Unemployment Tax (SUTA): $37.1B 
 
 
 
Outlays (estimated): $32.5B 
Administration (FUTA financed): $3.8B 
Regular UC Benefit (SUTA financed): $28.2B 
UC Federal Employees (UCFE, Agency pays): $0.2B  
UC Ex-Servicemembers (UCX, Service pays): $0.3B 
 
 Source: U.S. Department of Labor (DOL), Employment 
and Training Administration, Office of Unemployment 
Insurance. Totals may not add up due to rounding. 
 
 
Benefits 
The UC program pays benefits to workers who become 
involuntarily unemployed for economic reasons and meet 
state-established eligibility rules. The UC program 
generally does not provide UC benefits to 
 the self-employed, those who are unable to work, or 
those who do not have a recent earnings history.  
States usually disqualify claimants who 
 lost their jobs because of inability to work, voluntarily 
quit without good cause, were discharged for job-related 
misconduct, or refused suitable work without good 
cause.  
To receive UC benefits, claimants must 
 have enough recent earnings (distributed over a 
specified period) to meet their state’s earnings 
requirements; and 
 be able, available, and actively searching for work. 
For more details on UC eligibility and benefits, see CRS 
Report RL33362, Unemployment Insurance: Programs and 
Benefits. 
The Fundamentals of Unemployment Compensation 
www.crs.gov  |  7-5700 
Most states provide up to a maximum of 26 weeks of UC 
benefits. Under current state laws, the maximum duration of 
UC benefits range from up to 12 weeks (under certain 
economic conditions in Florida and North Carolina) to up to 
30 weeks (Massachusetts). For information on UC benefit 
duration in states, see CRS Report R41859, Unemployment 
Insurance: Consequences of Changes in State 
Unemployment Compensation Laws. 
Former federal workers may be eligible for unemployment 
benefits through the Unemployment Compensation for 
Federal Employees (UCFE) program. Former U.S. military 
servicemembers may be eligible for unemployment benefits 
through the Unemployment Compensation for Ex-
Servicemembers (UCX) program. For more information on 
the UCX program, see CRS Report RS22440, 
Unemployment Compensation (Insurance) and Military 
Service. 
In FY2018, states paid $28.6 billion in UC benefits and 
federal agencies paid $0.55 billion in UCFE/UCX benefits, 
which are considered on-budget, mandatory expenditures. 
The UC program’s administrative costs, which go through 
the federal appropriations process, were estimated to total 
$4 billion. 
Financing 
The UC program is financed by federal payroll taxes under 
the FUTA and by state payroll taxes under SUTA. The 
0.6% effective net FUTA tax paid by employers on the first 
$7,000 of each employee’s earnings (no more than $42 per 
worker per year) funds federal and state administrative 
costs, loans to insolvent state UC accounts, the federal 
share (50%) of Extended Benefit (EB) payments, and state 
employment services. For FY2018, an estimated $6.3 
billion was collected in federal FUTA taxes, whereas an 
estimated $39.1 billion was collected in SUTA taxes to 
finance UC benefits. 
For more details on UC financing, see CRS Report R44527, 
Unemployment Compensation: The Fundamentals of the 
Federal Unemployment Tax (FUTA) and CRS Report 
RS22077, Unemployment Compensation (UC) and the 
Unemployment Trust Fund (UTF): Funding UC Benefits. 
Unemployment Benefits for the Long-
Term Unemployed 
In response to economic recessions, the federal government 
sometimes has augmented the regular UC benefit with both 
permanent (the EB program) and temporary unemployment 
benefits (including the Emergency Unemployment 
Compensation of 2008 [EUC08] program). 
Extended Benefits 
UC benefits may be extended at the state level by the 
permanent law EB program if high unemployment exists 
within the state. After regular unemployment benefits are 
exhausted, the EB program may provide up to an additional 
13 or 20 weeks of benefits, depending on worker eligibility, 
state law, and economic conditions in the state. The EB 
program is funded 50% by the federal government and 50% 
by the states. The EB program was established by the 
Federal-State Extended Unemployment Compensation Act 
of 1970 (EUCA; P.L. 91-373) (26 U.S.C. §3304, note). For 
more details on the EB program, see CRS Report RL33362, 
Unemployment Insurance: Programs and Benefits. 
Temporary Programs  
Congress has created federal temporary programs that 
extended unemployment benefits eight different times. 
Most recently, the EUC08 program was created by the 
Supplemental Appropriations Act of 2008 (P.L. 110-252). 
State UC agencies administered the EUC08 benefit along 
with regular UC and EB benefits. Amended 11 times, at the 
program’s peak, four tiers of EUC08 benefits were 
available to unemployed workers in states with high 
unemployment rates; in states in which all four tiers of 
EUC08 benefits were available, eligible unemployed 
workers could receive up to 99 weeks of benefits combined 
from the regular UC, EB, and EUC08 programs. The 
program ended the last week of December 2013. 
For more details on the EUC08 program, see CRS Report 
R42444, Emergency Unemployment Compensation 
(EUC08): Status of Benefits Prior to Expiration. For more 
details on all temporary UC programs, see CRS Report 
RL34340, Extending Unemployment Compensation 
Benefits During Recessions. 
Job Search and Return to Work  
The job search behavior of the unemployed can be 
influenced by changing the timing, generosity, and duration 
of UC benefits. The availability of benefits may create a 
disincentive to search for and accept reemployment, 
increasing unemployment and unemployment duration. 
Although most economists would agree that UC benefits 
create some disincentives to find work quickly, these 
disincentives are somewhat balanced by a relatively low 
replacement rate of wages by UC benefits and a recognition 
that proper allocation of human resources and human 
capital requires adequate job search time. 
For more analysis of the interaction between job search and 
UC receipt, including policy proposals to return UC 
claimants to work, see CRS Report R43044, Expediting the 
Return to Work: Approaches in the Unemployment 
Compensation Program. 
Program Integrity 
Program integrity continues to be of concern to the UC 
program. The Office of Management and Budget (OMB) 
has designated UC as one of 19 “high-error” programs. In 
FY2017, the UC improper payment rate was 12.5%, with a 
total of $4.1 billion in improper payments. Although states 
currently have authority to recover UC overpayments 
through a variety of means, there may be legislative 
proposals in the 116th Congress to further address this issue. 
For more information on program integrity proposals, see 
CRS Report R45478, Unemployment Insurance: Legislative 
Issues in the 116th Congress . 
Julie M. Whittaker, jwhittaker@crs.loc.gov, 7-2587 
Katelin P. Isaacs, kisaacs@crs.loc.gov, 7-7355 
IF10336 


The Fundamentals of Unemployment Compensation

[Excerpt] The joint federal-state Unemployment Compensation (UC) program provides income support through UC benefit payments. Although there are broad requirements under federal law regarding UC benefits and financing, the specifics are set out under each state’s laws. States administer UC benefits with U.S. Department of Labor (DOL) oversight, resulting in 53 different UC programs operated in the states, the District of Columbia, Puerto Rico, and the Virgin Islands. Total UC expenditures include benefits and administrative costs. During economic expansions, states fund approximately 85%-90% of all UC expenditures—as almost all of the benefits are state-financed by state unemployment taxes. In comparison, federal expenditures are relatively small during these expansions (approximately 10%-15%) in which federal expenditures are primarily administrative grants to the states financed by federal unemployment taxes.CRS_Fundamentals_of_Unemployment_Compensation_0219.pdf: 57 downloads, before Oct. 1, 2020

Whittaker, Julie M.

Isaacs, Katelin P.

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The Fundamentals of Unemployment Compensation

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