Following news coverage can be easy. Understanding some of the terms it uses, less so. In our Flashcard series, The Atlantic explains ideas you may read about but never see spelled out. In this installment, we explain how unemployment insurance works and why it's become so controversial in the last few months.
Today the Senate is expected to renew unemployment insurance benefits after months of partisan wrangling. The new law would not extend unemployment benefits past their 99-week duration. Instead it would retroactively compensate 2.5 million Americans who have lost benefits in the last six weeks, and extend the current program until November. Unemployment insurance stands to become a lightening rod in the midterm elections, but how does the program actually work?
Unemployment insurance (UI) is paid by states and the federal government to people who have lost their jobs through no fault of their own (ie: did not quit, and were not fired for misconduct). It is what economists call a counter-cyclical program, pumping money into the economy when the private sector stalls. In this way, it provides insurance both for folks who lost jobs and for an economy that's lost momentum.
In normal times, states pay for up to 26 weeks of unemployment insurance with a payroll tax. Some choose to provide extended benefits. The federal government fills a rainy fund and splits the cost of the extended benefits by collecting $56 per worker, nationwide. In the last two years, Washington took over the extended benefits program. Further extensions to UI were financed with deficit spending (see: Deficit Spending Flashcard).
There are three basic qualifications for UI. First, you lost your job. Second, it wasn't your fault. Third, you're looking for work (some states require beneficiaries to show job contacts). This spring, about 11.4 million people collected UI benefits.
How much you get is determined by how much you've made. States typically cut a check worth 50 percent of your recent earnings, up to a cap. The national average is around 36 percent of pre-layoff earnings (it's a low cap). In Virginia, the maximum weekly compensation is $378. For more, click on this graph from the Washington Post.
In response to the Great Recession, Washington extended the duration of jobless benefits to 99 weeks for the hardest hit states. First, the federal government took over paying for the Extended Benefits program. Second, Congress created four additional "tiers" of benefits. All states are eligible for the first two tiers. Only the most hard hit states can also qualify for the third and fourth tiers. Here's an unemployment insurance ladder that shows how people in some states can receive almost two years of UI:
Since June 4, when the program expired, each beneficiary could collect the balance of his tier -- and no more. In other words, a man who just started Tier 1 could receive checks for 19 more weeks. But a woman on her last week of state benefits stopped receiving checks. Today Congress is looking to retroactively award benefits to the 2.5 million people who've been bumped off UI rolls.