A Brief History of Unemployment Insurance

The Unemployment Insurance program (UI) provides temporary weekly cash payments to people who are unemployed through no fault of their own. The cash payments are meant for unemployed persons to temporarily provide basic necessities for themselves and their families while seeking new employment. The basic idea is that the money would be immediately spent, thus providing a direct stimulus to their local economies.

Public unemployment insurance first appeared in Wisconsin in 1932 as part of an effort to provide relief to workers who were unemployed as a result of the 1929 financial collapse. Six other states followed suit before the first federal unemployment insurance program was created as part of the Social Security Act of 1935. By 1937, every state in the Union and the then-territories of Alaska and Hawaii had enacted their own unemployment insurance programs.

Originally, the UI program lasted 16 weeks at the state level. Those eligible for the program included those who quit work, were fired for misconduct, or refused suitable work. However, their benefits were docked for a certain period of time. Employers who employed 8 or more workers were required to provide coverage. Persons who sought to claim unemployment benefits had to do so in person. 

Today, the UI program lasts 26 weeks in most states. However, there are many more restrictions.

In most states, those who quit work, are fired, or refuse suitable work are disqualified from receiving benefits. All 50 states require people to find new employment in order to re-qualify for unemployment insurance. At the same time, coverage has steadily expanded. Employers with one or more employees are required to provide coverage.

The federal government now offers special extension packages to the long-term unemployed who have exhausted their state’s benefits. The vast majority of claims are now filed remotely, by phone, or the Internet. 

The current expanded program, which began under the George W. Bush administration in 2008 when unemployment stood at 5.6 percent, has at times provided up to 73 weeks of extended UI. As of 2013, the federal government provides a maximum of 47 weeks of extended UI. The federal government has extended the 2008 program 11 times since its inception.

The latest extension ended on December 28. Congress was unable to put together a new extension package before the December recess, which has left 1.3 million people without UI.  

There is bipartisan support to re-extend federal unemployment insurance, but congressional leaders are at odds as to how long to extend them and how to fund the extension. Last week, the Senate voted to open debate on a bill that would extend federal UI for 3 months. If passed, it would cost around $6 billion. 

Democrats propose paying for extended UI by extending the federal sequester by a year, something that would not happen until around 2020, and by cracking down on tax evaders. Republicans want to see it paid for with budget cuts.

Senate Minority Leader Mitch McConnell (R-KY) proposed tying extended UI to a one-year delay in the Affordable Care Act mandate to purchase health insurance, but the idea was a non-starter for Democrats and it actually would not cover the $6 billion while increasing the deficit. Senator Kelly Ayotte (R-NH) has suggested covering the costs by prohibiting illegal immigrants from claiming child tax credits.

Heritage Action, the recently formed “activist” wing of the conservative organization, Heritage Foundation, which keeps scorecards on Republican lawmakers, declared that it opposes any extension to the UI program and says it will track how Republicans vote on it. They argue that extending UI would increase the unemployment rate and prolong unemployment. In short, UI breeds laziness. 

In a recent article that appeared in Kentucky.com, Senator Rand Paul (R-KY) argued that extending UI would hurt the unemployed because it would decrease their chances of landing a job. He cites a study conducted by two economists in the Federal Reserve Bank of Boston.

One problem with Rand’s article is that, as the Los Angeles Times reported, the study Paul cites came to the opposite conclusion. As coincidentally-named Rand Ghayad, one of the authors of the study Senator Paul cited, wrote in an Atlantic essay:

“There is no evidence that cutting unemployment insurance would increase employment much at all. There is some evidence it would lower the unemployment rate, but only because people would give up looking for work, and no longer count as unemployed.”

President Barack Obama, in a speech shortly after the Senate opened the floor for consideration of the UI extension bill, said, “The long-term unemployed are not lazy. I can’t name a time when I met an American who would rather have an unemployment check than the pride of having a job.”