Unemployment Insurance: Trends and Issues

November 1, 1981

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Research Publication No. 35

Foreword Various developments during the past decade led to vast changes in the Federal-state unemployment insurance system, which was established more than four decades ago as the major governmental program of aid for the temporarily unemployed. The system underwent heavy financial drains as a result of the 1973-1975 recession, the deepest in the program’s history, coupled with the effects of Federal and state policies generally liberalizing benefits without making appropriate provision for the associated cost increases. By the late 1970s, the Federal government and a number of states found it necessary to borrow from the Federal treasury in order to meet their commitment s under the system.

As the financial problems were developing, the unemployment compensation program came under increasing criticism for its alleged adverse effects in encouraging unemployment by creating work disincentives For both unemployed workers and employers.

Apparently reflecting these concerns, and in the face of a new commitment to control Federal budget costs, Congress in 1980 and 1981 enacted measures imposing some restraints on the unemployment insurance program, the finances of which are a part of the unified Federal budget. At the same time, many states moved to shore up their own finances through cost-saving measures and/or increases in employer payroll taxes. In the fall of 1981, there were growing signs that a new economic recession was under way, again posing questions as to the future solvency of the unemployment compensation system and its appropriate role as one of the nation’s major Federal-state social programs.

This study was designed to provide background on these and other issues. It covers the historical background of unemployment insurance programs in the United States and abroad, long-run trends in the magnitude of the program, financing and benefit provisions of the state programs, experience during the business cycle, financing problems of the 1970s, and the pros and cons of major unresolved issues in the system.

Elsie M. Watters, Director of Research, had primary responsibility for this study. An earlier draft was prepared by Betty Deranian, a former Senior Research Analyst on the staff, who also drafted much of the tabular material.


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