The Unemployment Insurance (UI) program provides compensation to unemployed eligible workers looking for work. It is administered by states under general federal guidelines, with eligibility, amount, and duration of benefits determined by each state. Workers who have recently joined the workforce, part-time workers, and seasonal workers generally do not have enough hours of employment to be eligible for UI benefits or are explicitly excluded by state regulations. Unemployment compensation through the UI program may be extended by federal or state governments during economic downturns and recessions, when jobs are scarce.
Expected Beneficial Outcomes (Rated)
Increased financial stability
Other Potential Beneficial Outcomes
Increased food security
Evidence of Effectiveness
There is some evidence that unemployment insurance (UI) allows individuals and families to avoid sudden reductions in income and maintain basic standards of living as an unemployed member searches for work (NBER-Kroft 2011*, Bloemen 2005*, NBER-Chetty 2004, Gruber 1997*). Additional evidence is needed to confirm effects and determine optimal benefit levels and durations.
Unemployment insurance can prevent drops in food consumption, particularly among poorer households (NBER-Kroft 2011*, Bloemen 2005*, Gruber 1997*). UI and extended UI benefits can keep families from falling into poverty (Urban-Simms 2008, Mathematica-Corson 1999), though often not without an additional source of income (Mathematica-Corson 1999). Unemployment insurance may also reduce the likelihood of future unemployment spells (Schmieder 2012b*) and may positively affect re-employment wages for some recipients (Addison 2000*).
Unemployment insurance and benefit extensions increase the chance that unemployed individuals will remain unemployed for longer periods of time than they would without these benefits (Schmieder 2012b*, Meyer 1990*). Though there is no evidence that UI recipients do not actively seek work (Ashenfelter 2005*), the likelihood of gaining employment has been shown to increase as benefit eligibility nears its end (Campbell-Filges 2013).
Higher UI benefit rates may induce non-workers to work for part of the year in order to qualify for benefits (Riddell 2010) or encourage those who may not have applied for UI at lower benefit levels to file claims (NBER-Meyer 2007, Riddell 2010). Increased rates may also increase the duration of unemployment for individuals in households with limited liquid assets (Chetty 2008*, NBER-Meyer 2007).
Extending UI eligibility for longer periods of time, frequently done during recessions or downturns, may increase the unemployment rate by very small amounts -- estimates from the Great Recession range from 0.1-0.5 percentage points (Rothstein 2011). Some researchers suggest that this increase may be due in part to the long-term unemployed, who remain part of labor force calculations by continuing to file and actively searching for work (Rothstein 2011, Howell 2011*).
Impact on Disparities
All states provide unemployment benefits to workers who have been laid off from their positions and who are searching for full-time work. Some states allow limited earnings while receiving UI to encourage acceptance of part-time or short-term work while searching for full-time employment. Many states only provide unemployment benefits to workers searching for part-time employment under specific conditions (US DOL-UI).
When determining benefit eligibility, most states recognize a small number of reasons as “good cause” for voluntarily leaving employment, which can include compulsory retirement, sexual or other harassment, or personal illness. Some also provide benefits to individuals forced to leave work for additional “good cause” reasons, such as domestic violence, spousal relocation, or care for a family member (US DOL-UI).
NCSL-UI - National Conference of State Legislatures (NCSL). State unemployment rates November 2013: Rates dropped in 45 states.
Citations - Evidence
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NBER-Kroft 2011* - Kroft K. Should unemployment insurance vary with the unemployment rate? Theory and evidence. National Bureau of Economic Research (NBER). 2011: Working Paper 17173.
Bloemen 2005* - Bloemen HG, Stancanelli EGF. Financial wealth, consumption smoothing and income shocks arising from job loss. Economica. 2005;72(287):431–52.
NBER-Chetty 2004 - Chetty R. Optimal unemployment insurance when income effects are large. National Bureau of Economic Research (NBER). 2004: Working Paper 10500.
Gruber 1997* - Gruber J. The consumption smoothing benefits of unemployment insurance. American Economic Review. 1997;87(1):192–205.
Urban-Simms 2008 - Simms MC. Weathering job loss: Unemployment insurance. Washington, DC: Urban Institute; 2008.
Mathematica-Corson 1999 - Corson W, Needels K, Nicholson W. Emergency unemployment compensation: The 1990s experience. Princeton: Mathematica Policy Research (MPR); 1999.
Schmieder 2012b* - Schmieder JF, von Wachter T, Bender S. The effects of extended unemployment insurance over the business cycle: Evidence from regression discontinuity estimates over 20 years*. Quarterly Journal of Economics. 2012;127(2):701–52.
Addison 2000* - Addison JT, Blackburn ML. The effects of unemployment insurance on postunemployment earnings. Labour Economics. 2000;7(1):21–53.
Meyer 1990* - Meyer BD. Unemployment insurance and unemployment spells. Econometrica. 1990;58(4):757–82.
Ashenfelter 2005* - Ashenfelter O, Ashmore D, Deschênes O. Do unemployment insurance recipients actively seek work? Evidence from randomized trials in four US States. Journal of Econometrics. 2005;125(1-2):53–75.
Campbell-Filges 2013 - Filges T, Geerdsen LP, Knudsen ASD, Jorgensen AMK, Kowalski K. Unemployment benefit exhaustion: Incentive effects on job finding rates: A systematic review. Campbell Systematic Reviews. 2013:4.
Riddell 2010 - Riddell C, Kuhn PJ. The long-term effects of unemployment insurance: Evidence from New Brunswick and Maine, 1940-1991. Industrial and Labor Relations Review. 2010;63(2):183–204.
NBER-Meyer 2007 - Meyer BD, Mok WKC. Quasi-experimental evidence on the effects of unemployment insurance from New York state. National Bureau of Economic Research (NBER). 2007: Working Paper 12865.
Chetty 2008* - Chetty R. Moral hazard versus liquidity and optimal unemployment insurance. Journal of Political Economy. 2008;116(2):173–234.
Rothstein 2011 - Rothstein J. Unemployment insurance and job search in the great recession. Brookings Papers on Economic Activity. Fall 2011.
Howell 2011* - Howell DR, Azizoglu BM. Unemployment benefits and work incentives: The US labour market in the great recession. Oxford Review of Economic Policy. 2011;27(2):221–40.
Citations - Implementation Examples
* Journal subscription may be required for access.
US DOL-UI - Balster J, Lancaster L, Wells A. Comparison of state unemployment insurance laws. Washington, DC: US Department of Labor (US DOL); 2013.
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