Unemployment insurance (UI)

Evidence Rating  
Some Evidence
Evidence rating: Some Evidence

Strategies with this rating are likely to work, but further research is needed to confirm effects. These strategies have been tested more than once and results trend positive overall.

Health Factors  
Decision Makers

The unemployment insurance (UI) program is an income support program, which provides compensation to eligible unemployed workers looking for and available to work, or who are participating in approved re-employment services such as job training. UI is funded by taxes employers pay for their employees and is administered by states under general federal guidelines, with eligibility, amount, and duration of benefits determined by each state. 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 unemployment insurance (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. 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 to care for a family member1. Unemployment compensation through the UI program may be extended by federal or state governments during economic downturns and recessions, when jobs are scarce2, 3. Some states also include Short Time Compensation (STC), also known as work sharing, and Self Employment Assistance (SEA) programs as part of their UI programs. STC provides benefits to workers who have been put on reduced schedules by their employers, and SEA provides benefits to qualifying individuals starting a business or working for themselves4.

Expected Beneficial Outcomes (Rated)

  • Increased financial stability

  • Improved well-being

Other Potential Beneficial Outcomes

  • Increased food security

  • Reduced poverty

  • Reduced suicide

  • Reduced crime

  • Improved academic outcomes

  • Improved health outcomes

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 person searches for work5, 6, 7, 8, 9. Additional evidence is needed to confirm effects and determine optimal benefit levels and durations.

Unemployment insurance can prevent reduced food consumption, particularly among households with fewer resources6, 7, 9. UI and extended UI benefits can keep families from falling into poverty10, 11, 12, though often not without an additional source of income12. Unemployment insurance may also reduce the likelihood of future unemployment spells13 and may positively affect re-employment wages for some recipients14. UI receipt may increase child support payments by individuals who are economically disadvantaged15. UI increases, in both dollar amounts and the length of benefits, may prevent mortgage delinquencies and foreclosures, particularly for “unmarried households” and those without savings5.

Unemployment insurance and benefit extensions can increase the likelihood that unemployed individuals remain unemployed for longer periods of time than they would without these benefits13, 16. However, researchers note that a longer benefit is not automatically associated with longer joblessness and may vary by country, time period, age cohort, and gender17. Though there is no evidence that UI recipients do not actively seek work18, the likelihood of gaining employment has been shown to increase as benefit eligibility nears its end19. However, overall, longer potential benefit duration periods appear to improve the fit between a worker and employer, particularly for women and minorities20; and a German study suggests that workers with longer spells of unemployment are less likely to be unemployed later on13.

UI may improve recipients’ health21, 22, including improving birth outcomes23. Higher UI generosity can increase health insurance coverage and health care utilization, especially during times of high unemployment21. Higher UI benefits may counteract the rise in suicides associated with unemployment24, providing a protective effect, particularly for groups at higher risk (men, white Americans, and those ages 45-64)25. Evidence from Europe, where most countries have nationalized health care or government-funded insurance, suggests higher unemployment benefits may reduce suicides, particularly in men26 and improve subjective well-being10, 27.

Parental participation in UI may increase children’s math scores28, and higher UI benefits may reduce the need for children ages 5-17 to repeat a grade29. Additionally, increases in UI benefits are associated with decreases in property30, 31 and violent crime30.

Higher UI benefit rates may induce non-workers to work part of the year in order to qualify for benefits32 or encourage those who may not have applied for UI at lower benefit levels to file claims32, 33. Increased benefit rates may also extend the duration of unemployment for individuals in households with limited liquid assets33, 34. Higher unemployment benefits may also discourage the founding of unincorporated businesses by unemployed workers, which often have lower profits and rates of survival35.

Extending UI eligibility for longer periods of time, frequently done during recessions or downturns, may increase the unemployment rate to some degree36; estimates from the Great Recession range from 0.1-0.5 percentage points37. 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 for UI while actively searching for work37, 38. One study suggests that the extended benefits during the Great Recession may have decreased the number of workers dropping out of the labor force39.

During the COVID-19 pandemic, UI benefits reduced food insecurity and insufficiency40, 41, an effect magnified by receipt of the earnings supplement and higher benefits41. Workers who received UI during the periods of higher federal pandemic relief were less likely to experience reduced income42 or to miss house payments40 and had reduced depression and anxiety symptoms40. Federal spending on UI offset unemployment-related drops in health care spending, particularly in states without Medicaid expansion43.

Expanded UI benefits as part of COVID-19 pandemic relief had an additional benefit prior to the development of vaccines: benefits allowed people to turn down work that may have increased community transmission before vaccines were available44. Overall, the generosity of benefits did not appear to suppress employment during the initial phase of the pandemic45; while workers receiving more generous benefits appeared to have larger declines in employment, they did not appear to be slower returning to work46. Additionally, while increased benefits may have decreased applications, jobs were also scarce, so fewer applications may have been a benefit to workers who were applying by reducing competition47.

Experts recommend several reforms to UI, which has had the same structure in place since the 1970s, when the labor market was very different. Additionally, the COVID-19 pandemic has highlighted challenges facing the system, including underfunded administration, strict eligibility requirements that prevent many unemployed workers from qualifying, and inadequate benefit amounts48. Suggested reforms include mandated benefit minimums that keep pace with inflation; allowing part-time work with partial UI receipt; expanding eligibility to reflect workforce shifts to more non-traditional employment (i.e., the gig economy and the self-employed); creating automatic triggers to expand the duration and amount of benefits, based on specific economic conditions; fixing financing shortfalls within state trust funds; and modernizing and properly funding UI administration, including upgraded information technology3, 48, 49.

Equity Analysis

Potential to increase disparities: Supported by some evidence

As currently designed and implemented, there is some evidence that unemployment insurance (UI) has the potential to increase disparities, as workers who are the lowest paid22, 51, women51, people of color51, 52, and less educated53 are less likely to receive unemployment benefits51.

Black and Hispanic individuals are more likely to be unemployed during good economic conditions and are hit harder by employment declines during recessions than white individuals, and their employment rate rebounds more slowly during economic recoveries54. Black individuals are more likely to live and work in states with less generous UI systems51. They are 24% less likely to receive UI than whites, which appears to be due to lower take-up rather than eligibility differences52. Less educated workers are also less likely to apply for and receive benefits than highly educated workers, due to lack of knowledge and the perception that they would not qualify53. At the end of the post-Great Recession expansion, just before the start of the COVID-19 pandemic, women were only 35% of UI recipients, despite making up 47% of the unemployed51.

As it is currently implemented, basic unemployment insurance may increase disparities, but the Federal Pandemic Unemployment Compensation provided during the COVID-19 pandemic suggests that expanded benefits could prevent an increase in disparities. While lower wage workers were more likely to face significant earnings declines during 2020, more than half of those who claimed UI did not. Higher than normal UI payments more effectively decreased the risk of reduced income compared to both the Great Recession and 201942.

During the COVID-19 pandemic, people with lower incomes and people of color experienced greater job losses than people with higher incomes and white workers54, 55, with women experiencing greater losses54. Groups marginalized due to race, income, sexuality, and gender were more likely to report being unemployed; those same groups, plus younger individuals and single adults with children, were more likely to report experiencing food insecurity. UI receipt appears to have decreased food insecurity, particularly for households making less than $20,000 per year41. Federal Pandemic Unemployment Compensation helped offset some drops in health care spending, which may have been particularly relevant to the approximately 30% of Black and Hispanic adults and adults in families with low incomes experiencing unemployment who were unable to meet medical needs due to costs43.

To make UI more equitable, some experts propose shifting to a federally financed and administered program48.

Historical Context

In 1935, unemployment insurance (UI) was established at the national level in the US as part of the Social Security Act56. The program was intended to support men, often the primary family earners, during periods of involuntary unemployment, usually temporary layoffs56. By extension, families would experience increased economic stability and the funding would stimulate the economy and create jobs56. Agricultural and domestic workers were excluded, despite making up a large share of the workforce, with 65% of Black Americans (up to 80% in some parts of the Southern US) and 40% of whites not initially covered by UI or Social Security. This exclusion, lasting until 1976, reinforced the state-sanctioned marginalization of Black workers and replicated the US racial power structure in the development of social welfare programs; whites were the primary recipients of generous social insurance programs while Blacks were subjected to means-tested welfare programs57. Agricultural and domestic workers were also excluded from the Fair Labor Standards Act of 193858, which aimed to set a minimum standard for wages and conditions needed to support workers’ health, efficiency, and well-being59.

UI is a joint federal-state system, overseen by the US Department of Labor, with states able to set their own eligibility criteria, benefit levels, and duration. State unemployment insurance trust funds are funded through employer taxes. Trust funds are intended to be kept solvent by raising taxes during times of economic growth, and lowering them during recessions, when states are paying out more unemployment insurance benefits. However, states lowered UI taxes on employers through the 1990s, leading to historically low levels by 200856. The federal government can lend additional funds to states and raises states’ UI taxes automatically if debts are not repaid56. The federal government also provides states with funding for administration, although a 2009 report suggests federal underfunding has occurred since at least the 1990s60.

Increased unemployment and applications for UI during the Great Recession (2007-2009) highlighted challenges with the UI system, for example, the timeliness of payments declined and 36 states borrowed from the US Treasury to keep their UI funds solvent and be able to pay out benefits60. The number of unemployed workers receiving benefits, as a share of the total number of unemployed, also fell to historically low levels after 201051, with less than 30% of all unemployed workers receiving UI before the COVID-19 pandemic4. Recent proposals for reform include broadening states’ eligibility criteria to better respond to changing labor conditions, such as more individuals holding multiple part-time jobs, including gig work51.

Equity Considerations

  • Who uses unemployment insurance (UI) programs in your community? Who might be eligible for UI, but is not receiving the benefit?
  • What dollar amount and duration of UI benefits can best support workers experiencing unemployment while they identify their next job?
  • What community-based organizations or groups can you partner with to ensure that workers eligible for UI receive their benefits?

Implementation Examples

Many states expanded eligibility for UI to receive federal funding from the American Reinvestment and Recovery Act (ARRA) of 20094. States adopted provisions including increasing coverage for part-time workers, recognizing more justifications for leaving employment related to family obligations, and continuing benefits for individuals engaged in state-approved workplace training4. Research shows that these types of changes support increased coverage of UI4.

However, before the COVID-19 pandemic, UI recipiency was low compared with historic levels, which experts attribute in part to states reducing the number of weeks an individual can receive benefits4. While most states provide 26 weeks of benefits, 9 states provide fewer; Florida and North Carolina have the shortest maximum benefit duration, granting only 12 weeks for all new claims in 202250. Most US employees are eligible for UI, but the share of unemployed who receive the benefits is smaller and varies by state; as of 2018, only 10% of eligible unemployed individuals in Florida received benefits3.

Implementation Resources

US DOL-Careeronestop UI - US Department of Labor (US DOL). Careeronestop: Unemployment benefits.

TPC-Nunn 2019 - Nunn R, Ratner D. Rethinking unemployment insurance taxes and benefits. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2019.

Footnotes

* Journal subscription may be required for access.

1 US DOL-UI - US Department of Labor (US DOL). Comparison of state unemployment insurance laws. Washington, DC: US Department of Labor (US DOL); 2021.

2 CBPP-UI - Center on Budget and Policy Priorities (CBPP). Policy basics: Unemployment insurance. 2021.

3 TPC-Nunn 2019 - Nunn R, Ratner D. Rethinking unemployment insurance taxes and benefits. Washington, DC: Urban-Brookings Tax Policy Center (TPC); 2019.

4 Urban-Congdon 2021 - Congdon WJ, Vroman W. Covering more workers with unemployment insurance: Lessons from the Great Recession. Washington, DC: Urban Institute; 2021.

5 Hsu 2018 - Hsu JW, Matsa DA, Melzer BT. Unemployment insurance as a housing market stabilizer. American Economic Review. 2018;108(1):49-81.

6 Kroft 2016* - Kroft K, Notowidigdo MJ. Should unemployment insurance vary with the unemployment rate? Theory and evidence. The Review of Economic Studies. 2016;83(3):1092-1124.

7 Bloemen 2005* - Bloemen HG, Stancanelli EGF. Financial wealth, consumption smoothing and income shocks arising from job loss. Economica. 2005;72(287):431-52.

8 NBER-Chetty 2004 - Chetty R. Optimal unemployment insurance when income effects are large. National Bureau of Economic Research (NBER). 2004: Working Paper 10500.

9 Gruber 1997* - Gruber J. The consumption smoothing benefits of unemployment insurance. American Economic Review. 1997;87(1):192-205.

10 Renahy 2018 - Renahy E, Mitchell C, Molnar A, et al. Connections between unemployment insurance, poverty and health: A systematic review. European Journal of Public Health. 2018;28(2):269-275.

11 Urban-Simms 2008 - Simms MC. Weathering job loss: Unemployment insurance. Washington, DC: Urban Institute; 2008.

12 Mathematica-Corson 1999 - Corson W, Needels K, Nicholson W. Emergency unemployment compensation: The 1990s experience. Princeton: Mathematica Policy Research (MPR); 1999.

13 Schmieder 2012b* - Schmieder JF, von Wachter T, Bender S. The long-term effects of UI extensions on employment. The American Economic Review: Papers & Proceedings. 2012;102(3):514-519.

14 Addison 2000* - Addison JT, Blackburn ML. The effects of unemployment insurance on postunemployment earnings. Labour Economics. 2000;7(1):21-53.

15 Hodges 2020* - Hodges L. Do low-income parents who receive unemployment insurance pay more child support? Children and Youth Services Review. 2020;111:104834.

16 Meyer 1990* - Meyer BD. Unemployment insurance and unemployment spells. Econometrica. 1990;58(4):757-82.

17 Lopes 2021 - Lopes MC. A review on the elasticity of unemployment duration to the potential duration of unemployment benefits. Journal of Economic Surveys. 2021.

18 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.

19 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.

20 NBER-Farooq 2022 - Farooq A, Kugler AD, Muratori U. Do unemployment insurance benefits improve match quality? Evidence from recent US recessions. National Bureau of Economic Research (NBER). 2022: Working Paper 27574.

21 Kuka 2020* - Kuka E. Quantifying the benefits of social insurance: Unemployment insurance and health. Review of Economics and Statistics. 2020;102(3):490-505.

22 Cylus 2017 - Cylus J, Avendano M. Receiving unemployment benefits may have positive effects on the health of the unemployed. Health Affairs. 2017;36(2):289-296.

23 Noghanibehambari 2020* - Noghanibehambari H, Salari M. Health benefits of social insurance. Health Economics. 2020;29(12):1813-1822.

24 Cylus 2014 - Cylus J, Glymour MM, Avendano M. Do generous unemployment benefit programs reduce suicide rates? A state fixed-effect analysis covering 1968-2008. American Journal of Epidemiology. 2014;180(1):45-52.

25 Kaufman 2020a* - Kaufman JA, Livingston MD, Komro KA. Unemployment insurance program accessibility and suicide rates in the United States. Preventive Medicine. 2020;141:106318.

26 Shand 2022* - Shand F, Duffy L, Torok M. Can government responses to unemployment reduce the impact of unemployment on suicide? A systematic review. Crisis. 2022;43(1):59-66.

27 Vossemer 2018 - Voßemer J, Gebel M, Täht K, et al. The effects of unemployment and insecure jobs on well-being and health: The moderating role of labor market policies. Social Indicators Research. 2018;138(3):1229-1257.

28 Kukla-Acevedo 2014* - Kukla-Acevedo S, Heflin CM. Unemployment insurance effects on child academic outcomes: Results from the National Longitudinal Survey of Youth. Children and Youth Services Review. 2014;47(3):246-252.

29 Regmi 2019* - Regmi K. Examining the externality of unemployment insurance on children's educational achievement. Economic Inquiry. 2019;57(1):172-187.

30 Noghanibehambari 2021* - Noghanibehambari H, Maden B. Unemployment insurance generosity and crime. Applied Economics Letters. 2021;28(13):1076-1081.

31 Beach 2019* - Beach B, Lopresti J. Losing by less? Import competition, unemployment insurance generosity, and crime. Economic Inquiry. 2019;57(2):1163-1181.

32 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.

33 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.

34 Chetty 2008* - Chetty R. Moral hazard versus liquidity and optimal unemployment insurance. Journal of Political Economy. 2008;116(2):173-234.

35 Xu 2022* - Xu W. Social insurance and entrepreneurship: The effect of unemployment benefits on new-business formation. Strategic Entrepreneurship Journal. 2022.

36 Mathematica-Hock 2016 - Hock H, Nicholson W, Needels K, Lee J, Anand P. Additional unemployment compensation benefits during the Great Recession: Recipients and their post-claim outcomes. Washington, DC: Mathematica Policy Research (MPR); 2016.

37 Brookings-Rothstein 2011 - Rothstein J. Unemployment insurance and job search in the great recession. Brookings Papers on Economic Activity. Fall 2011.

38 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.

39 Farber 2015* - Farber HS, Rothstein J, Valletta RG. The effect of extended unemployment insurance benefits: Evidence from the 2012-2013 phase out. American Economic Review. 2015;105(5):171-176.

40 Berkowitz 2021* - Berkowitz SA, Basu S. Unmet social needs and worse mental health after expiration of COVID-19 federal pandemic unemployment compensation. Health Affairs. 2021;40(3):426-434.

41 Raifman 2021 - Raifman J, Bor J, Venkataramani A. Association between receipt of unemployment insurance and food insecurity among people who lost employment during the COVID-19 pandemic in the United States. JAMA Network Open. 2021;4(1):e2035884.

42 Larrimore 2022 - Larrimore J, Mortenson J, Splinter D. Earnings shocks and stabilization during COVID-19. Journal of Public Economics. 2022;206:104597.

43 Evangelist 2021 - Evangelist M, Wu P, Shaefer L. Emergency unemployment benefits and health care spending during COVID. Health Services Research. 2021;57(1):15-26.

44 Brookings-Thomas 2021 - Thomas M. More than relief: How unemployment insurance can limit community transmission in a pandemic – and what to do next. Washington, DC: Brookings Institution; 2021.

45 Tobin Center-Scott 2020 - Scott D, Altonji J, Contractor Z, et al. Employment effects of unemployment insurance generosity during the pandemic. New Haven, CT: Tobin Center for Economic Policy, Yale University; 2020.

46 Finamor 2021* - Finamor L, Scott D. Labor market trends and unemployment insurance generosity during the pandemic. Economics Letters. 2021;199:109722.

47 Marinescu 2021* - Marinescu I, Skandalis D, Zhao D. The impact of the federal pandemic unemployment compensation on job search and vacancy creation. Journal of Public Economics. 2021;200:104471.

48 Hamilton-Dube 2021 - Dube A. A plan to reform the unemployment insurance system in the United States. The Hamilton Project. Washington, DC: Brookings Institution; 2021.

49 von Wachter 2019* - von Wachter T. Unemployment insurance reform. Annals of the American Academy of Political and Social Science. 2019;686(1):121-146.

50 CBPP-UI duration - Center on Budget and Policy Priorities (CBPP). Policy basics: How many weeks of unemployment compensation are available? 2022.

51 CBPP-Stone 2021 - Stone C. Congress should heed President Biden’s call for fundamental UI reform. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2021.

52 NBER-Kuka 2021 - Kuka E, Stuart BA. Racial inequality in unemployment insurance receipt and take-up. National Bureau of Economic Research (NBER). 2021: Working Paper 29595.

53 BLS-Gould-Werth 2012 - Gould-Werth A, Shaefer HL. Unemployment insurance participation by education and by race and ethnicity. Monthly Labor Review. US Bureau of Labor Statistics (BLS); 2012.

54 CBPP-Stone 2020 - Stone C. Robust unemployment insurance, other relief needed to mitigate racial and ethnic unemployment disparities. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2020.

55 Urban-Acs 2020 - Acs G, Karpman M. Employment, income, and unemployment insurance during the COVID-19 pandemic. Washington, DC: Urban Institute; 2020.

56 CBPP-Stone 2014 - Stone C, Chen W. Introduction to unemployment insurance. Washington, DC: Center on Budget and Policy Priorities (CBPP); 2014.

57 Rodems 2016 - Rodems R, Shaefer H. Left out: Policy diffusion and the exclusion of black workers from unemployment insurance. Social Science History. 2016;40(3):385-404.

58 NELP-Dixon 2021 - National Employment Law Project (NELP): Testimony of Rebecca Dixon. From excluded to essential: Tracing the racist exclusion of farmworkers, domestic workers, and tipped workers from the Fair Labor Standards Act. Hearing before the US House of Representatives Education and Labor Committee, Workforce Protections Subcommittee. 2021.

59 Bernstein 2014* - Bernstein J, Shierholz H. The minimum wage: A crucial labor standard that is well-targeted to low- and moderate-income households. Point/Counterpoint. Journal of Policy Analysis and Management. 2014;33(4):1036-1043.

60 Mathematica-Lee 2018 - Lee J, Needels K. Summary of literature review: Challenges and strategies used to operate unemployment insurance programs during the Great Recession. Oakland, CA: Mathematica Policy Research (MPR); 2018.

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