What Is Federal Unemployment Insurance?

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  • Written By: John Lister
  • Edited By: O. Wallace
  • Last Modified Date: 05 May 2020
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Federal unemployment insurance is a nationally funded program that makes payments to unemployed people while they seek a job. In the United States, unemployment benefits are administered by individual states but funded by a combination of state and federal funds. The way such insurance works, and its availability, can vary in other countries.

There are several systems around the world for dealing with the fact that people who are not working may not have enough income to survive. In some cases there are no official payments, meaning unemployed people must rely on personal savings or charities. In other countries, for example Sweden, the majority of unemployment compensation is handled by trade unions. In many countries, particularly the major economic powers, unemployment payments are provided by the state, subject to eligibility requirements and time limits.

The key difference between the federal unemployment insurance of the US and the unemployment benefit system used in some other countries is the source of the funding. In many countries, unemployment benefits come out of the money raised by general taxation. In the US, the money is primarily funded by a specific tax levied on employers while the person is still working, with this money insuring against the person later making an unemployment benefit claim. Both the eligibility and amount paid to claimants in the US is dependent on previous work and earnings. As of 2011, the general rate of benefits is 50 percent of the person's previous average earnings.

Because the US is a federal country with individual states retaining significant powers, the federal unemployment insurance system is made up of several stages. Basic unemployment is funded by individual states and last for up to 26 weeks. After this, two federally funded schemes apply as of 2011: first Emergency Unemployment Compensation, then Extended Benefits. The number of weeks a person can get benefits from these schemes depends on the unemployment rate in the relevant state, and whether the state has accepted the federal funding. Both these programs were introduced as temporary measures but their withdrawal has been delayed several times.

Federal unemployment insurance and similar schemes worldwide are often the subject of intense political and economic debate. Supporters argue that it is the responsibility of society to help people in need, particularly those who have previously contributed via taxes, and that unemployment benefits help keep people economically active. Critics argue that people should be responsible for planning ahead to cover periods without work, and that unemployment benefits create a dependency culture and deter people from making stronger efforts to look for work. Many people fall between these two extremes and support the principle of federal unemployment insurance, but dispute the amount and duration of payments.

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