SECTION 5. UNEMPLOYMENT COMPENSATION

                                CONTENTS

Overview
Benefits
  Coverage
  Number of Covered Workers
  Eligibility
  Amount and Duration of Weekly Benefits
Extended Benefits
Benefit Exhaustion
Supplemental Benefits
Hypothetical Weekly Benefit Amounts for Various Workers in the 
        Regular State Programs
The Unemployment Trust Fund
  Financial Condition of the Unemployment Trust Fund
  The Federal Unemployment Tax
  State Unemployment Taxes
Administrative Financing and Allocation
Legislative History
References

                                OVERVIEW

    The Social Security Act of 1935 (Public Law 74-271) created 
the Federal-State Unemployment Compensation (UC) Program. The 
program has two main objectives: (1) to provide temporary and 
partial wage replacement to involuntarily unemployed workers 
who were recently employed; and (2) to help stabilize the 
economy during recessions. The U.S. Department of Labor 
oversees the system, but each State administers its own 
program. Because Federal law defines the District of Columbia, 
Puerto Rico, and the Virgin Islands as ``States'' for the 
purposes of UC, there are 53 State programs.
    The Federal Unemployment Tax Act of 1939 (Public Law 76-
379) and titles III, IX, and XII of the Social Security Act 
form the framework of the system. The Federal Unemployment Tax 
Act (FUTA) imposes a 6.2 percent gross tax rate on the first 
$7,000 paid annually by covered employers to each employee. 
Employers in States with programs approved by the Federal 
Government and with no delinquent Federal loans may credit 5.4 
percentage points against the 6.2 percent tax rate, making the 
minimum net Federal unemployment tax rate 0.8 percent. Since 
all States have approved programs, 0.8 percent is the effective 
Federal tax rate. This Federal revenue finances administration 
of the system, half of the Federal-State Extended Benefits 
Program, and a Federal account for State loans. The individual 
States finance their own programs, as well as their half of the 
Federal-State Extended Benefits Program.
    In 1976, Congress passed a temporary surtax of 0.2 percent 
of taxable wages to be added to the permanent FUTA tax rate 
(Public Law 94-566). Thus, the current effective 0.8 percent 
FUTA tax rate has two components: a permanent tax rate of 0.6 
percent, and a temporary surtax rate of 0.2 percent. The 
temporary surtax has been extended four times, most recently by 
the Omnibus Budget Reconciliation Act of 1993 (Public Law 103-
66) through December 31, 1998.
    FUTA generally determines covered employment. FUTA also 
imposes certain requirements on the State programs, but the 
States generally determine individual qualification 
requirements, disqualification provisions, eligibility, weekly 
benefit amounts, potential weeks of benefits, and the State tax 
structure used to finance all of the regular State benefits and 
half of the extended benefits.
    The Social Security Act provides for the administrative 
framework: Title III authorizes Federal grants to the States 
for administration of the State UC laws; Title IX authorizes 
the various components of the Federal Unemployment Trust Fund; 
Title XII authorizes advances or loans to insolvent State UC 
programs.
    Table 5-1 provides a statistical overview of the UC 
Program.

                                BENEFITS

                                Coverage

    In order to qualify for benefits, an unemployed person 
usually must have worked recently for a covered employer for a 
specified period of time and earned a certain amount of wages. 
About 111 million individuals are covered by UC, representing 
97 percent of all wage and salary workers and 84 percent of the 
civilian labor force.
    FUTA covers certain employers that State laws also must 
cover for employers in the States to qualify for the 5.4 
percent Federal credit. Since employers in the States would 
lose this credit and their employees would not be covered if 
the States did not have this coverage, all States cover the 
required groups: (1) except for nonprofit organizations, State-
local governments, certain agricultural labor, and certain 
domestic service, FUTA covers employers who paid wages of at 
least $1,500 during any calendar quarter or who employed at 
least one worker in at least 1 day of each of 20 weeks in the 
current or prior year; (2) FUTA covers agricultural labor for 
employers who paid cash wages of at least $20,000 for 
agricultural labor in any calendar quarter or who employed 10 
or more workers in at least 1 day in each of 20 different weeks 
in the current or prior year; in addition, section 3306(c)(1) 
of FUTA exempted certain alien farmworkers until January 1995; 
and (3) FUTA covers domestic service employers who paid cash 
wages of $1,000 or more for domestic service during any 
calendar quarter in the current or prior year.

                                                        TABLE 5-1.--UNEMPLOYMENT COMPENSATION PROGRAM STATISTICS, SELECTED YEARS 1983-97                                                        
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                                                                                                                          Fiscal years                                                          
                                                               ---------------------------------------------------------------------------------------------------------------------------------
                           Statistic                                                                                                                                    1996           1997     
                                                                  1983      1985      1987      1989      1990      1991      1992      1993      1994      1995    (estimated)  (projected) \1\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total civilian unemployment rate (%)..........................      10.1       7.2       6.4       5.3       5.4       6.5       7.3       7.0       6.3       5.6         5.7            5.7   
Insured unemployment rate (%) \2\.............................       4.3       2.9       2.5       2.1       2.3       3.1       3.1       2.7       2.6       2.3         2.4            2.4   
Coverage (millions)...........................................      86.3      93.5      98.0     104.3     106.1     105.1     104.9     106.6     109.7     112.6       113.6          115.0   
Average weekly benefit amount:                                                                                                                                                                  
    Current dollars...........................................       120       123       134       145       154       163       167       172       175       179         184            192   
    In 1996 dollars \3\.......................................       179       170       186       184       186       189       188       188       186       185         184            186   
State unemployment compensation:                                                                                                                                                                
  Beneficiaries (millions)....................................       9.9       8.4       7.5       7.0       8.1      10.2       9.6       7.8       8.2       7.9         8.7            9.1   
  Regular benefit exhaustions (millions)......................       4.6       2.5       2.5       1.9       2.2       3.2       3.9       3.3       3.1       2.7         2.7            2.8   
  Regular benefits paid (billions of dollars).................      20.8      14.3      15.0      13.5      16.8      24.4      25.6      21.9      21.7      20.9        23.1           24.2   
  Extended benefits (State share: billions of dollars)........      1.21      0.03      0.04     (\6\)      0.03      0.01      0.02      0.00      0.15      0.04        0.05           0.07   
  State tax collections (billions)............................      14.4      20.0      19.1      17.3      16.0      15.3      17.6      21.0      22.5      23.2        24.0           25.0   
  State trust fund impact (income-outlays: billions) \4\......     -7.62     +5.65     +4.11     +3.80     -0.88     -9.13     -8.03     -0.93     +0.66     +2.24       +0.89          +0.79   
Federal unemployment compensation accounts:                                                                                                                                                     
  Federal tax collections (billions of dollars) \5\...........      3.58      4.44      5.08      4.45      5.36      5.33      5.41  \7\ 4.23      5.46      5.70        5.74           5.81   
  Outlays: Federal extended benefits share plus Federal                                                                                                                                         
   supplemental benefits (billions of dollars)................      6.80      1.27      0.04     (\6\)      0.03      0.01     11.15     13.17      4.37      0.05        0.05           0.07   
                                                               ---------------------------------------------------------------------------------------------------------------------------------
State administrative costs (billions):                                                                                                                                                          
  Unemployment Insurance Service..............................      1.70      1.58      1.56      1.71      1.74      1.95      2.49      2.52      2.43      2.38        2.31           2.50   
  Employment Service..........................................      0.72      0.92      0.90      1.00      1.01      1.05      1.02      0.90      0.90      1.05        1.06           1.02   
                                                               ---------------------------------------------------------------------------------------------------------------------------------
    Total administrative costs................................      2.42      2.50      2.46      2.71      2.75      3.00      3.51      3.42      3.33      3.43        3.37           3.51   
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Based on President Clinton's 1997 budget.                                                                                                                                                   
\2\ The average number of workers claiming State unemployment compensation benefits as a percent of all workers covered.                                                                        
\3\ Adjusted using CPI-U.                                                                                                                                                                       
\4\ Excludes interest earned.                                                                                                                                                                   
\5\ Net of reduced credits.                                                                                                                                                                     
\6\ Less than $5 million.                                                                                                                                                                       
\7\ Reflects a book adjustment of minus $967 million.                                                                                                                                           
                                                                                                                                                                                                
Source: Office of Research, U.S. Department of Labor.                                                                                                                                           

    FUTA requires coverage of nonprofit organization employers 
of at least four workers for 1 day in each of 20 different 
weeks in the current or prior year and State-local governments 
without regard to the number of employees. Nonprofit and State-
local government organizations are not required to pay Federal 
unemployment taxes; they may choose instead to reimburse the 
system for benefits paid to their laid-off employees.
    States may cover certain employment not covered by FUTA, 
but most States have chosen not to expand FUTA coverage 
significantly. The following employment is therefore generally 
not covered: (1) self-employment; (2) certain agricultural 
labor and domestic service; (3) service for relatives; (4) 
service of patients in hospitals; (5) certain student interns; 
(6) certain alien farmworkers; (7) certain seasonal camp 
workers; and (8) railroad workers (who have their own 
unemployment program).

                       Number of Covered Workers

    Although the UC system covers 97 percent of all wage and 
salary workers, table 5-2 shows that on average only 36 percent 
of unemployed persons were receiving UC benefits in 1995. This 
compares with a peak of 81 percent of the unemployed receiving 
UC benefits in April 1975 and a low point of 26 percent in June 
1968 and in October 1987. Despite high unemployment during the 
early 1980s, there was a downward trend in the proportion of 
unemployed persons receiving regular State benefits until the 
mid-1980s. The proportion receiving UC rose sharply in December 
1991 due to the temporary Emergency Unemployment Compensation 
(EUC) Program.
    In May 1988, Mathematica Policy Research, Inc. (MPR), under 
contract to the U.S. Department of Labor, released a study on 
the decline in the proportion of the unemployed receiving 
benefits during the 1980s. This analysis did not find a single 
predominant cause for the decline but instead found statistical 
evidence that several factors contributed to the decline (the 
figures in parentheses show the share of the decline attributed 
to each factor):
 1. The decline in the proportion of the unemployed from 
        manufacturing industries (4-18 percent);
 2. Geographic shifts in composition of the unemployed among 
        regions of the country (16 percent);
 3. Changes in State program characteristics (22-39 percent):
    --Increase in the base period earnings requirements (8-15 
            percent);
    --Increase in income denials for UC receipt (10 percent); 
            and
    --Tightening up other nonmonetary eligibility requirements 
            (3-11 percent);
 4. Changes in Federal policy such as partial taxation of UC 
        benefits (11-16 percent);
 5. Changes in unemployment as measured by the Current 
        Population Survey (CPS) (1-12 percent).

                                 TABLE 5-2.--INSURED UNEMPLOYMENT AS A PERCENT OF TOTAL UNEMPLOYMENT, BY MONTH, 1967-95                                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                             Year                               Jan.   Feb.   Mar.   Apr.   May    June   July   Aug.  Sept.   Oct.   Nov.   Dec.   Avg.
--------------------------------------------------------------------------------------------------------------------------------------------------------
1967.........................................................     52     52     54     54     50     30     39     41     33     33     35     47     43
1968.........................................................     57     50     52     50     45     26     34     38     33     34     38     48     42
1969.........................................................     54     54     52     48     43     27     35     36     31     33     40     51     41
1970.........................................................     57     54     52     53     53     36     42     45     42     44     48     53     48
1971.........................................................     58     58     61     59     56     42     45     48     44     46     47     55     52
1972.........................................................     56     58     56     52     49     36     41     38     33     34     38     47     45
1973.........................................................     51     46     46     44     43     31     36     37     34     38     38     48     41
1974.........................................................     53     54     57     60     55     40     43     44     40     42     48     60     50
1975.........................................................     66     73     77     81     79     72     77     79     73     74     76     80     76
1976.........................................................     78     75     76     73     72     58     66     66     60     59     60     63     67
1977.........................................................     67     66     66     66     59     46     52     49     47     48     49     57     56
1978.........................................................     54     54     50     47     44     36     39     42     35     37     34     43     43
1979.........................................................     48     48     47     47     42     33     39     38     37     38     40     49     42
1980.........................................................     52     51     53     52     49     45     49     49     55     49     50     54     50
1981.........................................................     54     50     48     46     40     35     37     37     36     34     38     41     41
1982.........................................................     47     44     48     49     45     40     42     42     43     48     49     47     45
1983.........................................................     50     53     51     53     53     40     39     36     34     33     39     41     44
1984.........................................................     40     38     38     36     34     30     31     31     30     31     31     38     34
1985.........................................................     40     41     41     39     32     28     30     30     28     27     32     37     34
1986.........................................................     38     36     37     35     32     29     32     32     29     30     32     37     33
1987.........................................................     37     37     38     35     31     28     30     29     28     26     29     34     32
1988.........................................................     37     37     37     35     31     28     30     29     27     27     30     34     32
1989.........................................................     35     35     40     37     30     29     33     33     29     31     29     38     33
1990.........................................................     40     42     44     41     37     33     36     34     32     34     34     40     37
1991.........................................................     47     46     48     49     41     37     39     37     35     34     38     51     42
1992.........................................................     56     54     59     59     54     46     48     48     49     50     50     51     52
1993.........................................................     50     48     51     52     48     43     47     48     47     44     46     49     48
1994.........................................................     43     48     43     38     36     31     33     33     30     32     34     39     37
1995.........................................................     39     41     40     37     35     32     35     34     32     34     31     40     36
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Division of Actuarial Services.                                                                                       

    The group of unemployed most likely to be insured are job 
losers. Chart 5-1 shows the number of unemployment compensation 
claimants measured as a percentage of the number of job losers. 
This coverage ratio remained fairly stable from 1968 through 
1979. Over that 12-year span, there were from 90 to 110 
recipients of regular State UC for every 100 job losers. This 
ratio fluctuated somewhat over the business cycle, but it was 
otherwise quite stable.
    Beginning in 1980, the ratio of UC recipients to job losers 
fell sharply, reaching an all-time low in 1983 when there were 
fewer than 60 regular UC recipients for every 100 job losers. 
After 1983, the coverage ratio increased somewhat, so that 
there were about 75 regular UC claimants for every 100 job 
losers in 1990. However, the ratio declined again with the 
1990-91 recession. It has since returned to the prerecession 
level.

    CHART 5-1. RATIO OF INSURED UNEMPLOYMENT TO JOB LOSERS (YEARLY 
                           AVERAGES), 1968-95
&lt;GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT&gt;

    Note._Insured unemployment data include the Virgin Islands 
and Puerto Rico, but the data for job losers do not include 
these territories.

    Source: Chart prepared by the Congressional Research 
Service based on data from Executive Office of the President 
(1994) and U.S. Department of Labor.

                              Eligibility

    States have developed diverse and complex methods for 
determining UC eligibility. In general there are three major 
factors used by States: (1) the amount of recent employment and 
earnings; (2) demonstrated ability and willingness to seek and 
accept suitable employment; and (3) certain disqualifications 
related to a claimant's most recent job separation or job offer 
refusal.
Monetary qualifications
    Table 5-3 shows the State monetary qualification 
requirements in the base year for the minimum and maximum 
weekly benefit amounts, and for the maximum total potential 
benefits. The base year is a recent 1-year period that most 
States (48) define as the first 4 of the last 5 completed 
calendar quarters before the unemployed person claims benefits. 
Most States require employment in at least 2 calendar quarters 
of the base year. Qualifying wages for the minimum weekly 
benefit amount vary from $130 in Hawaii to $4,280 in Oklahoma. 
For the maximum weekly benefit amount, the range is $5,320 in 
Puerto Rico to $28,288 in Colorado. The range of qualifying 
wages for the maximum total potential benefit, which is the 
product of the maximum weekly benefit amount and the maximum 
potential weeks of benefits, is from $5,320 in Puerto Rico to 
$31,500 in Washington.
    Since the beginning of 1994, 13 States increased the 
required earnings in the base year to qualify for the minimum 
weekly benefit amount, and 4 States decreased it. Thirty-nine 
States increased and five decreased the qualification 
requirement for the maximum weekly benefit amount. Forty-two 
States increased (and two decreased) their qualification 
requirements for maximum potential benefits.
Ability to work and availability for work
    All State laws provide that a claimant must be both able to 
work and available for work. A claimant must meet these 
conditions continually to receive benefits.
    Only minor variations exist in State laws setting forth the 
requirements concerning ``ability to work.'' A few States 
specify that a claimant must be mentally and physically able to 
work.
    ``Available for work'' is translated to mean being ready, 
willing, and able to work. In addition to registration for work 
at a local employment office, most State laws require that a 
claimant seek work actively or make a reasonable effort to 
obtain work. Generally, a person may not refuse an offer of, or 
referral to, ``suitable work'' without good cause.
    Most State laws list certain criteria by which the 
``suitability'' of a work offer is to be tested. The usual 
criteria include the degree of risk to a claimant's health, 
safety, and morals; the physical fitness and prior training, 
experience, and earnings of the person; the length of 
unemployment and prospects for securing local work in a 
customary occupation; and the distance of the available work 
from the claimant's residence. Generally, as the length of 
unemployment increases, the claimant is required to accept a 
wider range of jobs.
    In addition, Federal law requires States to deny benefits 
provided under the Extended Benefit (see below) Program to any 
individual who fails to accept any work that is offered in 
writing or is listed with the State employment service, or who 
fails to apply for any work to which he is referred by the 
State agency, if the work: (1) is within the person's 
capabilities; (2) pays wages equal to the highest of the 
Federal or any State or local minimum wage; (3) pays a gross 
weekly wage that exceeds the person's average weekly 
unemployment compensation benefits plus any supplemental 
unemployment compensation (usually private) payable to the 
individual; and (4) is consistent with the State definition of 
``suitable'' work in other respects. Public Law 102-318 
suspended these provisions from March 7, 1993, until January 1, 
1995.

TABLE 5-3.--MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM WEEKLY BENEFIT AMOUNTS AND MAXIMUM TOTAL
                                          POTENTIAL BENEFITS, 1996 \1\                                          
----------------------------------------------------------------------------------------------------------------
                                                           Required total earnings in base year                 
                                                         ----------------------------------------  Minimum work 
                          State                           For minimum  For maximum   For maximum   in base year 
                                                             weekly       weekly      potential   (quarters) \3\
                                                            benefit      benefit    benefits \2\                
----------------------------------------------------------------------------------------------------------------
Alabama.................................................       $1,032       $8,616       $14,039             2Q 
Alaska..................................................        1,000       22,250        22,250             2Q 
Arizona.................................................        1,500        6,919        14,429             2Q 
Arkansas................................................        1,269       13,992        20,592             2Q 
California..............................................        1,125        9,542        11,958  ..............
                                                                                                                
Colorado................................................        1,000       28,288        28,288  ..............
Connecticut.............................................          600       14,000        14,000             2Q 
Delaware................................................          966       13,800        13,800  ..............
District of Columbia....................................        1,950       14,001        18,668             2Q 
Florida.................................................          400       10,000        26,000             2Q 
                                                                                                                
Georgia.................................................        1,350       10,250        23,318             2Q 
Hawaii..................................................          130        9,022         9,022             2Q 
Idaho...................................................        1,430        8,060        20,956             2Q 
Illinois................................................        1,600       13,117        13,117             2Q 
Indiana.................................................        2,750        6,468        20,150             2Q 
                                                                                                                
Iowa....................................................        1,155        6,440        17,472             2Q 
Kansas..................................................        1,950        7,800        20,280             2Q 
Kentucky................................................        1,500       20,042        20,042             2Q 
Louisiana...............................................        1,200        6,788        17,428             2Q 
Maine...................................................        2,964       15,756        15,756             2Q 
                                                                                                                
Maryland................................................          900        9,000         9,000             2Q 
Massachusetts...........................................        2,000       10,410        28,917  ..............
Michigan................................................        1,340        8,944        15,651             2Q 
Minnesota...............................................        1,250        9,848        23,634             2Q 
Mississippi.............................................        1,200        7,200        14,040             2Q 
                                                                                                                
Missouri................................................        1,500        5,833        13,650             2Q 
Montana.................................................        1,356       22,800        22,800             2Q 
Nebraska................................................        1,200        5,450        14,352             2Q 
Nevada..................................................          600        8,888        18,486             2Q 
New Hampshire...........................................        2,800       27,500        27,500             2Q 
                                                                                                                
New Jersey..............................................        2,020       12,080        21,140             2Q 
New Mexico..............................................        1,379        6,890         9,187             2Q 
New York................................................        1,600       11,980        11,980             2Q 
North Carolina..........................................        2,603       11,583        23,166             2Q 
North Dakota............................................        2,795       15,995        20,218             2Q 
                                                                                                                
Ohio....................................................        2,640       10,120        13,156             2Q 
Oklahoma................................................        4,280        9,263        16,055             2Q 
Oregon..................................................        1,000       24,080        24,080             2Q 
Pennsylvania............................................        1,320       14,000        14,000             2Q 
Puerto Rico.............................................          280        5,320         5,320             2Q 
                                                                                                                
Rhode Island............................................        1,780       10,519        23,400             2Q 
South Carolina..........................................          900        8,307        16,614             2Q 
South Dakota............................................        1,288        8,280        14,040             2Q 
Tennessee...............................................        1,560       10,400        20,800             2Q 
Texas...................................................        1,517        9,324        24,263             2Q 
                                                                                                                
Utah....................................................        1,800       10,257        25,326             2Q 
Vermont.................................................        1,628        9,540         9,540  ..............
Virginia................................................        3,250       10,400        20,800             2Q 
Virgin Islands..........................................        1,287        8,346        16,692             2Q 
Washington..............................................        1,875        8,750        31,500  ..............
                                                                                                                
West Virginia...........................................        2,200       24,400        27,400             2Q 
Wisconsin...............................................        1,560        8,220        17,810             2Q 
Wyoming.................................................        1,700        7,281        19,417             2Q 
----------------------------------------------------------------------------------------------------------------
\1\ Based on benefits for total unemployment. Amounts payable can be stretched out over a longer period in the  
  case of partial unemployment.                                                                                 
\2\ Based on maximum weekly benefit amount paid for maximum number of weeks. Total potential benefits equal a   
  worker's weekly benefit amount times this potential duration.                                                 
\3\ Number of quarters of work in base year required to qualify for minimum benefits. ``2Q'' denotes that State 
  directly or indirectly requires work in at least 2 quarters of the base year. States without an entry have the
  minimum work requirement specified as a wage amount.                                                          
                                                                                                                
Source: U.S. Department of Labor.                                                                               

    States must refer extended benefits claimants to any job 
meeting these requirements. If the State, based on information 
provided by the individual, determines that the individual's 
prospects for obtaining work in her customary occupation within 
a reasonably short period are good, the determination of 
whether any work is ``suitable work'' is made in accordance 
with State law rather than the criteria outlined above.
    There are certain circumstances under which Federal law 
provides that State and extended benefits may not be denied. A 
State may not deny benefits to an otherwise eligible individual 
for refusing to accept new work under any of the following 
conditions: (1) if the position offered is vacant directly due 
to a strike, lockout, or other labor dispute; (2) if the wages, 
hours, or other conditions of the work offered are 
substantially less favorable to the individual than those 
prevailing for similar work in the locality; or (3) if, as a 
condition of being employed, the individual would be required 
to join a union or to resign from or refrain from joining any 
bona fide labor organization. Benefits may not be denied solely 
on the grounds of pregnancy. The State is prohibited from 
canceling wage credits or totally denying benefits except in 
cases of misconduct, fraud, or receipt of disqualifying income.
    There are also certain conditions under which Federal law 
requires that benefits be denied. For example, benefits must be 
denied to professional and administrative employees of 
educational institutions during summer (and other vacation 
periods) if they have a reasonable assurance of reemployment; 
to professional athletes between sport seasons; and to aliens 
not permitted to work in the United States.
Disqualifications
    The major causes for disqualification from benefits are not 
being able to work or available for work, voluntary separation 
from work without good cause, discharge for misconduct 
connected with the work, refusal of suitable work without good 
cause, and unemployment resulting from a labor dispute. 
Disqualification for one of these reasons may result in a 
postponement of benefits for some prescribed period, a 
cancellation of benefit rights, or a reduction of benefits 
otherwise payable.
    Of the 17.2 million ``monetarily eligible'' initial UC 
claims in 1995, 22.9 percent were disqualified. This figure 
subdivides into 4.5 percent not being able to work or available 
for work, 6.2 percent voluntarily leaving a job without good 
cause, 3.9 percent being fired for misconduct on the job, 0.3 
percent refusing suitable work, and 8.1 percent committing 
other disqualifying acts. The total disqualification rate 
ranged from a low of 7.8 percent in Tennessee to a high of 
125.4 percent in Nebraska, with Colorado the next highest at 
61.4 percent. (Note that a claimant can be disqualified for any 
week claimed, so it is possible for a claimant to be 
disqualified more times than the total number of that 
claimant's initial claims in the benefit year.)
    Federal law requires that benefits provided under the 
Extended Benefits Program be denied to an individual for the 
entire spell of his unemployment if he was disqualified from 
receiving State benefits because of voluntarily leaving 
employment, discharge for misconduct, or refusal of suitable 
work. These benefits will be denied even if the 
disqualification were subsequently lifted with respect to the 
State benefits prior to reemployment. The person could receive 
these benefits, however, if the disqualification were lifted 
because she became reemployed and met the work or wage 
requirement of State law. Public Law 102-318 suspended these 
provisions, however, from March 7, 1993, until January 1, 1995. 
The Advisory Council on Unemployment Compensation was required 
to study these provisions, and it recommended that the Federal 
rules be eliminated.
Ex-service members
    The Emergency Unemployment Compensation Act of 1991 (Public 
Law 102-164) provided that ex-members of the military be 
treated the same as other unemployed workers with respect to 
the waiting period for benefits and benefit duration. Before 
this 1991 action, Congress had placed restrictions on benefits 
for ex-service members. What follows is a brief historical 
overview of these pre-1991 provisions.
    The Omnibus Budget Reconciliation Act of 1981 (Public Law 
97-35) limited unemployment benefits to individuals who: (1) 
had 365 or more days of military service; (2) were discharged 
or released under honorable conditions; (3) did not resign or 
voluntarily leave military service (i.e., they were not 
eligible for reenlistment); and (4) were not released or 
discharged ``for cause'' as defined by the Department of 
Defense. These requirements applied to individuals who left 
Federal military service on or after July 1, 1981, but only for 
weeks of unemployment that began on or after August 13, 1981, 
the date of enactment of Public Law 97-35.
    The Miscellaneous Revenue Act of 1982 (Public Law 97-362) 
modified the above eligibility requirements for ex-service 
members. Federal unemployment benefits became payable to 
unemployed ex-service members who: (1) were separated under 
honorable conditions (and, in the case of officers, did not 
resign for the good of the service); and (2) had completed the 
first full term of active service they agreed to serve. Ex-
service members who were separated prior to completing their 
first full term of active service could qualify for UC benefits 
if they separated under honorable conditions: (1) for the 
convenience of the Government under an early release program; 
(2) because of medical disqualification, pregnancy, parenthood, 
or any service-incurred injury or disability; (3) because of 
hardship; or (4) because of personality disorder or inaptitude, 
if they had served for 365 continuous days. In addition to 
these eligibility requirements, ex-service members had to wait 
4 weeks from the date of their separation from the service 
before they could receive benefits. The maximum number of weeks 
of benefits an ex-service member could receive based on 
employment in the military was 13 (as compared with 26 weeks 
under the regular UC Program for civilian workers).
Pension offset
    The Unemployment Compensation amendments of 1976 (Public 
Law 94-566) required all States to reduce an individual's UC by 
the amount of any government or private pension or retirement 
pay received by the individual.
    Public Law 96-364 modified this offset requirement. Under 
the modified provision, States are required to make the offset 
only in those cases in which the work-related pension was 
maintained or contributed to by a ``base period'' or 
``chargeable'' employer. Entitlement to, and the amount and 
duration of, unemployment benefits are based on work performed 
during this State-specified base period. A ``chargeable'' 
employer is one whose account will be charged for UC received 
by the individual. However, the offset must be applied for 
Social Security benefits without regard to whether base period 
employment contributed to the Social Security entitlement.
    States are allowed to reduce the amount of these offsets by 
amounts consistent with any contributions the employee made 
toward the pension. This policy allows States to limit the 
offset to one-half of the amount of a Social Security benefit 
received by an individual who qualifies for unemployment 
benefits.
Taxation of unemployment insurance benefits
    The Tax Reform Act of 1986 (Public Law 99-514) made all UC 
taxable after December 31, 1986. The Revenue Act of 1978 first 
made a portion of UC benefits taxable beginning January 1, 
1979.
    Table 5-4 illustrates the effect of taxing all UC benefits 
for calendar year 1996. This table understates the impact of 
taxation because total UC benefits reported on the CPS are 
equal to only about two-thirds of benefits actually paid out. 
Because of underreporting of UC benefits in the CPS and 
underestimates of benefits paid in 1996, taxes collected on 
benefits probably will be about twice as high as the $3.1 
billion in table 5-4.

    TABLE 5-4.--ESTIMATED EFFECT OF TAXING UNEMPLOYMENT COMPENSATION BENEFITS BY INCOME CLASS, PROJECTED 1997   
----------------------------------------------------------------------------------------------------------------
                                                  In thousands                       In millions                
                                           -------------------------          -------------------------         
                                                            Number    Percent                           Taxes as
                                              Number of    affected  affected  Total amount    Total        a   
 Level of individual or couple  income \1\   recipients       by        by          of       amount of   percent
                                                 of        taxation  taxation  unemployment   taxes on  of total
                                            unemployment      of               compensation   benefits  benefits
                                            compensation   benefits              benefits                       
----------------------------------------------------------------------------------------------------------------
Less than $10,000.........................        1,768         699      39.5       $4,317        $165       3.8
$10,000-$15,000...........................        1,200         936      78.0        3,324         298       9.0
$15,000-$20,000...........................          834         758      90.9        2,642         372      14.1
$20,000-$25,000...........................          758         731      96.4        2,285         438      19.2
$25,000-$30,000...........................          795         785      98.2        1,948         416      21.4
$30,000-$40,000...........................        1,122       1,111      99.0        3,021         538      17.8
$40,000-$50,000...........................          896         896     100.0        2,788         482      17.3
$50,000-$100,000..........................        1,444       1,444     100.0        4,704       1,056      22.4
At least $100,000.........................          209         205      98.1          790         243      28.6
                                           ---------------------------------------------------------------------
    All...................................        9,025       7,564      83.8       25,820       4,008     15.5 
----------------------------------------------------------------------------------------------------------------
\1\ Cash income (based on income tax filing unit) plus capital gains realizations.                              
                                                                                                                
Source: Congressional Budget Office tax simulation model.                                                       

                 Amount and Duration of Weekly Benefits

    In general, the States set weekly benefit amounts as a 
fraction of the individual's average weekly wage up to some 
State-determined maximum. The total maximum duration available 
nationwide under permanent law is 39 weeks. The regular State 
programs usually provide up to 26 weeks. The permanent Federal-
State Extended Benefits Program provides up to 13 additional 
weeks in States where unemployment rates are relatively high. 
An additional 7 weeks is available under a new optional trigger 
enacted in 1992, but only 7 States have adopted this trigger as 
of March 31, 1996. The temporary EUC Program, which operated 
from November 1991 through April 1994, provided either 7 or 13 
additional weeks of benefits during its final months of 
operation. A State offering this temporary program could not 
have offered the permanent Extended Benefits Program 
simultaneously, however.
    The State-determined weekly benefit amounts generally 
replace between 50 and 70 percent of the individual's average 
weekly pretax wage up to some State-determined maximum. The 
average weekly wage is often calculated only from the calendar 
quarter in the base year in which the claimant's wages were 
highest. Individual wage replacement rates tend to vary 
inversely with the claimant's average weekly pretax wage, with 
high wage earners receiving lower wage replacement rates. Thus, 
the national average weekly benefit amount as a percent of the 
average weekly covered wage was only 36 percent in the quarter 
ending September 30, 1995.
    Table 5-5 shows the minimum and maximum weekly benefit 
amounts and potential duration for each State program. In 
fiscal year 1995, the national average weekly benefit amount 
was $186 and the average duration was 14.9 weeks, making the 
average total benefits $2,771. The minimum weekly benefit 
amounts for 1996 vary from $5 in Hawaii to $87 in Indiana. The 
maximum weekly benefit amounts range from $133 in Puerto Rico 
to $521 in Massachusetts.

TABLE 5-5.--AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS, 1995
                                                    AND 1996                                                    
----------------------------------------------------------------------------------------------------------------
                                                        1995    1996 weekly benefit    1995      1996 potential 
                                                      average       amount \1\        average   duration (weeks)
                        State                          weekly ---------------------- duration ------------------
                                                      benefit   Minimum    Maximum    (weeks)   Minimum  Maximum
----------------------------------------------------------------------------------------------------------------
Alabama.............................................     $135       $22        $180        11        15       26
Alaska..............................................      167     44-68     212-284        15        16       26
Arizona.............................................      146        40         185        14        12       26
Arkansas............................................      158        47         264        12         9       26
California..........................................      148        40         230        17        14       26
                                                                                                                
Colorado............................................      196        25         272        13        13       26
Connecticut.........................................      202     15-25     350-400        17        26       26
Delaware............................................      186        20         300        15        24       26
District of Columbia................................      223        50         359        20        20       26
Florida.............................................      170        10         250        14        10       26
                                                                                                                
Georgia.............................................      155        37         205        10         9       26
Hawaii..............................................      262         5         347        17        26       26
Idaho...............................................      161        44         248        13        10       26
Illinois............................................      206        51     251-332        18        26       26
Indiana.............................................      176        87         217        11         8       26
                                                                                                                
Iowa................................................      184     33-40     224-274        12        11       26
Kansas..............................................      191        65         260        14        10       26
Kentucky............................................      158        22         238        14        15       26
Louisiana...........................................      119        10         181        14        26       26
Maine...............................................      155     35-52     202-303        14        21       26
                                                                                                                
Maryland............................................      186     25-33         250        17        26       26
Massachusetts.......................................      239     14-21     347-521        17        10       30
Michigan............................................      215        42         293        13        15       26
Minnesota...........................................      217        38         303        16        10       26
Mississippi.........................................      130        30         180        12        13       26
                                                                                                                
Missouri............................................      146        45         175        13        11       26
Montana.............................................      139        57         228        15         8       26
Nebraska............................................      149        20         184        12        20       26
Nevada..............................................      185        16         237        14        12       26
New Hampshire.......................................      146        32         216        12        26       26
                                                                                                                
New Jersey..........................................      245        60         362        18        15       26
New Mexico..........................................      151        42         212        17        19       26
New York............................................      193        40         300        20        26       26
North Carolina......................................      174        25         297         9        13       26
North Dakota........................................      162        43         243        13        12       26
                                                                                                                
Ohio................................................      192        66     253-339        15        20       26
Oklahoma............................................      168        16         247        14        20       26
Oregon..............................................      169        70         301        16         4       26
Pennsylvania........................................      202     35-40     352-360        17        16       26
Puerto Rico.........................................       90         7         133        19        26       26
                                                                                                                
Rhode Island........................................      217     41-51     324-404        17        15       26
South Carolina......................................      155        20         213        11        15       26
South Dakota........................................      140        28         180        11        15       26
Tennessee...........................................      147        30         200        12        12       26
Texas...............................................      177        42         252        16         9       26
                                                                                                                
Utah................................................      185        17         263        12        10       26
Vermont.............................................      157        25         212        15        26       26
Virginia............................................      162        65         208        11        12       26
Virgin Islands......................................      170        32         214        20        13       26
Washington..........................................      190        75         350        19        16       30
                                                                                                                
West Virginia.......................................      166        24         290        15        26       26
Wisconsin...........................................      174        52         274        13        12       26
Wyoming.............................................      174        16         233        15        12       26
                                                     -----------------------------------------------------------
      U.S. average..................................      186        NA          NA        15        NA       NA
----------------------------------------------------------------------------------------------------------------
\1\ A range of amounts is shown for those States that provide dependents' allowances.                           
                                                                                                                
NA--Not applicable.                                                                                             
                                                                                                                
Source: U.S. Department of Labor.                                                                               

    Most States vary the duration of benefits with the amount 
of earnings the claimant has in the base year. Ten States 
provide the same duration for all claimants. The minimum 
durations range from 4 weeks in Oregon to 26 weeks in ten 
States. The maximum duration is 26 weeks in 51 States 
(including the District of Columbia, Puerto Rico, and the 
Virgin Islands). Two States have longer maximum durations. 
Massachusetts and Washington both provide up to 30 weeks.
    Since the beginning of 1994, thirteen States increased (and 
three decreased) their minimum weekly benefit amounts. Forty-
two States raised their maximum weekly benefit amounts, while 
two States decreased them. Three States lowered their minimum 
potential durations, and one State raised its minimum duration.

                           EXTENDED BENEFITS

    The Federal-State Extended Benefits Program provides one-
half of a claimant's total State benefits up to 13 weeks in 
States with an activated program, for a combined maximum of 39 
weeks of regular and extended benefits. Weekly benefit amounts 
are identical to the regular State UC benefits for each 
claimant, and Federal funds pay half the cost. The program 
activates in a State under one of two conditions: (1) if the 
State's 13-week average insured unemployment rate (IUR) in the 
most recent 13 weeks is at least 5.0 percent and at least 120 
percent of the average of its 13-week IURs in the last 2 years 
for the same 13-week calendar period; or (2) at State option, 
if its current 13-week average IUR is at least 6.0 percent. All 
but 12 State programs have adopted the second, optional 
condition. The 13-week average IUR is calculated from the ratio 
of the average number of insured unemployed persons under the 
regular State programs in the last 13 weeks to the average 
covered employment in the first 4 of the last 6 completed 
calendar quarters.
    States have the option of electing an alternative trigger 
authorized by the Unemployment Compensation amendments of 1992 
(Public Law 102-318). This new trigger is based on a 3-month 
average total unemployment rate (TUR) using seasonally adjusted 
data. If this TUR average exceeds 6.5 percent and is at least 
110 percent of the same measure in either of the prior 2 years, 
a State can offer 13 weeks of EB. If the average TUR exceeds 8 
percent and meets the same 110-percent test, 20 weeks of EB can 
be offered. Analysis of historical data shows that this TUR 
trigger would have made EB more widely available in the past 
than did the IUR trigger. As of March 31, 1996, the TUR trigger 
has been authorized by 7 States (Alaska, Connecticut, Kansas, 
Oregon, Rhode Island, Vermont, and Washington).
    In March 1996, EB was activated using the 6.0 percent IUR 
trigger in Alaska. EB was not available in any other 
jurisdiction.

                           BENEFIT EXHAUSTION

    Due to the limited duration of UC benefits, some 
individuals exhaust their benefits. For the regular State 
programs, 2.7 million individuals exhausted their benefits in 
fiscal year 1995, or 35 percent of claimants who began 
receiving UC during the 12 months ending March 31, 1995.
    A study of exhaustees was completed in September 1990 by 
Corson and Dynarski, under contract to the U.S. Department of 
Labor. The purpose of this study was to examine the 
characteristics and behavior of exhaustees and nonexhaustees 
and to explore the implications of this information. The 
samples were chosen from individuals who began collecting 
benefits during the period October 1987 through September 1988. 
Overall, 1,920 exhaustees and 1,009 nonexhaustees were 
interviewed.
    The study's authors reached three general conclusions:
 1. A large proportion of UC recipients expected to be recalled 
        to their previous jobs. The unemployment spells of 
        these job-attached workers were considerably shorter 
        than those of workers who suffered permanent job 
        losses, and few job-attached workers exhausted their UC 
        benefits. Workers who were not job-attached--in 
        particular, workers who were dislocated from their 
        previous jobs or who had low skill levels--were likely 
        to experience long unemployment spells, and a 
        significant proportion of these workers exhausted their 
        UC benefits.
 2. Most workers who exhausted their benefits were still 
        unemployed more than a month after receiving their 
        final payment, and a majority were still unemployed 2 
        months after receiving their final payment. Moreover, 
        workers who found jobs after exhausting their UC 
        benefits were generally receiving lower wages than on 
        their prior jobs.
 3. State exhaustion rate trigger mechanisms would not be 
        clearly superior to the State Insured Unemployed Rate 
        (IUR) triggers in targeting extended benefits to areas 
        with high cyclical unemployment. Substate trigger 
        mechanisms for extended benefits would do a poor job of 
        targeting extended benefits to local areas with high 
        structural unemployment.

                         SUPPLEMENTAL BENEFITS

    The Extended Benefits (EB) Program was enacted to provide 
unemployment compensation benefits to workers who had exhausted 
their regular benefits during periods of high unemployment. 
Before enactment of a permanent EB Program, Congress authorized 
two temporary programs, during 1958 and 1959 and again in 1961 
and 1962. The Federal-State Extended Unemployment Compensation 
Act of 1970 authorized a permanent mechanism for providing 
extended benefits. Extended benefits rules were amended by the 
Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) 
and the Unemployment Compensation amendments of 1992 (Public 
Law 102-318).
    During the 1970s and 1980s, temporary programs provided 
supplemental benefits to UC recipients who had exhausted both 
their regular and extended benefits during three periods of 
high unemployment: (1) the Emergency Unemployment Compensation 
Act of 1971, which provided benefits until March 31, 1973; (2) 
the Federal Supplemental Benefits (FSB) Program, first 
authorized by the Emergency Unemployment Compensation Act of 
1974, and subsequently extended in 1975 (twice) and in 1977; 
and (3) the Federal Supplemental Compensation (FSC) Program, 
created by the Tax Equity and Fiscal Responsibility Act of 
1982, which was subsequently extended and modified six times 
and finally expired on June 30, 1985.
    More recently, Congress passed the Emergency Unemployment 
Compensation Act of 1991 (Public Law 102-164) authorizing a 
temporary Emergency Unemployment Compensation (EUC) Program. 
The EUC Program, which was extended four times, effectively 
superseded the Extended Benefits Program and entitled 
individuals whose regular unemployment compensation benefits 
had run out to additional weeks of assistance. At its peak in 
1992, the EUC Program provided benefits for 26 or 33 weeks 
after an individual's regular unemployment benefits had 
expired. The EUC Program ended on April 30, 1994.
    Benefits under the EUC Program were originally financed 
from spending authority in the Extended Unemployment 
Compensation Account (EUCA) of the Unemployment Trust Fund. 
However, depletion of EUCA led Congress to fund EUC from 
general revenue from July 1992 to October 1993. States that 
qualified for extended benefits while EUC was in effect could 
elect to trigger off extended benefits. This reduced the State 
funding burden because 50 percent of extended benefit costs are 
financed from State UC accounts while EUC was entirely 
federally funded.
    Table 5-6 shows several estimates of the cost of the EUC 
Program at different points in time. A comparison of cost 
estimates at the time of enactment with later reviews shows 
that actual costs far exceeded anticipated costs due to three 
factors: exhaustions from the regular State program were 
unexpectedly near record levels; claimants were staying on EUC 
longer than expected; and large numbers of claimants eligible 
for both regular benefits and EUC were choosing EUC. As a 
result, for the periods fiscal year 1992 and fiscal year 1993 
alone, OMB cost estimates rose from $11.4 billion on the dates 
of enactment to $12.8 billion in July 1992, $18.2 billion in 
January 1993, $23.4 billion in April 1993, $23.8 billion in 
July 1993, and finally $24.3 billion in January 1994--113 
percent higher than originally estimated. Including fiscal year 
1994 costs, the Clinton administration's budget released in 
July 1994 estimated the final 3-year cost of EUC benefits to be 
$28.5 billion, $13.7 billion more than OMB and $9.9 billion 
more than CBO had estimated on the date of enactment.

HYPOTHETICAL WEEKLY BENEFIT AMOUNTS FOR VARIOUS WORKERS IN THE REGULAR 
                             STATE PROGRAMS

    Table 5-7 illustrates benefit amounts for various full-year 
workers in regular State programs for January 1996. These 
benefit amounts are set by the legislatures of the respective 
States. Column A of the table is for a full-time worker earning 
the minimum wage; column B is for a worker earning $6 per hour; 
column C shows benefit amounts for a worker earning $9 per 
hour; and column D shows a part-time worker earning the minimum 
wage and working 20 hours per week. The weekly benefit amount 
for the full-time minimum wage worker varies from $77 in 
Louisiana to $180 in Alabama and Connecticut. The maximum 
amount a worker earning $9 per hour can receive (column C) 
varies considerably, from $133 per week in Puerto Rico to $380 
in Connecticut.

                      THE UNEMPLOYMENT TRUST FUND

    The Unemployment Trust Fund has 59 accounts. The accounts 
consist of 53 State UC benefit accounts, the Railroad 
Unemployment Insurance Account, the Railroad Administration 
Account, and four Federal accounts. (The railroad accounts are 
discussed in sections 2 and 6 of this document.) The Federal 
unified budget accounts for all Federal-State UC outlays and 
taxes in the Federal Unemployment Trust Fund.

    TABLE 5-6.--CHANGES IN EMERGENCY UNEMPLOYMENT COMPENSATION OUTLAY   
                     ESTIMATES, FISCAL YEARS 1992-94                    
                        [In billions of dollars]                        
------------------------------------------------------------------------
                                             Fiscal years               
     Source and time of estimate     ----------------------------  Total
                                        1992     1993      1994         
------------------------------------------------------------------------
Estimates at time of enactment                                          
  By OMB:                                                               
    Public Law 102-164, Public Law                                      
     102-182........................      3.0     (0.1)      0       2.9
    Public Law 102-244..............      2.5      0.3       0       2.8
    Public Law 102-318..............      0.6      2.0       0       2.6
    Public Law 103-6................      0        3.1       2.3     5.4
    Public Law 103-152..............      0        0         1.1     1.1
                                     -----------------------------------
      Total.........................      6.1      5.3       3.4    14.8
  By CBO:                                                               
    Public Law 102-164, Public Law                                      
     102-182........................      4.3  (\1\)         0       4.3
    Public Law 102-244..............      2.7      0.6       0       3.3
    Public Law 102-318..............      1.0      3.4       0       4.4
    Public Law 103-6................      0        3.2       2.3     5.5
    Public Law 103-152..............      0        0         1.1     1.1
                                     -----------------------------------
      Total.........................      8.0      7.2       3.4    18.6
                                                                        
OMB fiscal year 1993 Midsession                                         
 review, July 1992..................      9.7      3.1       0      12.8
OMB fiscal year 1994 baseline,                                          
 January 1993.......................     11.1      7.1       0      18.2
OMB fiscal year 1994 Clinton budget,                                    
 April 1993.........................     11.1     12.3       2.1    25.5
OMB fiscal year 1994 Midsession                                         
 review, July 1993..................     11.1     12.7       1.8    25.6
OMB fiscal year 1995 baseline,                                          
 January 1994.......................     11.1     13.2       3.7    28.0
OMB fiscal year 1995 Midsession                                         
 review, July 1994..................     11.1     13.2       4.2    28.5
------------------------------------------------------------------------
\1\ Less than $50,000,000.                                              
                                                                        
Source: Office of Management and Budget (OMB) and Congressional Budget  
  Office (CBO).                                                         

    The four Federal accounts in the trust fund are: (1) the 
Employment Security Administration Account (ESAA), which funds 
administration; (2) the Extended Unemployment Compensation 
Account (EUCA), which funds the Federal half of the Federal-
State Extended Benefits Program; (3) the Federal Unemployment 
Account (FUA), which funds loans to insolvent State UC 
programs; and (4) the Federal Employee Compensation Account 
(FECA), which funds benefits for Federal civilian and military 
personnel authorized under 5 U.S.C. 85. The 0.8 percent Federal 
share of the Federal unemployment tax finances the ESAA, EUCA, 
and FUA, but general revenues finance the FECA. Present law 
authorizes interest-bearing loans to ESAA, EUCA, and FUA from 
the general fund. The three accounts may receive noninterest-
bearing advances from one another to avoid insufficiencies.

              TABLE 5-7.--WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS, JANUARY 1996              
----------------------------------------------------------------------------------------------------------------
                                                                          Hypothetical worker \1\               
                          State                          -------------------------------------------------------
                                                                 A             B             C             D    
----------------------------------------------------------------------------------------------------------------
Alabama.................................................         180           180           180            92  
Alaska..................................................         106           134           232            70  
Arizona.................................................          88           125           185            44  
Arkansas................................................          85           120           180            47  
California..............................................          82           105           142            46  
                                                                                                                
Colorado................................................         102           144           216            50  
Connecticut.............................................         180           250           380            95  
Delaware................................................          96           135           203            48  
District of Columbia....................................          90           125           195             0  
Florida.................................................          85           120           180            42  
                                                                                                                
Georgia.................................................          88           124           187            44  
Hawaii..................................................         106           149           223            53  
Idaho...................................................          85           120           180             0  
Illinois................................................         101           141           237            59  
Indiana.................................................          98           134           197             0  
                                                                                                                
Iowa....................................................         100           141           234            50  
Kansas..................................................          93           132           198            65  
Kentucky................................................         105           148           222            52  
Louisiana...............................................          77           109           164            38  
Maine...................................................          97           138           222            47  
                                                                                                                
Maryland................................................          93           130           211            47  
Massachusetts...........................................          85           120           230            43  
Michigan................................................          NA            NA            NA            NA  
Minnesota...............................................          85           120           180            42  
Mississippi.............................................          85           120           180            42  
                                                                                                                
Missouri................................................          99           140           175            49  
Montana.................................................          88           124           187            44  
Nebraska................................................          92           128           184            48  
Nevada..................................................          88           124           187            44  
New Hampshire...........................................          98           123           166             0  
                                                                                                                
New Jersey..............................................         109           154           248             0  
New Mexico..............................................          85           120           180            42  
New York................................................          85           120           180            43  
North Carolina..........................................          85           120           180            42  
North Dakota............................................          85           120           180             0  
                                                                                                                
Ohio....................................................         102           144           238             0  
Oklahoma................................................          88           124           187            44  
Oregon..................................................         110           156           234            70  
Pennsylvania............................................          95           132           197            52  
Puerto Rico.............................................          85           120           133            43  
                                                                                                                
Rhode Island............................................         102           144           236            51  
South Carolina..........................................          85           120           180            42  
South Dakota............................................          85           120           180            42  
Tennessee...............................................         169           200           200            84  
Texas...................................................          89           125           188            45  
                                                                                                                
Utah....................................................          86           120           180            43  
Vermont.................................................          98           138           208            49  
Virginia................................................          88           124           187             0  
Virgin Islands..........................................          85           120           180            42  
Washington..............................................         176           249           350            88  
                                                                                                                
West Virginia...........................................          93           131           198            46  
Wisconsin...............................................          88           124           187             0  
Wyoming.................................................          88           124           187            44  
----------------------------------------------------------------------------------------------------------------
\1\ Hypothetical workers:                                                                                       
  A. $4.25/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.                                  
  B. $6.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.                                  
  C. $9.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; two children.                                 
  D. $4.25/hr. wage; 20 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.                                  
                                                                                                                
NA--Not available. Michigan computes benefits based on aftertax wages.                                          
                                                                                                                
 Source: U.S. Department of Labor.                                                                              

           Financial Condition of the Unemployment Trust Fund

Federal accounts
    At the end of fiscal year 1995, the Employment Security 
Administration Account (ESAA) exceeded its fiscal year 1995 
ceiling of $1.4 billion; the Extended Unemployment Compensation 
Account (EUCA) balance was below its ceiling of $11.8 billion 
by $9.6 billion; the Federal Unemployment Account (FUA) balance 
was in excess of its $5.9 billion ceiling by $1.6 billion.
    Under the Administration's fiscal year 1997 budget 
assumptions, the EUCA balance will continue to fall short of 
its ceiling until fiscal year 1999.
State accounts
    The State accounts had recovered substantially from the 
financial problems that began in the 1970s and continued 
through the early 1980s, but the 1990-91 recession reversed 
that trend. Table 5-8 shows that the State accounts at the 
beginning of 1996 held $35.4 billion, which represents a marked 
improvement over the balance of $28.8 billion in 1992.

                           TABLE 5-8.--FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS, SELECTED YEARS 1970-95                          
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Net reserves (end of calendar year)                         Reserve ratios                                      
                               ---------------------------------------------------------------------------------------------------          High-       
            States                           [In millions of dollars]                                 [Percent]                    1995/    cost    Rank
                               ---------------------------------------------------------------------------------------------------  1970  multiple      
                                  1970     1975       1979       1982       1995      1970      1975      1979      1982     1995                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.......................     $130      $(2)      $118          $9       $534      2.96    (0.03)     0.98      0.06    1.64     55     0.76     29
Alaska........................       35       75         65         134        201      5.51     3.07      2.78      2.94    3.56     65     0.82     26
Arizona.......................      119       67        226         215        535      4.25     1.35      2.36      1.66    1.55     36     0.63     35
Arkansas......................       49        2         24         (77)       201      2.26     0.04      0.37     (1.00)   1.15     51     0.43     42
California....................    1,219      546      2,738       2,708      2,104      2.91     0.88      2.51      1.83    0.70     24     0.31     47
                                                                                                                                                        
Colorado......................       91       47        137          (4)       481      2.54     0.70      1.11     (0.02)   1.27     50     1.01     16
Connecticut...................      252     (232)      (267)       (252)       117      0.08    (2.27)    (1.70)    (1.21)   0.27    338     0.08     52
Delaware......................       22        0        (30)        (35)       272      1.72     0        (1.06)    (0.96)   3.34    194     1.30     10
District of Columbia..........       74       (3)       (44)        (57)        69      3.22    (0.09)    (1.05)    (1.03)   0.57     18     0.31     46
Florida.......................      268       80        665         865      1,806      2.60     0.42      2.13      1.89    1.57     60     0.84     25
                                                                                                                                                        
Georgia.......................      340      268        447         397      1,453      4.74     2.28      2.28      1.49    2.11     45     0.99     19
Hawaii........................       44        5         79         108        213      2.90     0.23      2.24      2.43    2.05     71     0.97     20
Idaho.........................       46       54         93          29        243      5.16     3.21      3.20      0.85    2.98     58     0.94     23
Illinois......................      401      (31)      (460)     (2,069)     1,629      1.55    (0.08)    (0.80)    (3.18)   1.24     80     0.47     41
Indiana.......................      326      198        418          63      1,228      3.13     1.31      1.69      0.23    2.19     70     1.22     11
                                                                                                                                                        
Iowa..........................      125       63        155         (63)       725      3.19     0.96      1.45     (0.55)   3.17     99     1.21     12
Kansas........................       84      135        238         142        704      3.00     2.65      2.75      1.29    2.95     98     1.50      7
Kentucky......................      175      137        159        (121)       471      4.21     1.95      1.36     (0.90)   1.64     39     0.59     37
Louisiana.....................      146      141        238        (102)     1,003      2.91     1.58      1.51     (0.47)   3.24    111     1.05     14
Maine.........................       39        1          0          (4)        95      2.86     0.07      0        (0.09)   1.07     37     0.38     44
                                                                                                                                                        
Maryland......................      213       29        273         220        605      3.26     0.29      1.83      1.11    1.38     42     0.63     33
Massachusetts.................      378      (99)       132         436        527      3.04    (0.61)     0.51      1.23    0.72     24     0.23     50
Michigan......................      491     (286)       112      (2,186)     1,498      2.49    (1.05)     0.25     (4.64)   1.48     59     0.40     43
Minnesota.....................      119      (35)        70        (288)       460      1.76    (0.33)     0.41     (1.36)   0.95     54     0.49     39
Mississippi...................       85       90        231         257        551      3.87     2.25      3.47      3.12    3.24     84     1.64      4
                                                                                                                                                        
Missouri......................      264       95        296         (64)       197      3.03     0.75      1.47     (0.27)   0.41     14     0.21     51
Montana.......................       26        8         16           9        122      3.33     0.57      0.65      0.27    2.12     64     0.70     30
Nebraska......................       55       29         81          72        194      2.87     0.84      1.58      1.14    1.49     52     0.95     21
Nevada........................       39        5         95         122        298      3.20     0.22      2.31      2.02    1.76     55     0.64     32
New Hampshire.................       55       29         82          75        251      4.62     1.56      2.42      1.60    2.33     50     0.93     24
                                                                                                                                                        
New Jersey....................      448     (348)      (507)       (423)     1,988      2.76    (1.54)    (1.50)    (0.97)   2.10     76     0.63     34
New Mexico....................       40       33         80         101        355      3.45     1.61      2.14      1.98    3.33     97     2.03      2
New York......................    1,693      574        403         819        249      3.76     1.02      0.51      0.78    0.13      3     0.05     53
North Carolina................      414      342        564         400      1,531      5.22     2.71      2.71      1.52    2.34     45     0.95     22
North Dakota..................       13       22         21          11         57      2.53     1.94      1.13      0.46    1.44     57     0.62     36
                                                                                                                                                        
Ohio..........................      693      294        513      (1,658)     1,601      3.01     0.91      1.02     (3.04)   1.49     50     0.48     40
Oklahoma......................       55       27        177         108        522      1.69     0.46      1.56      0.62    2.35    139     1.72      3
Oregon........................      122       24        320         161        906      3.39     0.40      3.00      1.37    3.35     99     1.04     15
Pennsylvania..................      852      (86)    (1,091)     (2,145)     1,915      3.53    (0.25)    (2.18)    (3.75)   1.80     51     0.54     38
Puerto Rico...................       85      (26)       (33)        (47)       634      4.90    (0.95)    (0.88)    (1.11)   6.89    141     1.56      5
                                                                                                                                                        
Rhode Island..................       75      (41)       (96)        (76)       110      4.34    (1.76)    (2.75)    (1.81)   1.35     31     0.31     48
South Carolina................      166       95        195          50        557      4.61     1.61      1.96      0.40    1.90     41     0.66     31
South Dakota..................        8       20         16           9         52      3.81     1.96      0.95      0.43    1.12     29     1.05     13
Tennessee.....................      212      200        264          15        823      3.57     1.95      1.63      0.08    1.70     48     0.78     28
Texas.........................      337      231        396         142        585      1.90     0.71      0.65     (0.16)   0.35     18     0.31     49
                                                                                                                                                        
Utah..........................       51       32         67          10        468      3.55     1.22      1.43      0.16    3.08     87     1.52      6
Vermont.......................       26      (25)       (21)        (27)       207      3.72    (2.53)    (1.30)    (1.29)   4.59    123     1.44      8
Virginia......................      218      122        103          14        789      3.41     1.08      0.56      0.06    1.30     38     1.00     18
Virgin Islands................       NA       NA         (7)         (3)        40        NA       NA     (2.96)    (0.55)   6.45     NA     2.83      1
Washington....................      226      (67)       297         150      1,418      3.73    (0.71)     1.66      0.70    3.01     81     0.79     27
                                                                                                                                                        
West Virginia.................      108       78         39        (145)       164      4.07     1.70      0.56     (1.85)   1.45     36     0.36     45
Wisconsin.....................      322      121        465        (413)     1,504      4.29     0.99      2.37     (1.53)   3.12     73     1.00     17
Wyoming.......................       19       31         69          46        142      4.29     3.02      3.15      1.51    4.23     99     1.40      9
                               -------------------------------------------------------------------------------------------------------------------------
    Total.....................   11,903    3,070      8,583      (2,645)    35,403      3.11     0.53      0.91     (0.24)   1.44     46     0.65   ....
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA--Not available.                                                                                                                                      
                                                                                                                                                        
Source: U.S. Department of Labor (1995b).                                                                                                               

    The balances in the State accounts are well below the 
balances in the early 1970s after adjusting for inflation, 
before serious financial problems began for most States. State 
reserve ratios (trust fund balances divided by total wages paid 
in the respective States during the year) show that a number of 
State accounts are at risk of financial problems in major 
recessions. The third column from the right margin of table 5-8 
shows that these State ratios are only 46 percent of their 
levels in 1970. However, no State presently has outstanding 
Federal loans to its account.
    The second-to-last column of table 5-8 shows for each State 
the 1995 ``High-Cost Multiple,'' the ratio of the State's 
reserve ratio to its highest cost rate. The highest cost rate 
is determined by choosing the highest ratio of costs to total 
covered wages paid in a prior year. States with high-cost 
multiples of at least 1.0 have reserves that could withstand a 
recession as bad as the worst one they have experienced 
previously. States with high-cost multiples below 1.0 are at 
significant risk of insolvency during recessions.
    Thirty-five States had high-cost multiples below 1.0; 27 
had high-cost multiples below 0.8; and 15 had high-cost 
multiples below 0.5. Based on this measure, States in the worst 
financial shape were Arkansas, California, Connecticut, the 
District of Columbia, Illinois, Maine, Massachusetts, Michigan, 
Minnesota, Missouri, New York, Ohio, Rhode Island, Texas, and 
West Virginia.
    Table 5-9 summarizes the beginning balances in the various 
unemployment trust fund accounts for selected fiscal years. At 
the start of fiscal year 1996, the four Federal accounts and 
the 53 State benefit accounts had a total balance of $48.0 
billion. In real terms this represents a level 8 percent lower 
than that of 1971. This decline in real dollars does not allow 
for the further erosion implied by the large increase in the 
labor force over this time period. A better measure is the 
ratio of the 1995 to 1970 reserve ratios in table 5-8, which 
shows that aggregate reserves in 1995 relative to wages were a 
little less than half the 1970 level.
    Whether the State trust fund balances are adequate is 
ultimately a matter about which each State must decide. States 
have a great deal of autonomy in how they establish and run 
their unemployment system. However, the framework established 
by the Federal Government requires States to actually pay the 
level of benefits they determine to be appropriate; in budget 
terms, unemployment benefits are an entitlement (although the 
program is financed by a dedicated tax imposed on employers and 
employees and not by general revenues). Thus, if a recession 
hits a given State and results in a depletion of that State's 
trust account, the State is legally required to continue paying 
benefits. To do so, the State will be forced to borrow money 
from the Federal Unemployment Account. As a result, not only 
will the State be required to continue paying benefits, it will 
also be required to repay the funds plus interest it has 
borrowed from the Federal loan account. Such States will 
probably be forced to raise taxes on their employers, an action 
that dampens economic growth and job creation and that often 
causes problems for the State's leading political figures. In 
short, States have strong incentives to keep adequate funds in 
their trust fund accounts.

    TABLE 5-9.--BEGINNING-OF-YEAR BALANCES IN UNEMPLOYMENT TRUST FUND ACCOUNTS, SELECTED FISCAL YEARS 1971-96   
                                            [In millions of dollars]                                            
----------------------------------------------------------------------------------------------------------------
                              Account                                  1971     1976     1980     1983     1996 
----------------------------------------------------------------------------------------------------------------
Employment security administration.................................       65      365      572      545    3,752
Extended unemployment compensation.................................        0      116      764      483    2,201
Federal unemployment (reserve for State loans).....................      575        9      567      599    5,921
Federal employee compensation......................................    (\1\)    (\1\)    (\1\)       24      237
State unemployment compensation \2\................................   12,409    6,145    8,272      720   35,987
                                                                    --------------------------------------------
                                                                                                                
Total: Nominal dollars.............................................   13,049    6,635   10,175    2,371   48,048
                                                                                                                
Total: Real dollars \3\............................................   52,265   19,393   21,882    3,763   48,048
----------------------------------------------------------------------------------------------------------------
\1\ There was no separate account for Federal employee compensation for this year.                              
\2\ Figures are net of loans from Federal funds.                                                                
\3\ Real dollars are obtained using CPI-U for the preceding fiscal years.                                       
                                                                                                                
Source: U.S. Department of Labor, Unemployment Insurance Service.                                               

                      The Federal Unemployment Tax

    Total unemployment taxes on employers for a full-time, 
full-year worker earning the average wage in covered employment 
in 1995 is estimated to have averaged $301, or 15 cents per 
hour. The Federal portion was $56, or 3 cents per hour, and the 
average State portion was $245, or 12 cents per hour. Employer 
taxes vary substantially, however, depending on the State 
taxable wage base, State tax schedules, and Federal credits.
    FUTA imposes a minimum, net Federal payroll tax on 
employers of 0.8 percent on the first $7,000 paid annually to 
each employee. The current gross FUTA tax rate is 6.2 percent, 
but employers in States meeting certain Federal requirements 
and having no delinquent Federal loans are eligible for a 5.4 
percent credit, making the current minimum, net Federal tax 
rate 0.8 percent. After December 31, 1998, the minimum Federal 
tax rate will fall to 0.6 percent, as the 0.2 percent surtax 
expires.
    The wage base was held constant at $3,000 until 1971, and 
then was increased on three occasions.
    Chart 5-2 depicts the historical trends in the statutory 
and effective Federal unemployment tax rates. The effective tax 
rate equals FUTA revenue as a percent of total covered wages. 
Although the statutory tax rate doubled from 0.4 percent in the 
late 1960s to 0.8 percent in the late 1980s, the effective tax 
rate has fluctuated between 0.2 and 0.3 percent in most of 
those years.

                        State Unemployment Taxes

    The States finance their programs and half of the permanent 
Extended Benefits Program with employer payroll taxes imposed 
on at least the first $7,000 paid annually to each employee. 
\1\ States have adopted taxable wage bases at least as high as 
the Federal level because they otherwise would lose the 5.4 
percent credit to employers on the difference between the 
Federal and State taxable wage bases. Table 5-10 shows that, as 
of January 1996, 41 States had taxable wage bases higher than 
the Federal taxable wage base, ranging up to $25,800 in Hawaii.
---------------------------------------------------------------------------
    \1\ Alaska, New Jersey, and Pennsylvania also tax employees 
directly.
---------------------------------------------------------------------------

      CHART 5-2. HISTORY OF FEDERAL UNEMPLOYMENT TAX RATE, 1954-95
&lt;GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT&gt;

    Source: Chart prepared by the Congressional Research 
Service based on data from the U.S. Department of Labor.



    Although the standard State tax rate is 5.4 percent, State 
tax rates based on unemployment experience can range from zero 
on some employers in 16 States up to a maximum as high as 10 
percent in 3 States.
    Estimated national average State tax rates on taxable wages 
and total wages for 1995 were 2.2 and 0.8 percent, 
respectively. Estimated average State tax rates on taxable 
wages ranged from 0.6 percent in North Carolina and South 
Dakota to 4.9 percent in Pennsylvania. Estimated average State 
tax rates on total wages varied from 0.2 percent in North 
Carolina to 2.1 percent in Rhode Island.
    Table 5-11 shows recent State data on unemployment 
compensation covered employment, wages, taxable wages, the 
ratio of taxable to total wages, and average weekly wages. The 
ratio of taxable wages to total wages varied from 0.18 in New 
York to 0.64 in Montana.

                            TABLE 5-10.--STATE UNEMPLOYMENT TAX BASES AND RATES, 1996                           
----------------------------------------------------------------------------------------------------------------
                                                                          1996 experience       Estimated 1995  
                                                                             rates \1\        average tax rates 
                                                             1996 tax ----------------------  as a percent of-- 
                           State                               base                         --------------------
                                                                        Minimum    Maximum    Taxable      All  
                                                                                               wages      wages 
----------------------------------------------------------------------------------------------------------------
Alabama...................................................     $8,000      0.14        6.74        1.1       0.4
Alaska....................................................     24,400      1.0         6.5         2.0       1.4
Arizona...................................................      (\2\)      0.1         5.4         1.9       0.5
Arkansas..................................................      9,000      0           6.0         2.2       1.0
California................................................      (\2\)      0.1         5.4         3.6       0.9
                                                                                                                
Colorado..................................................     10,000      0           5.4         1.2       0.5
Connecticut...............................................     11,000      0.5         6.4         4.4       1.2
Delaware..................................................      8,500      0.1         8.0         2.9       0.9
District of Columbia......................................     10,000      0.1         7.4         3.6       0.9
Florida...................................................      (\2\)      0.1         5.4         1.8       0.6
                                                                                                                
Georgia...................................................      8,500      0.01        8.64        1.4       0.5
Hawaii....................................................     25,800      0           5.4         1.9       1.3
Idaho.....................................................     21,600      0.1         6.8         1.4       0.9
Illinois..................................................      9,000      0.2         6.4         3.4       1.0
Indiana...................................................      (\2\)      0.2         5.7         1.4       0.4
                                                                                                                
Iowa......................................................     14,700      0           9.0         1.0       0.5
Kansas....................................................      8,000      0.025       5.4         0.7       0.3
Kentucky..................................................      8,000      0.3        10.0         2.1       0.8
Louisiana.................................................      8,500      0.3         6.0         1.8       0.7
Maine.....................................................      (\2\)      0.5         7.5         3.6       1.1
                                                                                                                
Maryland..................................................      8,500      0.1         8.9         3.2       1.0
Massachusetts.............................................     10,800      0.6         9.3         3.8       1.5
Michigan..................................................      9,500      0          10.0         4.4       1.4
Minnesota.................................................     15,800      0.1         9.0         1.6       0.8
Mississippi...............................................      (\2\)      0.1         5.4         2.2       0.9
                                                                                                                
Missouri..................................................      8,500      0           8.7         2.0       0.5
Montana...................................................     15,800      0           6.4         1.3       0.9
Nebraska..................................................      (\2\)      0           5.4         0.8       0.3
Nevada....................................................     16,600      0.3         5.4         1.5       0.9
New Hampshire.............................................      8,000      0.01        6.5         1.8       0.5
                                                                                                                
New Jersey................................................     18,000      0.4         6.47        1.6       0.7
New Mexico................................................     13,900      0.1         5.4         1.6       0.8
New York..................................................      (\2\)      0           6.4         4.5       1.0
North Carolina............................................     11,600      0           5.7         0.6       0.2
North Dakota..............................................     13,900      0.1         5.4         1.1       0.6
                                                                                                                
Ohio......................................................      9,000      0.1         6.5         2.8       1.0
Oklahoma..................................................     10,900      0.1         6.2         1.1       0.4
Oregon....................................................     20,000      0.5         5.4         1.4       0.8
Pennsylvania..............................................      8,000      0.3         9.2         4.9       1.5
Puerto Rico...............................................      (\2\)      1.0         5.4         2.9       0.9
                                                                                                                
Rhode Island..............................................     17,000      0.8         8.4         3.6       2.1
South Carolina............................................      (\2\)      0.19        5.4         1.9       0.6
South Dakota..............................................      (\2\)      0           9.5         0.6       0.3
Tennessee.................................................      (\2\)      0.1        10.0         1.9       0.6
Texas.....................................................      9,000      0           6.0         1.3       0.5
                                                                                                                
Utah......................................................     17,200      0.1         8.0         0.9       0.5
Vermont...................................................      8,000      0.4         8.4         2.5       0.9
Virginia..................................................      8,000      0           6.2         1.4       0.5
Virgin Islands............................................     13,400      0.1         9.5         1.5       1.2
Washington................................................     20,300      0.36        5.4         2.0       1.2
                                                                                                                
West Virginia.............................................      8,000      0           7.5         3.1       1.2
Wisconsin.................................................     10,500      0           8.9         2.2       0.9
Wyoming...................................................     12,100      0           8.5         1.5       0.7
                                                           -----------------------------------------------------
  U.S. average............................................         NA     NA          NA           2.2       0.8
----------------------------------------------------------------------------------------------------------------
\1\ Actual rates could be higher if State has an additional tax.                                                
\2\ The 1996 tax base is $7,000 except as otherwise shown in this column.                                       
                                                                                                                
NA--Not applicable.                                                                                             
                                                                                                                
Note.--This table shows State unemployment tax levels. It does not include the Federal unemployment tax.        
                                                                                                                
Source: U.S. Department of Labor.                                                                               

                ADMINISTRATIVE FINANCING AND ALLOCATION

    State unemployment compensation administrative expenses are 
federally financed. A portion of revenue raised by FUTA is 
designated for administration and for maintaining a system of 
public employment offices.
    As explained above, FUTA revenue flows into three Federal 
accounts in the Unemployment Trust Fund. One of these accounts, 
the ESAA, finances administrative costs associated with Federal 
and State unemployment compensation and employment services.
    Under current law, 80 percent of FUTA revenue is allocated 
to ESAA and 20 percent to another Federal account (chart 5-3). 
Funds for administration are limited to 95 percent of the 
estimated annual revenue that is expected to flow to ESAA from 
the FUTA tax. Funds for administration may be augmented by 
three-eighths of the amount in ESAA at the beginning of the 
fiscal year, or $150 million, whichever is less, if the rate of 
insured unemployment is at least 15 percent higher than it was 
over the corresponding calendar quarter in the immediately 
preceding year.

  TABLE 5-11.--TWELVE-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY UNEMPLOYMENT COMPENSATION FOR PERIOD ENDING 
                                                  DECEMBER 1994                                                 
----------------------------------------------------------------------------------------------------------------
                                                                                              Ratio of          
                                                         Covered                   Taxable     taxable   Average
                        State                           employment  Total wages     wages     wages to   weekly 
                                                       (thousands)   (millions)   (millions)    total     total 
                                                                                                wages     wages 
----------------------------------------------------------------------------------------------------------------
Alabama..............................................        1,657      $38,164      $11,542      0.30      $443
Alaska...............................................          234        7,530        3,593      0.48       620
Arizona..............................................        1,662       39,852       10,833      0.27       461
Arkansas.............................................          988       20,339        7,425      0.37       396
California...........................................       12,149      360,717       80,314      0.22       571
                                                                                                                
Colorado.............................................        1,679       43,284       14,586      0.34       496
Connecticut..........................................        1,502       50,660       11,635      0.23       649
Delaware.............................................          342        9,527        2,434      0.26       536
District of Columbia.................................          425       15,644        3,315      0.21       708
Florida..............................................        5,695      135,051       37,191      0.28       456
                                                                                                                
Georgia..............................................        3,121       78,022       23,064      0.30       481
Hawaii...............................................          508       13,342        7,394      0.55       505
Idaho................................................          449        9,687        5,278      0.54       415
Illinois.............................................        5,250      151,737       40,399      0.27       556
Indiana..............................................        2,602       64,202       16,560      0.26       475
                                                                                                                
Iowa.................................................        1,260       27,713       11,685      0.42       423
Kansas...............................................        1,111       25,108       10,010      0.40       435
Kentucky.............................................        1,505       33,842       10,078      0.30       432
Louisiana............................................        1,637       37,495       11,265      0.30       440
Maine................................................          508       11,154        2,966      0.27       423
                                                                                                                
Maryland.............................................        1,976       54,359       14,084      0.26       529
Massachusetts........................................        2,786       86,008       27,197      0.32       594
Michigan.............................................        4,017      117,983       31,497      0.27       565
Minnesota............................................        2,213       58,136       22,840      0.39       505
Mississippi..........................................        1,007       20,148        6,373      0.32       385
                                                                                                                
Missouri.............................................        2,328       56,643       16,276      0.29       468
Montana..............................................          315        6,175        3,949      0.64       377
Nebraska.............................................          755       16,063        4,331      0.27       409
Nevada...............................................          724       18,436        9,389      0.51       490
New Hampshire........................................          502       12,725        3,391      0.27       488
                                                                                                                
New Jersey...........................................        3,391      113,045       43,212      0.38       641
New Mexico...........................................          604       13,067        5,436      0.42       416
New York.............................................        7,550      251,523       44,346      0.18       641
North Carolina.......................................        3,269       76,031       32,391      0.43       447
North Dakota.........................................          265        5,165        2,064      0.40       375
                                                                                                                
Ohio.................................................        4,891      126,789       35,250      0.28       499
Oklahoma.............................................        1,205       26,258        9,903      0.38       419
Oregon...............................................        1,327       32,452       16,075      0.50       470
Pennsylvania.........................................        4,924      131,502       32,329      0.25       514
Puerto Rico..........................................          890       13,332        4,319      0.32       288
                                                                                                                
Rhode Island.........................................          417       10,515        4,515      0.43       485
South Carolina.......................................        1,540       34,219        9,580      0.28       427
South Dakota.........................................          305        5,725        1,711      0.30       361
Tennessee............................................        2,311       54,804       14,903      0.27       456
Texas................................................        7,438      191,080       56,939      0.30       494
                                                                                                                
Utah.................................................          795       17,721        8,222      0.46       429
Vermont..............................................          253        5,756        1,602      0.28       438
Virginia.............................................        2,769       69,764       19,435      0.28       485
Virgin Islands.......................................           44          966          477      0.49       426
Washington...........................................        2,232       58,068       28,120      0.48       500
                                                                                                                
West Virginia........................................          626       14,138        4,053      0.29       434
Wisconsin............................................        2,385       57,701       18,993      0.33       465
Wyoming..............................................          202        4,375        1,571      0.36       416
                                                      ----------------------------------------------------------
    United States....................................      110,538   $2,933,745     $856,342      0.29      $510
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor (1995a).                                                                       

    Title III of the Social Security Act authorizes payment to 
each State with an approved unemployment compensation law of 
such amounts as are deemed necessary for the proper and 
efficient administration of the UC Program during the fiscal 
year. Allocations are based on: (1) the population of the 
State; (2) an estimate of the number of persons covered by the 
State unemployment insurance law; (3) an estimate of the cost 
of proper and efficient administration of such law; and (4) 
such other factors as the Secretary of Labor finds relevant.
    Subject to the limit of available resources, the allocation 
of State grants for administration is the summation of 
resources derived in two major areas, the Unemployment 
Insurance Service (UI) and the Employment Service (ES). Each 
area has its own allocation methodology subject to general 
constraints set forth in the Social Security Act and the 
Wagner-Peyser Act.
    Each year, as part of the development of the President's 
Budget, the Department of Labor, in conjunction with the 
Department of Treasury, estimates revenue expected from FUTA 
and the appropriate amount to be available for administration. 
The estimate of FUTA revenues is based on several factors: (1) 
a wage base of $7,000 per employee; (2) a tax rate of 0.8 
percent (0.64 percentage point for administration and 0.16 
percentage point for extended benefits); (3) the 
Administration's projection of the level of unemployment and 
the growth in wages; and (4) the level of covered employment 
subject to FUTA. In addition, a determination is made based on 
the Administration's forecast for unemployment as to whether 
the rate will increase by at least 15 percent.

     CHART 5-3. FLOW OF FUTA FUNDS UNDER EXISTING FEDERAL STATUTES
&lt;GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT&gt;


    Source: Chart prepared by the National Foundation for 
Unemployment Compensation &amp; Workers' Compensation.



    Each year the President's Budget sets forth an estimate of 
national unemployment in terms of the volume of unemployment 
claims per week. This is characterized as average weekly 
insured unemployment (AWIU). A portion of AWIU is expressed as 
``base'' and the remainder as ``contingency.'' At the present 
time, the base is set at the level of resources required to 
process an average weekly volume of 2.0 million weeks of 
unemployment.
    Resources available to each State to administer its UC 
Program (i.e., process claims and pay benefits) are provided 
from either ``base'' funds or ``contingency'' funds. At the 
beginning of the fiscal year, only the base funds are 
allocated, while contingency funds are allocated on a needs 
basis as workload materializes. Base funds are distributed to 
the State for use throughout the fiscal year and are available 
regardless of the level of unemployment (workload) realized. If 
a State processes workloads in excess of the base level, it 
receives contingency funds determined by the extent of the 
resources required to process the additional workload.
    The allocation of the base UC grant funds to each State is 
made by:
 1. Projecting the workloads that each State is expected to 
        process;
 2. Determining the staff required to process each State's 
        projected workload;
 3. Multiplying the final staff-year allocations for each State 
        by the cost per staff year (i.e., State salary and 
        benefit level) to determine dollar funding levels; and
 4. Allocating overhead resources (administrative and 
        management staff and nonpersonal services).
    Each Department of Labor regional office may redistribute 
resources among the States in its area with national office 
approval.
    In Public Law 102-164, Congress required the Department of 
Labor to study the allocation process and recommend 
improvements. Public Law 102-318 extended the study deadline to 
December 31, 1994. The Department notified Congress that it 
expects completion by the end of 1996.

                          LEGISLATIVE HISTORY

    Major Federal laws passed by Congress since 1990 and their 
key provisions are as follows:
    The Omnibus Budget Reconciliation Act of 1990 (Public Law 
101-508) extended the 0.2 percent FUTA surtax for 5 years 
through 1995.
    The Emergency Unemployment Compensation Act of 1991 (Public 
Law 102-164) established temporary extended benefits through 
July 4, 1992. It returned to States the option of covering 
nonprofessional school employees between school terms and 
restored benefits for ex-military members to the same duration 
and waiting period applicable to other unemployed workers. It 
extended the 0.2 percent FUTA surtax for 1 year through 1996.
    The Unemployment Compensation amendments of 1992 (Public 
Law 102-318) extended EUC for claims filed through March 6, 
1993, and reduced the benefit periods to 20 and 26 weeks. The 
law also gave claimants eligible for both EUC and regular 
benefits the right to choose the more favorable of the two. 
States were authorized, effective March 7, 1993, to adopt an 
alternative trigger for the Federal-State EB Program. This 
trigger is based on a 3-month average total unemployment rate 
and can activate either a 13- or a 20-week benefit period 
depending on the rate.
    The Emergency Unemployment Compensation amendments of 1993 
(Public Law 103-6) extended EUC for claims filed through 
October 2, 1993. The law also authorized funds for automated 
State systems to identify permanently displaced workers for 
early intervention with reemployment services.
    The Omnibus Budget Reconciliation Act of 1993 (Public Law 
103-66) extended the 0.2 percent FUTA surtax for 2 years 
through 1998.
    The Unemployment Compensation amendments of 1993 (Public 
Law 103-152) extended EUC for claims filed through February 5, 
1994, and set the benefit periods at 7 and 13 weeks. It 
repealed a provision passed in 1992 that allowed claimants to 
choose between EUC and regular State benefits. It required 
States to implement a system to identify UI claimants most 
likely to need job search assistance to avoid long-term 
unemployment.
    The North American Free Trade Agreement Implementation Act 
(Public Law 103-182) gave States the option of continuing UC 
benefits for claimants who elect to start their own businesses. 
Authorization expires in December 1998.

                               REFERENCES

Corson, W. &amp; Dynarski, M. (1990, September). A study of 
        unemployment insurance recipients and exhaustees: 
        Findings from a national survey. (Occasional Paper 90-
        3). Washington, DC: U.S. Department of Labor.
Executive Office of the President. (1994, February). Economic 
        Report of the President. Washington, DC: U.S. 
        Government Printing Office.
U.S. Department of Labor, Employment and Training 
        Administration. (1995a, September). UI Data Summary (2d 
        quarter, calendar year 1995). Washington, DC: Author.
U.S. Department of Labor, Employment and Training 
        Administration. (1995b, December). UI Data Summary (3d 
        quarter, calendar year 1995). Washington, DC: Author.