Section 7. Unemployment Compensation

                                OVERVIEW

    The Social Security Act of 1935 (Public Law 74-271) created
the Federal-State unemployment compensation (UC) system. It 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 unemployment
compensation, 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 Federal
tax rate that generally applies. This Federal revenue finances
administration of the system, half of the Federal-State
extended benefits program, and a Federal account for State
loans. The States are supposed to use the revenue turned back
to them by the 5.4 percent credit to finance their regular
State programs and 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 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. Under the Omnibus
Budget Reconciliation Act of 1987 (Public Law 100-203), the 0.2
percent surtax was extended for 3 years through 1990. The
Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508)
extended it again through 1995. The Emergency Unemployment
Compensation Act of 1991 (Public Law 102-164) extended the
temporary surtax through 1996. Most recently, the Omnibus
Budget Reconciliation Act of 1993 (Public Law 103-66) extended
the surtax through 1998.

                                                                TABLE 7-1.--UNEMPLOYMENT COMPENSATION PROGRAM STATISTICS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Fiscal years
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                        1994           1995
                                                      1983       1984       1985       1987       1988       1989       1990       1991        1992        1993     (estimated)   (projected)\1\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total civilian unemployment rate (percent).......       10.1        7.8        7.2        6.4        5.6        5.3        5.4         6.5         7.3         7.0          7.0            6.7
Insured unemployment rate (percent)\2\...........        4.3        2.9        2.9        2.5        2.2        2.1        2.3         3.1         3.1         2.7          2.7            2.5
Coverage (millions of individuals)...............       86.3       89.9       93.5       98.0      101.2      104.3      106.1       105.1       104.9       106.3        108.1          110.0
Average weekly benefit amount (current dollars)..        120        119        123        134        140        145        154         163         167         172          177            182
    In 1994 dollars\3\...........................        179        171        170        176        176        174        176         178         177         177          177            177
State unemployment compensation:
  Beneficiaries (millions of individuals)........        9.9        7.6        8.4        7.5        6.8        7.0        8.1        10.2         9.6         7.8          8.5            8.5
  Regular benefit exhaustions (millions of
   individuals)..................................        4.6        2.8        2.5        2.5        1.9        1.9        2.2         3.2         3.9         3.3          2.7            2.5
  Regular benefits paid (billions of dollars)....       20.8       13.3       14.3       15.0       13.2       13.5       16.8        24.4        25.6        22.1         22.7           22.6
  Extended benefits (State share: billions of
   dollars)......................................       1.21        .03        .03        .04        .04      (\6\)        .03         .01         .02         .00          .05            .07
  State tax collections (billions of dollars)....       14.4       19.0       20.0       19.1       18.3       17.3       16.0        15.3        17.6        21.0         21.6           22.0
  State trust fund impact (income-outlays:
   billions of dollars)\4\.......................      -7.62      +5.70      +5.65      +4.11      +5.12      +3.80       -.88       -9.13       -8.03       -1.11        -1.22           -.61
Federal unemployment compensation accounts:
  Federal tax collections (billions of
   dollars)\5\...................................       3.58       5.02       4.44       5.08       5.50       4.45       5.36        5.33        5.41     \7\4.23         5.44           5.54
  Outlays: Federal extended benefits share plus
   Federal supplemental benefits (billions of
   dollars)......................................       6.80       3.01       1.27        .04        .04      (\6\)        .03         .01       11.15       13.17         3.73            .74
                                                  ==============================================================================================================================================
State administrative costs (billions of dollars):
  Unemployment Insurance Service.................       1.70       1.58       1.58       1.56       1.61       1.71       1.74        1.95        2.49        2.54         2.47           2.40
  Employment Service.............................        .72        .76        .92        .90        .95       1.00       1.01        1.05        1.02        1.08         1.09           1.10
                                                  ----------------------------------------------------------------------------------------------------------------------------------------------
    Total administrative costs...................       2.42       2.31       2.50       2.46       2.56       2.71       2.75        3.00        3.51        3.62         3.56           3.50
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Based on President Clinton's 1995 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, Legislation and Program Policies/ETA/UIS/DOL, Division of Actuarial Services.

    The Federal Unemployment Tax Act (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.

                                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 for a certain amount of wages.
About 109 million individuals are covered by UC. This is 98
percent of all wage and salary workers or 90 percent of all
employed persons.
    The Federal Unemployment Tax Act (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 following 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 exempts 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.
    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.

                  TABLE 7-2.--INSURED UNEMPLOYMENT AS A PERCENT OF TOTAL UNEMPLOYMENT
----------------------------------------------------------------------------------------------------------------
         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

----------------------------------------------------------------------------------------------------------------
Source: USDOL/ETA/UIS, Division of Actuarial Services.

    States may cover certain employment not covered by FUTA,
but most States have not expanded FUTA coverage significantly.
The excluded coverage involves: (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.

The number of covered workers receiving unemployment compensation

    Although the UC system covers 90 percent of all employed
persons, table 7-2 shows that on average only 48 percent of
unemployed persons were receiving UC benefits in 1993. 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
October 1987. Despite high unemployment during the early
1980's, there was a downward trend in the proportion of
unemployed persons receiving regular State benefits until the
mid-1980's. The proportion receiving UC rose sharply in
December 1991 due to the temporary EUC program. The yearly
average exceeded 50 percent in 1992 for the first time since
1980.
    In May 1988, Mathematica Policy Research (MPR), under
contract to the U.S. Department of Labor, released a study on
the decline in the proportion of unemployed receiving benefits
during the 1980's. This analysis did not find a single cause
for the decline but instead found statistical evidence that the
following factors contributed to the decline in UC claims (the
figures in parentheses show the share of the decline attributed
to each factor):
  --the decline in the proportion of unemployed from
        manufacturing industries (4-18 percent);
  --geographic shifts in composition of the unemployed among
        regions of the country (16 percent);
  --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);
  --changes in Federal policy such as partial taxation of UC
        benefits (11-16 percent);
  --changes in unemployment as measured by the CPS (1-12
        percent).
    The group of unemployed most likely to be insured are job
losers. Chart 7-1 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 has 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.

    CHART 7-1. RATIO OF INSURED UNEMPLOYMENT TO JOB LOSERS (YEARLY
                           AVERAGES), 1968-93

<CHART 7-1>

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

    Source: Chart prepared by CRS based on data from the
Economic Report 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: (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 7-3 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 $5,400 in Montana.
For the maximum weekly benefit amount, the range is $4,650 in
Nebraska to $27,144 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 $30,600 in
Washington.

 TABLE 7-3.--MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM WEEKLY BENEFIT AMOUNTS AND MAXIMUM
                                    TOTAL POTENTIAL BENEFITS IN 1994\1\
----------------------------------------------------------------------------------------------------------------
                                                           Required total earnings in base year
                                                         ----------------------------------------
                                                                                     For maximum   Minimum work
                         State                            For minimum  For maximum    potential    in base year
                                                             weekly       weekly    benefits\2\    (quarters)\3\
                                                            benefit      benefit
----------------------------------------------------------------------------------------------------------------
Alabama.................................................       $1,032       $7,896       $12,869             2Q
Alaska..................................................        1,000       22,250        22,250             2Q
Arizona.................................................        1,500        6,919        14,429             2Q
Arkansas................................................        1,215       13,462        19,812             2Q
California..............................................        1,125        9,542        11,958  ..............

Colorado................................................        1,000       27,144        27,144  ..............
Connecticut.............................................          600       12,680        12,680             2Q
Delaware................................................          966       12,190        12,190  ..............
District of Columbia....................................        1,950       13,065        17,420             2Q
Florida.................................................          400       10,000        26,000             2Q

Georgia.................................................        1,350        9,250        19,238             2Q
Hawaii..................................................          130        8,762         8,762             2Q
Idaho...................................................        1,430        7,638        19,858             2Q
Illinois................................................        1,600       12,285        12,285             2Q
Indiana.................................................        2,500        5,000        15,786             2Q

Iowa....................................................        1,090        6,066        16,458             2Q
Kansas..................................................        1,860        7,500        19,500             2Q
Kentucky................................................        1,500       19,283        19,283             2Q
Louisiana...............................................        1,200        6,788        17,428             2Q
Maine...................................................        2,287        6,643        15,444             2Q

Maryland................................................          900        8,028         8,028             2Q
Massachusetts...........................................        2,400        9,750        27,083  ..............
Michigan................................................        1,340       11,320        19,810             2Q
Minnesota...............................................        1,250        9,912        23,790             2Q
Mississippi.............................................        1,200        6,600        12,870             2Q

Missouri................................................        1,500        5,833        13,650             2Q
Montana.................................................        5,400       21,700        21,700             2Q
Nebraska................................................        1,200        4,650        12,009             2Q
Nevada..................................................          600        8,625        17,940             2Q
New Hampshire...........................................        2,800       24,500        24,500             2Q

New Jersey..............................................        2,460       11,567        20,242             2Q
New Mexico..............................................        1,285        6,402         8,537             2Q
New York................................................        1,600       11,980        11,980             2Q
North Carolina..........................................        2,324       14,664        21,996             2Q
North Dakota............................................        2,795       15,080        19,302             2Q

Ohio....................................................        1,702        9,520        12,376             2Q
Oklahoma................................................        4,160        8,888        15,405             2Q
Oregon..................................................        1,000       22,720        22,720             2Q
Pennsylvania............................................        1,320       13,080        13,080             2Q
Puerto Rico.............................................          280        5,320         5,320             2Q

Rhode Island............................................        1,780       10,065        22,389             2Q
South Carolina..........................................          900        7,917        15,834             2Q
South Dakota............................................        1,288        7,728        13,104             2Q
Tennessee...............................................        1,560        9,620        19,240             2Q
Texas...................................................        1,480        9,065        23,589             2Q

Utah....................................................        1,900        9,672        23,881             2Q
Vermont.................................................        1,628        9,405         9,405  ..............
Virginia................................................        3,250       10,400        20,800             2Q
Virgin Islands..........................................        1,287        8,229        16,458             2Q
Washington..............................................        1,825        8,500        30,600  ..............

West Virginia...........................................        2,200       26,500        26,500             2Q
Wisconsin...............................................        1,380        7,290        15,795             2Q
Wyoming.................................................        1,650        8,700        18,333             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.

    Since the beginning of 1993, 12 States increased the
required earnings in the base year to qualify for the minimum
weekly benefit amount. Thirty-four States increased and one
decreased the qualification requirement for the maximum weekly
benefit amount. Thirty-six States increased their qualification
requirements for maximum potential benefits.

     Ability to work and availability for work

    All State laws provide that a claimant must be: (1) able to
work; and (2) 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 often 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.
    ``Suitable work'' is generally work in a claimant's
customary occupation which meets certain health, safety, moral,
and labor standards. 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 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 or she is referred by the State
agency, if the work is within the person's capabilities, pays
wages equal to the highest of the Federal or any State or local
minimum wage, 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 is consistent with the State
definition of ``suitable'' work in other respects. Public Law
102-318 suspended these provisions, however, from March 7,
1993, until January 1, 1995. In addition, the Advisory Council
on Unemployment Compensation recommended the repeal of these
provisions in its interim report of February 1994.
    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 his or 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 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; (3) if, as a
condition of being employed, the individual would be required
to join a company union or to resign from or refrain from
joining any bona fide labor organization. Further, 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 legally admitted 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 16.1 million ``monetarily eligible'' initial UC
claims in 1993, 23.7 percent were disqualified. This figure
subdivides into 4.7 percent not being able to work or available
for work, 6.5 percent voluntarily leaving a job without good
cause, 4.2 percent being fired for misconduct on the job, 0.2
percent refusing suitable work, and 8.0 percent committing
other disqualifying acts. The total disqualification rate
ranged from a low of 8.8 percent in Tennessee to a high of
117.9 percent in Nebraska, with Colorado the next highest at
68.9 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 will be denied to an individual for
the entire spell of his or her unemployment if he or she 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 he or 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 is
required to study these provisions and make recommendations by
February 1, 1995.

     Ex-service members

    The Emergency Unemployment Compensation Act of 1991 (Public
Law 102-164) provided that ex-members of the military are
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.
    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 the 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. The
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
unemployment compensation 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)
if they had served for 365 continuous days, because of
personality disorder or inaptitude. 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.

     Pension offset

    The Unemployment Compensation Amendments of 1976 (Public
Law 94-566) required all States to reduce an individual's
unemployment compensation benefits by the amount of any
governmental or private pension or retirement pay received by
the individual. Public Law 96-364 modified this offset
requirement.
    Under current law, 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 unemployment
compensation received by the individual. However, the offset
must be applied to Social Security benefits without regard to
whether base period employment contributed to that entitlement.
    States are allowed to reduce the amount of the offset by an
amount consistent with any contribution the employee made
toward the pension. For example, this allows States to limit
the offset to one-half of the amount of a social security
pension 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
unemployment compensation taxable after December 31, 1986. The
Revenue Act of 1978 first made a portion of unemployment
compensation benefits taxable beginning January 1, 1979.
Generally, the unemployment insurance benefits subject to
Federal tax under the 1978 law were equal to the lower of: (1)
the amount of unemployment compensation, or (2) one-half the
excess of adjusted gross income, unemployment insurance
payments, and excludable disability income over $20,000 for
single taxpayers and over $25,000 for married taxpayers filing
jointly. Beginning January 1, 1983, these amounts were changed
to $12,000 for single taxpayers and $18,000 for married
taxpayers filing jointly.
    Table 7-4 illustrates the effect of taxing all unemployment
compensation benefits for calendar year 1995. This table
understates the impact of taxation because total unemployment
compensation benefits reported on the current population survey
(CPS) are equal to only about two-thirds of benefits actually
paid out. Because of underreporting of unemployment
compensation benefits in the CPS and underestimates of benefits
paid in 1995, taxes collected on benefits probably will be
about twice as high as the $3.1 billion in table 7-4.

    TABLE 7-4.--ESTIMATED EFFECT OF TAXING UNEMPLOYMENT COMPENSATION BENEFITS, BY INCOME CLASS, 1995
----------------------------------------------------------------------------------------------------------------
                                                                                                Total
                                            Number of     Number                Total amount   amount
                                           recipients    affected                    of       of taxes  Taxes as
                                               of           by      Percentage  unemployment     on         a
 Level of individual or couple income\1\  unemployment   taxation    affected   compensation  benefits   percent
                                          compensation      of          by      benefits (in     (in    of total
                                               (in       benefits    taxation    millions of  millions  benefits
                                           thousands)       (in                   dollars)       of
                                                        thousands)                            dollars)
----------------------------------------------------------------------------------------------------------------
Less than $10,000.......................       1,335          667        50.0        2,056         142       6.9
$10,000 to $15,000......................         978          809        82.7        1,761         211      12.0
$15,000 to $20,000......................       1,182        1,122        94.9        2,075         347      16.7
$20,000 to $25,000......................         948          925        97.6        1,939         374      19.3
$25,000 to $30,000......................         863          848        98.3        1,804         344      19.1
$30,000 to $40,000......................       1,324        1,307        98.7        2,654         456      17.2
$40,000 to $50,000......................       1,041        1,041       100.0        1,919         329      17.1
$50,000 to $100,000.....................       1,559        1,559       100.0        3,344         760      22.7
At least $100,000.......................         168          163        97.1          546         159      29.1
                                         -----------------------------------------------------------------------
      All...............................       9,399        8,438        89.8       18,052       3,122      17.3
----------------------------------------------------------------------------------------------------------------
\1\Cash income (based on income of tax filing unit) plus capital gains realizations.

Note.--Aggregate unemployment compensation benefits on the CPS are equal to only about two-thirds of total
  benefits paid out. The number of recipients is also understated on the CPS.

Source: Congressional Budget Office, based on data from the Current Population Survey (CPS).

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
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 8 States have adopted this trigger as
of June 30, 1994. The temporary emergency unemployment
compensation program, which operated through April 30, 1994,
provided either 7 or 13 additional weeks of benefits. A State
offering this program could not have offered the permanent
extended benefit 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. The State-determined maximum weekly benefit amounts
generally vary between 50 and 70 percent of the average weekly
covered wage in each State. 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
37 percent in the quarter ending September 30, 1993.
    Table 7-5 shows the minimum and maximum weekly benefit
amounts and potential duration for each State program. In
fiscal year 1993, the national average weekly benefit amount
was $173 and the average duration was 15.6 weeks, making the
average total benefits $2,699. The minimum weekly benefit
amounts for 1994 vary from $5 in Hawaii to $73 in Washington.
The maximum weekly benefit amounts range from $133 in Puerto
Rico to $487 in Massachusetts.

TABLE 7-5.--AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS
----------------------------------------------------------------------------------------------------------------
                                                       1994 weekly benefit    1993     1994 potential
                                                           amount\1\        average  duration (weeks)     1993
                       State                         ----------------------  weekly -------------------  average
                                                                            benefit            Maximum  duration
                                                      Minimum    Maximum             Minimum            (weeks)
----------------------------------------------------------------------------------------------------------------
Alabama.............................................       $22        $165     $126        15       26         9
Alaska..............................................     44-68     212-284      161        16       26        17
Arizona.............................................        40         185      147        12       26        16
Arkansas............................................        45         254      148         9       26        13
California..........................................        40         230      152        14       26        18

Colorado............................................        25         261      183        13       26        13
Connecticut.........................................     15-22     317-367      210        26       26        16
Delaware............................................        20         265      173        24       26        14
District of Columbia................................        50         335      215        20       26        22
Florida.............................................        10         250      165        10       26        15

Georgia.............................................        37         185      144         9       26        10
Hawaii..............................................         5         337      247        26       26        18
Idaho...............................................        44         235      151        10       26        12
Illinois............................................        51     235-311      194        26       26        18
Indiana.............................................        50     170-192      138        14       26        13

Iowa................................................     31-38     211-259      168        11       26        12
Kansas..............................................        62         250      184        10       26        16
Kentucky............................................        22         229      147        15       26        12
Louisiana...........................................        10         181      118         8       26        17
Maine...............................................     35-52     198-297      153        21       26        14

Maryland............................................     25-33         223      181        26       26        16
Massachusetts.......................................     14-21     325-487      229        10       30        16
Michigan............................................        42         293      210        15       26        12
Minnesota...........................................        38         305      203        10       26        15
Mississippi.........................................        30         165      123        13       26        14

Missouri............................................        45         175      142        11       26        14
Montana.............................................        54         217      135         8       26        13
Nebraska............................................        20         154      131        20       26        12
Nevada..............................................        16         230      172        12       26        15
New Hampshire.......................................        32         196      137        26       26        11

New Jersey..........................................        69         347      228        15       26        18
New Mexico..........................................        39         197      143        19       26        18
New York............................................        40         300      188        26       26        20
North Carolina......................................        22         282      158        13       26        11
North Dakota........................................        43         232      148        12       26        13

Ohio................................................        42     238-319      180        20       26        15
Oklahoma............................................        16         237      161        20       26        14
Oregon..............................................        66         285      169         5       26        16
Pennsylvania........................................     35-40     329-337      197        16       26        17
Puerto Rico.........................................         7         133       88        26       26        17

Rhode Island........................................     41-51     310-387      204        15       26        16
South Carolina......................................        20         203      141        15       26        11
South Dakota........................................        28         168      128        18       26        11
Tennessee...........................................        30         185      129        12       26        12
Texas...............................................        41         245      177         9       26        16

Utah................................................        17         248      175        10       26        13
Vermont.............................................        36         209      156        26       26        16
Virginia............................................        65         208      162        12       26        14
Virgin Islands......................................        32         211      162        13       26        18
Washington..........................................        73         340      180        16       30        17

West Virginia.......................................        24         280      161        26       26        14
Wisconsin...........................................        46         243      161        12       26        12
Wyoming.............................................        40         220      159        12       26        15
----------------------------------------------------------------------------------------------------------------
\1\A range of amounts is shown for those States that provide dependents' allowances.

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. Nine States
provide the same duration for all claimants. The minimum
durations range from 5 weeks in Oregon to 26 weeks in 9 States.
The maximum duration is 26 weeks in 51 States. Two States have
maximum durations longer than 26 weeks, up to 30 weeks in
Massachusetts and Washington.
    Since the beginning of 1993, nine States increased their
minimum weekly benefit amounts. Thirty-three States raised
their maximum weekly benefit amounts. One State lowered its
minimum potential 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 two conditions: (1) if the State's
13-week average insured unemployment rate (IUR) in the most
recent 13 weeks is at least 120 percent of the average of its
13-week IUR's in the last 2 years for the same 13-week calendar
period and its current 13-week average IUR is at least 5.0
percent; 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
(P.L. 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 than did the
IUR trigger. As of June 30, 1994, the TUR trigger has been
authorized by 8 States (Alaska, Connecticut, Kansas, Maine,
Oregon, Rhode Island, Vermont, and Washington). Extended
benefits were activated using the TUR trigger in October 1993
in Oregon (for 13 weeks) and Washington (for 20 weeks), and in
March 1994 in Maine (20 weeks).

                           BENEFIT EXHAUSTION

    Due to the limited duration of UC benefits, some
individuals exhaust their benefits. For the regular State
programs, 3.3 million individuals exhausted their benefits in
fiscal year 1993, or 39 percent of claimants who began
receiving UC during the 12 months ending March 31, 1993. These
exhaustions raise the question of whether new policies are
needed to reduce the exhaustion rate or ameliorate financial
hardships caused by the cessation of benefits.
    A study of exhaustees was completed in September 1990 by
Mathematica Policy Research, Inc., under contract to the U.S.
Department of Labor.\1\ 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 UC exhaustees study was designed to provide
nationally representative estimates of the characteristics of
exhaustees and nonexhaustees. 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.
---------------------------------------------------------------------------
    \1\Corson, Walter and Dynarski, Mark. A Study of Unemployment
Insurance Recipients and Exhaustees: Findings from a National Survey.
U.S. Department of Labor, Unemployment Insurance Service. Occasional
Paper 90-3. September 1990.
---------------------------------------------------------------------------
    The study's authors reached three general conclusions:
  --A large proportion of UI 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 UI
        benefits. The practice of exempting job-attached
        workers from administrative work-search requirements is
        sensible under these circumstances. 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 UI benefits. For this
        group, administrative work-search requirements are
        sensible. Targeting reemployment services to this group
        may also be a reasonable strategy for reducing periods
        of joblessness.
  --The work disincentive effect was not a dominant factor in
        explaining the exhaustion of UI benefits. Most workers
        who exhausted their benefits were still unemployed more
        than a month after receiving their final payment, and a
        majority were still unemployed two months after
        receiving their final payment. Moreover, workers who
        found jobs after exhausting their UI benefits were
        generally receiving lower wages than on their prior
        jobs. Under these circumstances, extending the
        potential duration of UI benefits may reduce the
        financial hardships of exhaustion considerably, while
        creating only mild disincentive effects for some
        workers.
  --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 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. First, a voluntary program was authorized
by the Temporary Unemployment Compensation (TUC) Act of 1958
(P.L. 85-441). TUC was signed into law on June 4, 1958; it
expired on April 10, 1959 (June 30, 1959, for Federal employees
and veterans). TUC was established in response to the 1957-58
recession. It offered States interest-free loans if they
increased the duration of benefits to UI recipients by 50
percent (up to a maximum of 13 weeks) after they had exhausted
their regular benefits. A total of 17 States participated,
while 5 other States enacted their own EB programs. Between
June 1958 and July 1959 slightly over 2 million claimants
received benefits totalling $600 million under TUC.
    The second temporary EB program was authorized by the
Temporary Extended Unemployment Compensation (TEUC) Act of 1961
(P.L. 87-6). TEUC was enacted on March 24, 1961; it expired on
June 30, 1962. The program was financed through the
Unemployment Trust Fund by a temporary increase in the net
Federal unemployment tax. All States were required to
participate. UI recipients who had exhausted their regular
benefits could receive up to 50 percent of their regular
benefits for up to 13 weeks, provided that the combined total
duration of regular and extended benefits did not exceed 39
weeks. A total of 2.8 million claimants received benefits
totaling $817 million during the 15 months of this program.
    The Federal-State Extended Unemployment Compensation Act of
1970 (P.L. 91-373) authorized a permanent mechanism for
providing extended benefits. Under the original program, UI
recipients who had exhausted their regular benefits could
receive EB if: (1) the national seasonally adjusted insured
unemployment rate reached at least 4.5 percent for 3
consecutive months; or (2) their State's insured unemployment
averaged at least 4 percent for 13 consecutive weeks and was at
least 120 percent higher than the average insured unemployment
rate for the corresponding 13 weeks during the preceding 2
years. As with TEUC, UI recipients who exhausted their regular
benefits receive 50 percent of their regular benefits for up to
13 weeks of EB, provided that the total duration did not exceed
39 weeks. EB rules were amended by the Omnibus Budget
Reconciliation Act (OBRA) of 1981 (P.L. 97-35) and the
Unemployment Compensation Amendments of 1992 (P.L. 102-318).
    On three occasions temporary programs have provided
supplemental benefits to UI recipients who had exhausted both
their regular and extended benefits during periods of severe
unemployment.
    The Emergency Unemployment Compensation Act of 1971 (P.L.
92-224) was enacted on December 29, 1971, and was originally
scheduled to expire on September 30, 1972. This program was
financed by the Federal Government through the Extended
Unemployment Compensation Account (EUCA), from which non-
interest-bearing repayable advances were made available to the
States. A State became eligible when its insured unemployment
rate was at least 6.5 percent, unless it failed to meet a
requirement that the average of the current 13-week insured
unemployment rate be at least 120 percent of the average of the
rates for the same 13-week periods for the last 2 years. UI
recipients who exhausted their regular and extended benefits
were eligible to receive benefits for up to half of the
duration of their regular benefits or 13 weeks, whichever was
less. P.L. 92-329 extended this act for 6 months, until it
expired on March 31, 1973.
    The Emergency Unemployment Compensation Act of 1974 (P.L.
93-572) was enacted on December 31, 1974, and created the
Federal Supplemental Benefits (FSB) program. FSB was authorized
in response to the 1974-75 recession. Initially, funds for the
program came from non-interest-bearing repayable advances from
the general fund, which Congress expected the Unemployment
Trust Fund to repay from EUCA after the recession. UI
recipients who exhausted their regular and extended benefits
could receive up to 13 weeks of FSB. States became eligible if
they met either the national or State insured unemployment
rates specified in the Federal-State Unemployment Compensation
Act of 1970 for EB eligibility. FSB was extended 3 times.
    The Tax Reduction Act of 1975 (P.L. 94-12) doubled the
potential duration of FSB to 26 weeks, allowing a UI recipient
to receive benefits under the regular, extended, and FSB
programs for up to 65 weeks. These additional benefits were
financed by the Federal Government and were to expire on
January 1, 1976. The Emergency Compensation and Special
Unemployment Assistance Extension Act of 1975 (P.L. 94-45)
extended FSB to March 31, 1977. Among other provisions, this
law abolished the national trigger for State FSB eligibility.
The Emergency Unemployment Compensation Extension Act of 1977
(P.L. 95-19) reduced FSB to a potential duration of 13 weeks.
The Act provided that, after April 1, 1977, FSB would be
financed through non-repayable advances from Federal general
revenue. It also extended FSB to October 31, 1977, when the
program finally expired.
    The Tax Equity and Fiscal Responsibility Act (TEFRA) of
1982 (P.L. 97-248) established the Federal Supplemental
Compensation (FSC) program in response to the 1982 recession.
TEFRA was enacted on September 3, 1982, and FSC was scheduled
to expire on March 31, 1983. The program provided benefits to
UI recipients who had exhausted their regular and extended
benefits on or after June 1, 1982, for up to 6, 8, or 10 weeks
of benefits. FSC claimants received the same weekly sums as
under the regular Federal-State UI program. The FSC program was
extended and modified six times.
    The Surface Transportation Assistance Act of 1982 (P.L. 97-
424) was enacted on January 6, 1983. The act provided that the
duration of FSC benefits would be 16, 14, 12, 10, or 8 weeks,
depending on conditions within a State. The expiration date of
March 31, 1983, was left unchanged. P.L. 98-13, which was
enacted on March 29, 1983, continued the program past the
expiration date pending completion of the Social Security
Amendments of 1983, which contained a 6-month extension. That
measure (P.L. 98-21), enacted on April 20, 1983, extended FSC
retroactively from April 1, 1983, to September 30, 1983. This
act provided for basic FSC benefits for 14, 12, 10, or 8 weeks,
depending on the unemployment conditions within a State. It
also provided additional FSC benefits of 10, 8, or 6 weeks to
individuals who exhausted their basic FSC benefits on or before
April 1, 1983. Additional FSC benefits were equal to three-
fourths of the basic FSC benefits payable in a State.
    FSC was extended three more times. P.L. 98-118, enacted on
October 11, 1983, extended FSC to October 18, 1983. The Federal
Supplemental Compensation Amendments of 1983 (P.L. 98-135),
enacted on October 24, 1983, extended FSC until March 31, 1985.
This legislation provided basic FSC benefits for up to 14, 12,
10, or 8 weeks and provided additional FSC benefits for up to
5, 4, or 2 weeks, depending on the unemployment conditions
within a State. P.L. 99-15, enacted on April 4, 1985, extended
the FSC program until June 30, 1985, when it finally expired.
    The Emergency Unemployment Compensation Act of 1991 (P.L.
102-164) enacted on November 15, 1991, and amended by P.L. 102-
182 on December 4, 1991, authorized a temporary emergency
unemployment compensation (EUC) program to provide additional
weeks of assistance through June 13, 1992. The EUC program
effectively superseded EB.
    The EUC program entitled people whose regular UC benefit
years expired on or after March 1, 1991, to extra weeks of
assistance. The program as amended provided 20 weeks of
benefits in States with an adjusted insured unemployment rate
(AIUR) of at least 5 percent or a 6-month average total
unemployment rate (TUR) of at least 9 percent. Beneficiaries in
other States received 13 weeks of benefits. (The AIUR is the
IUR used to trigger EB, adjusted to include regular benefit
exhaustees in a State for the most recent 3 months for which
data are available.)
    Congress authorized EUC with an additional 13 weeks of
benefits for eligibles in all States by enacting Public Law
102-244 on February 7, 1992. Thus, EUC could pay benefits for
up to 26 or 33 weeks, depending on the State. The program was
set to expire on July 4, 1992. Benefit durations were to return
to the original 13 or 20 weeks after June 13, 1992.
    Another extension of EUC was enacted on July 3, 1992 (P.L.
102-318). It reduced the available benefits to 20 or 26 weeks
and extended the program through March 6, 1993. A third
extension, enacted on March 4, 1993 (P.L. 103-6), extended EUC
for new claims filed through October 2, 1993. Finally, EUC was
extended by P.L. 103-152 on November 25, 1993, retroactive to
October 3, 1993, for new claims filed on or before February 5,
1994. Benefit payments to claimants were made through April 30,
1994. Benefits were reduced to 7 or 13 weeks, depending on a
State's unemployment rate.
    Benefits under EUC 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 Federal general revenue from
July 1992 until October 1993. States that qualified for EB
while EUC was in effect could elect to trigger off EB. This
reduced the State funding burden, since 50 percent of EB costs
are financed from State UC accounts while EUC was entirely
federally funded.
    As of the week beginning January 9, 1994, 13 weeks of
benefits were available from EUC in 4 States (Alaska,
California, Puerto Rico, and West Virginia). (Washington and
Oregon were offering EB based on the optional TUR trigger.) All
other States had 7 weeks available from EUC.
    Table 7-6 shows for each State the number of EUC claims
during the week ending December 18, 1993, and average weekly
benefits during December 1993. Nationally, claims totaled 1.0
million, with three States (California, New York and
Pennsylvania) accounting for more than one-third of them. The
average weekly EUC benefit nationwide was $173, the same as the
U.S. average for the regular UC program.

 TABLE 7-6.--NUMBER OF CLAIMS, AVERAGE WEEKLY BENEFITS AND BENEFITS
                  PAID IN THE EUC PROGRAM BY STATE
------------------------------------------------------------------------
                                   No. of
                                 continued     Average    Total benefits
                                  claims,       weekly     paid Nov. 15,
             State              week ending    benefit,    1991 through
                                  Dec. 18,     December    Feb. 5, 1994
                                    1993         1993      (millions)\1\
------------------------------------------------------------------------
      U.S. total..............      971,639          173        $26,210
                               -----------------------------------------
Alabama.......................        8,821          120            158
Alaska........................        5,452          166            110
Arizona.......................        7,031          141            168
Arkansas......................        7,992       \2\153            145
California....................      241,394          158          4,127

Colorado......................        6,781       \3\182            159
Connecticut...................       17,745          204            752
Delaware......................        1,649          173             41
District of Columbia..........        5,105          212            127
Florida.......................       53,991          161          1,038

Georgia.......................       11,919          146            330
Hawaii........................        3,046          259             97
Idaho.........................        3,455          151             68
Illinois......................       42,627          188          1,134
Indiana.......................        5,763          129            164

Iowa..........................        6,974          161            130
Kansas........................        5,363          181            146
Kentucky......................       10,900          147            188
Louisiana.....................        9,787          123            160
Maine.........................        6,518          155            184

Maryland......................       18,361          173            444
Massachuesetts................       25,055          234          1,200
Michigan......................       29,775          201          1,303
Minnesota.....................       10,044          196            278
Mississippi...................        5,952          120            124

Missouri......................       17,063          142            361
Montana.......................        2,456          138             36
Nebraska......................        1,843          127             25
Nevada........................        2,807          167            126
New Hampshire.................        1,594          138             70

New Jersey....................       42,866          220          2,036
New Mexico....................        2,257          142             55
New York......................       92,292          192          3,543
North Carolina................       14,408          146            368
North Dakota..................        1,496          148             23

Ohio..........................       29,599          179            867
Oklahoma......................        4,666          169            133
Oregon........................        6,482          165            350
Pennsylvania..................       64,550          193          2,009
Puerto Rico...................       18,250           89            188

Rhode Island..................       10,037          200            264
South Carolina................        8,503          138            185
South Dakota..................          289          122              4
Tennessee.....................       11,443          125            273
Texas.........................       42,978          170          1,209

Utah..........................        2,392          172             56
Vermont.......................        2,103          154             50
Virginia......................       10,761          156            278
Virgin Islands................       \4\112           NA          (\5\)
Washington....................       10,753          166            490

West Virginia.................        7,450          167            158
Wisconsin.....................        9,920          166            260
Wyoming.......................          769          161             19
------------------------------------------------------------------------
\1\Data are incomplete for some States.
\2\Data for October 1993.
\3\Data for November 1993.
\4\Data for week ending Nov. 27, 1993.
\5\Less than $500,000.

NA--Not available.

Source: U.S. Dept of Labor.

    Table 7-7 shows the monthly trend in EUC continuing claims
and first payments. The number entering the program remained
fairly steady from February 1992 through November 1992 at about
300,000 a month, but entrants exceeded that total for all but
one of the next 9 months. The total number of active claims
varied between 1.4 and 1.7 million from January 1992 through
April 1993 but fell below 1.0 million in December 1993.

     TABLE 7-7.--EMERGENCY UNEMPLOYMENT COMPENSATION CLAIMS
                             [In thousands]
------------------------------------------------------------------------
                                                             Continuing
                                                  First      claims (end
                    Month                      payments\1\  of month)\1\

------------------------------------------------------------------------
1991:
  November..................................           114           635
  December..................................         1,051         1,196
1992:
  January...................................           447         1,505
  February..................................           320         1,651
  March.....................................           310         1,655
  April.....................................           308         1,675
  May.......................................           264         1,683
  June......................................           271         1,483
  July......................................           282         1,411
  August....................................           302         1,416
  September.................................           309         1,467
  October...................................           321         1,501
  November..................................           294         1,660
  December..................................           386         1,466
1993:
  January...................................           471         1,486
  February..................................           321         1,479
  March.....................................           378         1,374
  April.....................................           347         1,437
  May.......................................           297         1,286
  June......................................           328         1,329
  July......................................           389         1,447
  August....................................           388         1,353
  September.................................           293         1,300
  October...................................           137         1,032
  November..................................            65         1,283
  December..................................           383           922
------------------------------------------------------------------------
\1\Reports were not received from all States for every month.
  Nonreporting was highest in November 1991.

Source: U.S. Department of Labor.

    Table 7-8 shows outlay estimates for EUC at different
points in time. The January 1993 budget baseline estimate of
$18.2 billion for fiscal years 1992 and 1993, prepared before
the March 1993 extension of EUC, greatly exceeded the earlier
estimates: $12.8 billion in OMB's July 1992 Midsession Review;
$8.3 billion by OMB when the laws were enacted; $12.0 billion
by CBO when the laws were enacted. The growth in the estimate
of $5.4 billion from July 1992 to January 1993 was attributed
by the Department of Labor 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.
    After the issuance of the January 1993 baseline estimate,
the further extension of EUC into fiscal year 1994 occurred.
The estimated cost raised the total estimated cost at time of
enactment to $18.6 billion (CBO) and $14.8 billion (OMB). The
Clinton administration's budget released in February 1994
estimated the total cost of EUC benefits to be $28.0 billion
for the 3 years.

        TABLE 7-8.--EUC OUTLAYS FOR FISCAL YEARS 1992-94
                        [In billions of dollars]
------------------------------------------------------------------------
                                             Fiscal years
                                     ----------------------------  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       .3       0       2.8
    Public Law 102-318..............       .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       .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
------------------------------------------------------------------------
\1\Less than $50,000,000.

Source: Office of Management and Budget, Congressional Budget Office.

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

    Table 7-9 illustrates benefit amounts for various full-year
workers in regular State programs for January 1994. 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, while column C
shows benefit amounts for a worker earning $9 per hour. Column
D is for 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 to $176. The
maximum amount a worker can receive in these examples (column
C) in each State varies considerably, from $120 to $340 per
week.

         TABLE 7-9.--WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS IN JANUARY 1994
----------------------------------------------------------------------------------------------------------------
                                                                          Hypothetical worker\1\
                                                         -------------------------------------------------------
                                                                 A             B             C             D
----------------------------------------------------------------------------------------------------------------
Alabama.................................................         165           165           165            92
Alaska..................................................         106           134           232            70
Arizona.................................................          88           125           185            44
Arkansas................................................          85           120           180            45
California..............................................          82           105           142            46

Colorado................................................         101           144           216            50
Connecticut.............................................          95           130           210            52
Delaware................................................          96           135           203            48
District of Columbia....................................          90           125           195             0
Florida.................................................          85           120           180            42

Georgia.................................................          88           124           185            44
Hawaii..................................................         106           149           223            53
Idaho...................................................          85           120           180             0
Illinois................................................         101           141           237            59
Indiana.................................................          98           134           192            54

Iowa....................................................         100           141           234            50
Kansas..................................................          93           132           198            59
Kentucky................................................         105           148           222            52
Louisiana...............................................          77           109           164            38
Maine...................................................         110           151           228            60

Maryland................................................          93           130           211            47
Massachusetts...........................................          85           120           230            43
Michigan................................................          NA            NA            NA            NA
Minnesota...............................................          85           120           180            42
Mississippi.............................................          85           120           165            42

Missouri................................................          99           140           175            49
Montana.................................................          88           124           187            44
Nebraska................................................          92           128           154            48
Nevada..................................................          88           124           187            44
New Hampshire...........................................          98           123           164             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....................................................          85           120           180             0
Oklahoma................................................          88           124           187            44
Oregon..................................................         110           156           234            60
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           168            42
Tennessee...............................................         169           185           185            84
Texas...................................................          89           125           188            45

Utah....................................................          86           120           180            43
Vermont.................................................          98           138           208             0
Virginia................................................          88           124           187             0
Virgin Islands..........................................          85           120           180            42
Washington..............................................         176           249           340            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; 2 children.
  D. $4.25/hr. wage; 20 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.

NA--Not available. Michigan computes benefits based on after-tax wages.

 Source: U.S. Department of Labor.

                      THE UNEMPLOYMENT TRUST FUND

    The Federal unified budget accounts for all Federal-State
UC outlays and taxes in the Federal 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 section 8 of this document.)
    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. Federal unemployment
taxes finance 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.

Financial Condition of the Unemployment Trust Fund

    Federal Accounts.--At the end of fiscal year 1993, the
Employment Security Administration Account (ESAA) had reached
its fiscal year 1993 ceiling of $1.4 billion; the Extended
Unemployment Compensation Account (EUCA) balance was below its
ceiling of $8.4 billion by $7.5 billion; the Federal
Unemployment Account (FUA) fell short of its $13.9 billion
ceiling by $9.0 billion.
    Under the administration's fiscal year 1995 budget
assumptions, the EUCA balance will continue to fall well short
of its ceiling throughout the 5-year projection period. By the
end of fiscal year 1999, FUA would be short by only $0.6
billion, however.
    State Accounts.--The State accounts had recovered
substantially from the financial problems that began in the
1970's and continued through the early 1980's, but the 1990-91
recession reversed that trend. Table 7-10 shows that the State
accounts at the beginning of 1994 held $28.8 billion, which
still represents a marked improvement over the negative balance
of nearly $3 billion in 1982.
    The balances in the State accounts are about the same as
the balances in the early 1970's after adjusting for inflation,
before serious financial problems began for most States.
However, 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 7-10 shows that these State ratios are only 43
percent of their levels in 1970. Two States (Massachusetts and
Missouri) presently have outstanding Federal loans to their
accounts.
    For the third quarter of calendar year 1993, the second-to-
last column of table 7-10 shows for each State the ``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 have been at significant risk of
insolvency during recessions.
    Thirty-two States had high-cost multiples below 1.0.
Twenty-six States had high-cost multiples below 0.8, and 17
States had high-cost multiples below 0.5. Based on this
measure, those States in the worst financial shape were
Arkansas, California, Connecticut, the District of Columbia,
Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Missouri, New York, Ohio, Pennsylvania, Rhode Island, Texas,
and West Virginia.

                                                      TABLE 7-10.--FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Net reserves (end of calendar year)                             Reserve ratios
                                                          -----------------------------------------------------------------------------------------------------------
                         States                                           [In millions of dollars]                                     [Percent]                      1993/    High-cost    Rank
                                                          -----------------------------------------------------------------------------------------------------------  1970   multiple\1\
                                                              1970       1975       1979       1982     1993\1\     1970      1975      1979       1982     1993\1\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total....................................................     11,903      3,070      8,583    (2,645)     28,821      3.11      0.53      0.91      -0.24       1.33     43        0.57    .....
                                                          --------------------------------------------------------------------------------------------------------------------------------------
Alabama..................................................        130        (2)        118          9        577      2.96      0          .98        .06       2.04     69         .94       23
Alaska...................................................         35         75         65        134        227      5.51      3.07      2.78       2.94       4.47     81        1.03       19
Arizona..................................................        119         67        226        215        376      4.25      1.35      2.36       1.66       1.36     32         .55       36
Arkansas.................................................         49          2         24       (77)        133      2.26       .04       .37       0           .89     39         .33       41
California...............................................      1,219        546      2,738      2,708      2,700      2.91       .88      2.51       1.83        .96     33         .41       37

Colorado.................................................         91         47        137        (4)        387      2.54       .70      1.11       0          1.24     49         .98       22
Connecticut..............................................        252      (232)      (267)      (252)          1      0.08      0         0          0          0         0        0          52
Delaware.................................................         22          0       (30)       (35)        228      1.72      0         0          0          3.18    185        1.18       15
District of Columbia.....................................         74        (3)       (44)       (57)          8      3.22      0         0          0           .08      2         .04       51
Florida..................................................        268         80        665        865      1,562      2.60       .42      2.13       1.89       1.58     61         .86       25

Georgia..................................................        340        268        447        397      1,087      4.74      2.28      2.28       1.49       1.88     40         .88       24
Hawaii...................................................         44          5         79        108        323      2.90       .23      2.24       2.43       3.18    110        1.20       13
Idaho....................................................         46         54         93         29        241      5.16      3.21      3.20        .85       3.64     71        1.15       17
Illinois.................................................        401       (31)      (460)    (2,069)        936      1.55      0         0          0           .81     52         .30       43
Indiana..................................................        326        198        418         63      1,020      3.13      1.31      1.69        .23       2.12     68        1.19       14

Iowa.....................................................        125         63        155       (63)        641      3.19       .96      1.45       0          3.29    103        1.25       11
Kansas...................................................         84        135        238        142        659      3.00      2.65      2.75       1.29       3.13    104        1.59        5
Kentucky.................................................        175        137        159      (121)        404      4.21      1.95      1.36       0          1.65     39         .59       35
Louisiana................................................        146        141        238      (102)        681      2.91      1.58      1.51       0          2.51     86         .81       26
Maine....................................................         39          2          0        (4)         50      2.86      0         0          0           .63     22         .22       47

Maryland.................................................        213         29        273        220        235      3.26       .29      1.83       1.11        .60     18         .27       46
Massachusetts............................................        378       (99)        132        436      (154)      3.04      0         0          1.23       0         0        0          52
Michigan.................................................        491      (286)        112    (2,186)        421      2.49      0          .25       0           .50     20         .14       49
Minnesota................................................        119       (35)         70      (288)        241      1.76      0          .41       0           .57     32         .29       45
Mississippi..............................................         85         90        231        257        402      3.87      2.25      3.47       3.12       2.86     74        1.45        7

Missouri.................................................        264         95        296       (64)          7      3.03       .75      1.47       0           .02      1         .09       50
Montana..................................................         26          8         16          9        101      3.33       .57      0           .27       1.94     58         .64       34
Nebraska.................................................         55         29         81         72        170      2.87       .84      1.58       1.14       1.53     53        1.02       20
Nevada...................................................         39          5         95        122        237      3.20       .22      2.31       2.02       1.79     56         .65       32
New Hampshire............................................         55         29         82         75        166      4.62      1.56      2.42       1.60       1.79     39         .71       29

New Jersey...............................................        448      (348)      (507)      (423)      2,049      2.76      0         0          0          2.38     86         .71       29
New Mexico...............................................         40         33         80        101        263      3.45      1.61      2.14       1.98       3.02     88        1.84        3
New York.................................................      1,693        574        403        819        327      3.76      1.02       .51        .78        .18      5         .18       48
North Carolina...........................................        414        342        564        400      1,490      5.22      2.71      2.71       1.52       2.69     52        1.04       18
North Dakota.............................................         13         22         21         11         53      2.53      1.94      1.13        .46       1.58     62         .67       31

Ohio.....................................................        693        294        513    (1,658)        852      3.01       .91      1.02       0           .92     31         .30       43
Oklahoma.................................................         55         27        177        108        438      1.69       .46      1.56        .62       2.19    130        1.60        4
Oregon...................................................        122         24        320        161      1,068      3.39       .40      3.00       1.37       4.73    140        1.47        6
Pennsylvania.............................................        852       (86)    (1,091)    (2,145)      1,153      3.53      0         0          0          1.20     34         .36       38
Puerto Rico..............................................         85       (26)       (33)       (47)        747      4.90      0         0          0          8.91    182        2.12        2

Rhode Island.............................................         75       (41)       (96)       (76)        115      4.34      0         0          0          1.54     35         .35       40
South Carolina...........................................        166         95        195         50        476      4.61      1.61      1.96        .40       1.89     41         .65       32
South Dakota.............................................          8         20         16          9         49      3.81      1.96       .95        .43       1.29     34        1.24       12
Tennessee................................................        212        200        264         15        676      3.57      1.95      1.63        .08       1.67     47         .77       28
Texas....................................................        337        231        396        142        543      1.90       .71       .65       0           .37     19         .33       41

Utah.....................................................         51         32         67         10        356      3.55      1.22      1.43        .16       2.92     82        1.44        8
Vermont..................................................         26       (25)       (21)       (27)        181      3.72      0         0          0          4.43    119        1.36        9
Virginia.................................................        218        122        103         14        555      3.41      1.08       .56        .06       1.05     31         .80       27
Virgin Islands...........................................         NA         NA        (7)         46         52        NA     NA         0          0          7.60     NA        3.33        1
Washington...............................................        226       (67)        297        (3)      1,782      3.73      0         1.66        .70       4.23    113        1.00       21

West Virginia............................................        108         78         39        150        156      4.07      1.70       .56       0          1.53     38         .38       39
Wisconsin................................................        322        121        465      (144)      1,251      4.29       .99      2.37       0          3.02     70        1.17       16
Wyoming..................................................         19         31         69      (413)        122      4.29      3.02      3.15       1.44       4.11     96        1.36        9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Data are for the third quarter of calendar year 1993.

Source: U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Service, Division of Actuarial Services, UI Data Summary, 3d quarter, calendar year 1993, Dec.
  1993. U.S. Department of Labor, Employment and Training Administration, Unemployment Insurance Financial Handbook Data.

    Table 7-11 summarizes the beginning balances in the
unemployment trust fund accounts for selected fiscal years. At
the start of fiscal year 1994, the four Federal accounts and
the 53 State benefit accounts had a total balance of $37.0
billion. In real terms this represents a decline of 25 percent
compared to 1971. This decline in real dollars in the State
accounts from 1971 does not allow for the further erosion
implied by the 53-percent increase in the labor force over this
time period. A better measure is the ratio of the 1993 to 1970
reserve ratios in table 7-10, which shows that aggregate
reserves in 1993 were only a little more than two-fifths of
their level in 1970.

 TABLE 7-11.--BEGINNING-OF-YEAR BALANCES IN UNEMPLOYMENT TRUST FUND
                 ACCOUNTS FOR SELECTED FISCAL YEARS
                        [In millions of dollars]
------------------------------------------------------------------------
          Account             1971     1976     1980     1983      1994
------------------------------------------------------------------------
Employment security
 administration............       65      365      572      545    2,123
Extended unemployment
 compensation..............        0      116      764      483      877
Federal unemployment
 (reserve for State loans).      575        9      567      599    4,948
Federal employee
 compensation..............    (\1\)    (\1\)    (\1\)       24      206
State unemployment
 compensation\2\...........   12,409    6,145    8,272      720   28,821
                            --------------------------------------------

Total: Nominal dollars.....   13,049    6,635   10,175    2,371   36,975

Total: Real dollars\3\.....   49,572   18,394   20,755    3,569   36,975
------------------------------------------------------------------------
\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,
  Division of Actuarial Services.

The Federal unemployment tax

    Total unemployment taxes on employers for a full-time,
full-year worker earning the average wage in covered employment
in 1992 is estimated to have averaged $260, or 13 cents per
hour. The Federal portion is $56, or 3 cents per hour, and the
average State portion is $204, or 10 cents per hour. Employer
taxes vary substantially, however, depending on the State
taxable wage base, State tax schedules, and Federal credits.
    The Federal Unemployment Tax Act (FUTA) currently imposes a
minimum, net Federal payroll tax on employers of 0.8 percent on
the first $7,000 paid annually to each employee. The 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
minimum, net Federal tax rate 0.8 percent.
    Chart 7-2 shows the historical trend in the Federal taxable
wage base from 1940 to 1992. The wage base was held constant at
$3,000 until 1971, but has been increased three times since
then. The chart also shows the erosion of the taxable wage base
during the 1950's and 1960's relative to wage growth. If the
taxable wage base had been indexed for wage growth since 1940,
the wage base would have been over $50,000 in 1992 instead of
only $7,000.
    Chart 7-3 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 1960's to 0.8 percent in the late 1980's, the effective
tax rate has fluctuated between 0.2 and 0.3 percent in most of
those years.

  CHART 7-2. FEDERAL UC TAXABLE ANNUAL WAGE BASE IN CURRENT AND WAGE-
                       ADJUSTED DOLLARS, 1940-92

<CHART 7-2>

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

      CHART 7-3. HISTORY OF FEDERAL UNEMPLOYMENT TAX RATE, 1954-93

<CHART 7-3>

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

     CHART 7-4. FLOW OF FUTA FUNDS UNDER EXISTING FEDERAL STATUTES

<CHART 7-4>

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.\2\
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 7-12 shows that, as of January
1994, 41 States had taxable wage bases higher than the Federal
taxable wage base, ranging up to $25,000 in Hawaii.
---------------------------------------------------------------------------
    \2\Alaska, New Jersey, and Pennsylvania also tax employees
directly.
---------------------------------------------------------------------------

    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 15 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 1993 were 2.3 and 0.9 percent,
respectively. Estimated average State tax rates on taxable
wages ranged from 0.5 percent in South Dakota to 4.8 percent in
New York and Pennsylvania. Estimated average State tax rates on
total wages varied from 0.2 percent in South Dakota to 2.1
percent in Rhode Island.

                          TABLE 7-12.--STATE UNEMPLOYMENT TAX BASES AND RATES
----------------------------------------------------------------------------------------------------------------
                                                                          1994 experience       Estimated 1993
                                                                             rates\1\         average tax rates
                                                             1994 tax ----------------------  as a percent of--
                           State                               base                         --------------------
                                                                        Minimum    Maximum    Taxable      All
                                                                                               wages      wages
----------------------------------------------------------------------------------------------------------------
  U.S. average............................................         NA     NA          NA           2.3      0.9
                                                           -----------------------------------------------------
Alabama...................................................     $8,000      0.14        6.74        1.6        .6
Alaska....................................................     23,800      1.0         6.5         2.0       1.3
Arizona...................................................      (\2\)       .1         5.4         1.5        .4
Arkansas..................................................      9,000      0           6.0         3.0       1.3
California................................................      (\2\)       .1         5.4         3.6        .9

Colorado..................................................     10,000      0           5.4         1.3        .5
Connecticut...............................................      9,000       .5         6.4         3.4        .9
Delaware..................................................      8,500       .1         8.0         2.6        .8
District of Columbia......................................      9,500       .1         7.4         4.0       1.0
Florida...................................................      (\2\)       .1         5.4         1.8        .6

Georgia...................................................      8,500       .01        8.64        1.6        .6
Hawaii....................................................     25,000      0           5.4         1.0        .7
Idaho.....................................................     20,400       .1         6.8         1.8       1.2
Illinois..................................................      9,000       .2         6.4         2.9       1.0
Indiana...................................................      (\2\)       .2         5.7         1.2        .4

Iowa......................................................     13,900      0           9.0         1.6        .8
Kansas....................................................      8,000       .025       5.4         2.4        .9
Kentucky..................................................      8,000       .3        10.0         2.1        .8
Louisiana.................................................      8,500       .3         6.0         1.9        .6
Maine.....................................................      (\2\)       .5         7.5         3.8       1.3

Maryland..................................................      8,500       .1         8.3         2.9       1.0
Massachusetts.............................................     10,800       .6         9.3         3.9       1.6
Michigan..................................................      9,500      0          10.0         4.1       1.4
Minnesota.................................................     15,100       .1         9.0         1.8        .9
Mississippi...............................................      (\2\)       .1         6.4         2.1       1.0

Missouri..................................................      8,500      0           8.7         2.3        .8
Montana...................................................     15,100      0           6.4         1.4        .9
Nebraska..................................................      (\2\)      0           5.4         1.2        .4
Nevada....................................................     15,900       .3         5.4         1.5        .8
New Hampshire.............................................      8,000       .01        6.5         2.2        .7

New Jersey................................................     17,200       .4         6.47        1.2        .5
New Mexico................................................     13,100       .1         5.4         1.5        .7
New York..................................................      (\2\)      0           6.4         4.8       1.1
North Carolina............................................     13,200       .01        5.7         1.0        .5
North Dakota..............................................     13,000       .1         5.4         1.4        .8

Ohio......................................................      8,750       .1         6.5         2.9       1.0
Oklahoma..................................................     10,700       .1         6.2         1.2        .4
Oregon....................................................     19,000       .9         5.4         2.6       1.6
Pennsylvania..............................................      8,000       .3         9.2         4.8       1.5
Puerto Rico...............................................      (\2\)      1.0         5.4         2.9       1.0

Rhode Island..............................................     16,400       .8         8.4         3.7       2.1
South Carolina............................................      (\2\)       .19        5.4         1.8        .6
South Dakota..............................................      (\2\)      0           9.5          .5        .2
Tennessee.................................................      (\2\)       .1        10.0         2.0        .7
Texas.....................................................      9,000      0           6.0         1.3        .5

Utah......................................................     16,200       .1         8.0         1.0        .6
Vermont...................................................      8,000       .4         8.4         2.7       1.0
Virginia..................................................      8,000      0           6.2         1.2        .4
Virgin Islands............................................     22,000       .1         9.5         1.5       1.2
Washington................................................     19,900       .36        5.4         2.3       1.4

West Virginia.............................................      8,000      0           7.5         3.0       1.1
Wisconsin.................................................     10,500      0           8.9         2.2       1.0
Wyoming...................................................     11,400      0           8.5         2.1       1.0
----------------------------------------------------------------------------------------------------------------
\1\Actual rates could be higher if State has an additional tax.
\2\The 1994 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: Department of Labor.

    Table 7-13 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 0.19 in the
District of Columbia to 0.64 in Montana.

   TABLE 7-13.--12-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY UNEMPLOYMENT COMPENSATION (UC) FOR PERIOD
                                            ENDING DECEMBER 1992
----------------------------------------------------------------------------------------------------------------
                                                                                              Ratio of
                                                         Covered                   Taxable     taxable   Average
                        State                           employment  Total wages     wages     wages to   weekly
                                                       (thousands)   (millions)   (millions)    total     total
                                                                                                wages    wages
----------------------------------------------------------------------------------------------------------------
    United States....................................      105,168   $2,684,987     $776,547      0.29      $491
                                                      ----------------------------------------------------------
Alabama..............................................        1,576       34,368       10,709       .31       419
Alaska...............................................          222        6,983        3,265       .47       605
Arizona..............................................        1,487       34,003        9,214       .27       440
Arkansas.............................................          915       18,130        6,181       .34       381
California...........................................       12,174      350,578       79,343       .23       554

Colorado.............................................        1,521       37,574       12,601       .34       475
Connecticut..........................................        1,479       48,207        9,478       .20       627
Delaware.............................................          331        8,762        2,328       .27       509
District of Columbia.................................          426       14,825        2,864       .19       670
Florida..............................................        5,241      119,920       33,723       .28       440

Georgia..............................................        2,836       68,335       20,581       .30       463
Hawaii...............................................          511       12,885        7,042       .55       484
Idaho................................................          404        8,207        4,356       .53       390
Illinois.............................................        5,015      139,200       37,826       .27       534
Indiana..............................................        2,442       57,369       14,884       .26       452

Iowa.................................................        1,194       24,764       10,236       .41       399
Kansas...............................................        1,060       23,001        9,182       .40       417
Kentucky.............................................        1,403       30,343        9,149       .30       416
Louisiana............................................        1,546       34,163       10,415       .30       425
Maine................................................          486       10,396        2,814       .27       411

Maryland.............................................        1,907       50,372       11,533       .23       508
Massachusetts........................................        2,672       78,990       25,668       .32       568
Michigan.............................................        3,790      103,635       28,254       .27       526
Minnesota............................................        2,083       52,381       19,808       .38       484
Mississippi..........................................          909       17,159        5,501       .32       363

Missouri.............................................        2,196       51,140       12,947       .25       448
Montana..............................................          292        5,496        3,542       .64       362
Nebraska.............................................          712       14,313        3,920       .27       387
Nevada...............................................          624       15,299        7,387       .48       471
New Hampshire........................................          465       11,406        2,803       .25       471

New Jersey...........................................        3,292      105,631       37,999       .36       617
New Mexico...........................................          551       11,216        4,534       .40       392
New York.............................................        7,465      241,143       42,898       .18       621
North Carolina.......................................        3,047       67,127       27,834       .41       424
North Dakota.........................................          247        4,597        1,777       .39       357

Ohio.................................................        4,613      112,559       31,706       .28       469
Oklahoma.............................................        1,147       24,316        8,883       .37       408
Oregon...............................................        1,224       28,422       13,557       .48       446
Pennsylvania.........................................        4,819      123,170       31,288       .25       492
Puerto Rico..........................................          858       12,068        4,088       .34       271

Rhode Island.........................................          409        9,833        4,136       .42       462
South Carolina.......................................        1,455       30,738        8,812       .29       406
South Dakota.........................................          281        4,936        1,513       .31       337
Tennessee............................................        2,131       47,849       13,368       .28       432
Texas................................................        6,945      172,414       52,620       .31       477

Utah.................................................          701       15,039        6,668       .44       413
Vermont..............................................          241        5,367        1,518       .28       429
Virginia.............................................        2,609       62,976       17,929       .28       464
Virgin Islands.......................................           44          984          482       .49       428
Washington...........................................        2,127       53,837       24,658       .46       487

West Virginia........................................          594       12,986        3,789       .29       420
Wisconsin............................................        2,255       51,607       17,531       .34       440
Wyoming..............................................          191        3,967        1,403       .35       400
----------------------------------------------------------------------------------------------------------------
Source: UI data summary, 2d quarter calendar year 1993, Sept. 1993.

                ADMINISTRATIVE FINANCING AND ALLOCATION

    State unemployment compensation administrative expenses are
Federally financed. A portion of revenue raised by the Federal
Unemployment Tax Act (FUTA) is designated for administration
and to maintain a system of public employment offices.
    FUTA revenue flows into three Federal accounts in the
Unemployment Trust Fund: (1) the Employment Security
Administration Account (ESAA), (2) the Extended Unemployment
Compensation Account (EUCA), and (3) the Federal Unemployment
Account (FUA). Authorized by title IX of the Social Security
Act, 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 EUCA. FUA receives funds indirectly
if they overflow from ESAA and EUCA. 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.
    Title III of the Social Security Act authorizes payment to
each State with an approved unemployment compensation law such
amounts as are deemed necessary for the proper and efficient
administration of such law 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
(and the Federal share of extended benefits). 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. Additionally, a
determination is made based on the administration's forecast
for unemployment as to whether the rate will increase by at
least 15 percent.
    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
unemployment compensation 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 UI grant funds to each State is
made by:
    (1) Projecting the workloads that each State is expected to
process.
    These projections are then adjusted so that the sum across
States for each workload item is equal to the budgeted base
workload.
    (2) Determining the staff required to process each State's
projected workload.
    The staff requirements are computed by multiplying the
projected workloads by minutes per unit (MPU) and dividing the
result by the number of work minutes per staff year for each
State. The MPUs were derived from work measurement studies
conducted in each State that establish the number of minutes
required to perform specific tasks. The MPUs developed from the
studies are necessarily reduced so that the total of computed
staff years for each workload item across States equals the
staff years available in the appropriation. The MPUs are
reduced according to a complex mathematical formula that takes
into account workload volume and the range of MPUs.
    (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.
    (4) Allocating overhead resources (administrative and
management staff and nonpersonal services) using a methodology
driven by the program staff years developed in the UI base
allocation.
    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 time the
Department has to complete this study until December 31, 1994.

                        RECENT MAJOR LEGISLATION

    Major Federal laws passed by Congress since 1981 and their
key provisions are as follows:
    The Omnibus Budget Reconciliation Act of 1981 (Public Law
97-35) imposed interest charges up to 10 percent per annum
under certain conditions on loans obtained by State UC programs
after April 1, 1982. It also reduced the extended benefits
program by an estimated $3 to $4 billion in fiscal year 1983.
The primary changes that resulted in this reduction were: (A)
elimination of the national trigger under the extended benefits
program; (B) raising the State trigger to 5 percent, and 120
percent, or 6 percent; and (C) excluding claims for extended
benefits from the calculation of the insured unemployment rate
used for the extended benefit trigger.
    The Tax Equity and Fiscal Responsibility Act of 1982
(Public Law 97-248) increased the taxable wage base from $6,000
to $7,000 and raised the minimum, net Federal unemployment tax
rate to 0.8 percent in 1983. It also raised the gross tax and
credit rates in 1985 to 6.2 and 5.4 percent, respectively. This
left the minimum, net Federal rate unaffected but raised the
maximum, potential, net tax rate in States with delinquent
loans from 3.4 to 6.2 percent. The Act also created the
temporary Federal supplemental compensation program, which
authorized 6 to 10 additional weeks of benefits through March
31, 1983. This act also rounded UC benefits to the lowest
dollar, extended the Reed Act, modified the treatment of school
employees, and reduced the thresholds for taxation of
unemployment compensation to $12,000 for single filers and
$18,000 for married couples filing jointly.
    The Social Security Amendments of 1983 (Public Law 98-21)
extended the Federal supplemental compensation program through
September 30, 1983, providing a maximum of 8 to 14 weeks of
benefits. It also established conditions under which States
could defer the payment of interest on loans from the Federal
Unemployment Account and qualify for reduced FUTA credit
reductions.
    The Tax Reform Act of 1986 (Public Law 99-514) made all
unemployment compensation subject to taxation under the Federal
personal income tax.
    The Omnibus Budget Reconciliation Act of 1987 (Public Law
100-203) extended the 0.2 percent FUTA surtax for 3 years
through 1990.
    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
(TUR) 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 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.

    INTERIM RECOMMENDATIONS OF THE ADVISORY COUNCIL ON
        UNEMPLOYMENT COMPENSATION--FEBRUARY 1994

Purpose of the Extended Benefits program

    The scope of the Extended Benefits program should be
expanded to enhance the capacity of the Unemployment Insurance
system to provide assistance for long-term unemployed workers
as well as short-term unemployed workers. Those individuals who
are long-term unemployed should be eligible for extended
Unemployment Insurance benefits, provided they are
participating in job search activities or in education and
training activities, where available and suitable, that enhance
their re-employment prospects. To maintain the integrity of the
Unemployment Insurance income support system, a separate
funding source should be used to finance job search and
education and training activities for long-term unemployed
workers.

The trigger for extended benefits

    The Council is unanimous in the view that there is a
pressing need to reform the Extended Benefits program.
    The majority of the Council recommends that the Extended
Benefits program should trigger on when a state's seasonally
adjusted total unemployment rate (STUR) exceeds 6.5 percent as
measured before the Current Population Survey redesign. Two
members of the Council recommend that each state should have
the choice of using either the STUR trigger of 6.5 percent with
a threshold requirement of 110 percent above either of the 2
previous years, or an IUR or AIUR trigger set at 4 percent with
a threshold requirement of 120 percent over the previous 2 year
period.
    The Council hopes Congress can implement these reforms
promptly. Although the Council has reservations about the
inefficient targeting of emergency benefits, Congress should
extend the existing Emergency Unemployment Compensation for a 6
month period to provide a bridge program until these Extended
Benefits reforms can be implemented.
    Neither substate nor regional data should be used for the
purpose of determining whether or not Extended Benefits are
available within a given area.

Financing extended benefits reform

    If additional revenue is required to implement the
Council's recommendations, such revenue should be generated by
a modest increase in the FUTA taxable wage base, to $8,500.

Work search test under extended benefits

    The Federal requirement that individuals who are receiving
Extended Benefits must accept a minimum wage job if one is
offered, or become ineligible for benefits, should be
eliminated. Each State should be allowed to determine an
appropriate work search test, based on the conditions of its
labor market.

FUTA taxation of alien agricultural workers

    As of January 1, 1995, the wages of alien agricultural
workers (h3-A workers) should be subject to FUTA taxes.