(279)

SECTION 4. UNEMPLOYMENT COMPENSATION

CONTENTS

Overview

Benefits

Coverage

Number of Covered Workers

Eligibility

Amount and Duration of Weekly Benefits

Extended Benefits

Benefit Exhaustion

Supplemental Benefits

Hypothetical Weekly Benefit Amounts for Various Workers

in the Regular State Programs

The Unemployment Trust Fund

Financial Condition of the Unemployment Trust Fund

The Federal Unemployment Tax

State Unemployment Taxes

Administrative Financing and Allocation

Legislative History

References

OVERVIEW

The Social Security Act of 1935 (Public Law 74–271) created the

Federal-State Unemployment Compensation (UC) Program. The

program has two main objectives: (1) to provide temporary and partial wage replacement to involuntarily unemployed workers who

were recently employed; and (2) to help stabilize the economy during recessions. The U.S. Department of Labor oversees the system,

but each State administers its own program. Because Federal law

defines the District of Columbia, Puerto Rico, and the Virgin Islands as States for the purposes of UC, there are 53 State programs.

The Federal Unemployment Tax Act of 1939 (Public Law 76–

379) and titles III, IX, and XII of the Social Security Act form the

framework of the system. The Federal Unemployment Tax Act

(FUTA) imposes a 6.2 percent gross tax rate on the first $7,000

paid annually by covered employers to each employee. Employers

in States with programs approved by the Federal Government and

with no delinquent Federal loans may credit 5.4 percentage points

against the 6.2 percent tax rate, making the minimum net Federal

unemployment tax rate 0.8 percent. Since all States have approved

programs, 0.8 percent is the effective Federal tax rate. This Federal

revenue finances administration of the system, half of the FederalState Extended Benefits (EB) Program, and a Federal account for

280

State loans. The individual States finance their own programs, as

well as their half of the Federal-State Extended Benefits Program.

In 1976, Congress passed a surtax of 0.2 percent of taxable

wages to be added to the permanent FUTA tax rate (Public Law

94–566). Thus, the current effective 0.8 percent FUTA tax rate has

two components: a permanent tax rate of 0.6 percent, and a surtax

rate of 0.2 percent. The surtax has been extended five times, most

recently by the Taxpayer Relief Act of 1997 (Public Law 105–34)

through December 31, 2007.

FUTA generally determines covered employment. FUTA also imposes certain requirements on the State programs, but the States

generally determine individual qualification requirements, disqualification provisions, eligibility, weekly benefit amounts, potential

weeks of benefits, and the State tax structure used to finance all

of the regular State benefits and half of the extended benefits.

The Social Security Act provides for the administrative framework: title III authorizes Federal grants to the States for administration of the State UC laws; title IX authorizes the various components of the Federal Unemployment Trust Fund; title XII authorizes advances or loans to insolvent State UC Programs.

Table 4–1 provides a statistical overview of the UC Program.

BENEFITS

COVERAGE

In order to qualify for benefits, an unemployed person usually

must have worked recently for a covered employer for a specified

period of time and earned a certain amount of wages. About 125

million individuals were covered by all UC Programs in 2000, representing 97 percent of all wage and salary workers and 89 percent

of the civilian labor force.

FUTA covers certain employers that State laws also must cover

for employers in the States to qualify for the 5.4 percent Federal

credit. Since employers in the States would lose this credit and

their employees would not be covered if the States did not have

this coverage, all States cover the required groups: (1) except for

nonprofit organizations, State-local governments, certain agricultural labor, and certain domestic service, FUTA covers employers

who paid wages of at least $1,500 during any calendar quarter or

who employed at least one worker in at least 1 day of each of 20

weeks in the current or prior year; (2) FUTA covers agricultural

labor for employers who paid cash wages of at least $20,000 for agricultural labor in any calendar quarter or who employed 10 or

more workers in at least 1 day in each of 20 different weeks in the

current or prior year; 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 4–1.—UNEMPLOYMENT COMPENSATION PROGRAM DATA, FISCAL YEARS 1989–2000

Statistic

Fiscal years

1989 1990 1991 1992 1993 1994 1995 1996 1997 1988 1999

Total civilian unemployment rate (percent) ..................................................... 5.3 5.4 6.5 7.3 7.0 6.3 5.6 5.5 5.1 4.6 4.3 Insured unemployment rate (percent) 2 ... 2.1 2.3 3.1 3.1 2.7 2.6 2.3 2.3 2.1 1.9 1.8 

Coverage (millions) .................................. 104.3 106.1 105.1 104.9 106.6 109.7 112.9 115.4 118.2 121.6 124.2 Average weekly benefit amount:

Current dollars ............................... 145 154 163 167 172 175 179 182 185 190 202 In 1999 dollars 3 ........................... 196 198 200 198 198 197 196 193 192 194 202 

State unemployment compensation:

Beneficiaries (millions) ................. 7.0 8.1 10.2 9.6 7.8 8.2 7.9 8.1 7.5 7.3 7.1 Regular benefit exhaustions (millions) ........................................... 1.9 2.2 3.2 3.9 3.3 3.1 2.7 2.7 2.6 2.3 2.3 Regular benefits paid (billions of

dollars) ........................................ 13.5 16.8 24.4 25.6 21.9 21.7 20.9 22.0 20.3 19.4 20.7 

Extended benefits (State share:

billions of dollars) ...................... (6) 0.03 0.01 0.02 0.00 0.15 0.04 0.01 (6) (6) 0.01 

State tax collections (billions of

dollars) ........................................ 17.3 16.0 15.3 17.6 21.0 22.5 23.2 22.7 22.1 21.0 20.0 

State trust fund impact (incomeoutlays: billions of dollars) 4 ...... +3.80

¥0.88

¥9.13

¥8.03

¥0.93 +0.66 +2.24 +0.75 +1.80 +1.6

¥0.71 

Federal Unemployment Accounts:

Federal tax collections (billions of

dollars) 5 ..................................... 4.45 5.36 5.33 5.41 7 4.23 5.46 5.70 5.85 6.10 6.37 6.48 

Outlays: Federal EB share plus

Federal supplemental benefits(billions of dollars) ..................... (6) 0.03 0.01 11.15 13.17 4.37 0.05 8¥0.01 (6) 0.01 0.01 

TABLE 4–1.—UNEMPLOYMENT COMPENSATION PROGRAM DATA, FISCAL YEARS 1989–2000—Continued

Statistic

Fiscal years

1989 1990 1991 1992 1993 1994 1995 1996 1997 1988 1999

State administrative costs (billions of

dollars):

Unemployment Insurance Service 1.71 1.74 1.95 2.49 2.52 2.43 2.38 2.31 2.34 2.55 2.50 Employment Service ...................... 1.00 1.01 1.05 1.02 0.90 0.90 1.05 1.06 1.02 1.01 1.05 

Total administrative costs ... 2.71 2.75 3.00 3.51 3.42 3.33 3.43 3.36 3.36 3.56 3.55 

1 Based on the President’s fiscal year 2001 budget.2 The average number of workers claiming State unemployment compensation benefits as a percent of all workers covered.3 Adjusted using the Consumer Price Index for All Urban Consumers.4 Excludes interest earned.5 Net of reduced credits.6 Less than $5 million.7 Reflects a book adjustment of minus $967 million.8 Reflects reclaimed benefits in excess of benefits paid.

Source: U.S. Department of Labor, 2000.

283

States may cover certain employment not covered by FUTA, but

most States have chosen not to expand FUTA coverage significantly. The following employment is therefore generally not covered: (1) self-employment; (2) certain agricultural labor and domestic service; (3) service for relatives; (4) service of patients in hospitals; (5) certain student interns; (6) certain alien farmworkers; (7)

certain seasonal camp workers; and (8) railroad workers (who have

their own unemployment program).

NUMBER OF COVERED WORKERS

Although the UC system covers 97 percent of all wage and salary

workers, table 4–2 shows that on average only 38 percent of unemployed persons were receiving UC benefits in 1999. This compares

with a peak of 81 percent of the unemployed receiving UC benefits

in April 1975 and a low point of 26 percent in June 1968 and in

October 1987. Despite high unemployment during the early 1980s,

there was a downward trend in the proportion of unemployed persons receiving regular State benefits until the mid-1980s. The proportion receiving UC rose sharply in December 1991 due to the

temporary Emergency Unemployment Compensation (EUC) Program.

In May 1988, Mathematica Policy Research, Inc., under contract

to the U.S. Department of Labor, released a study on the decline

in the proportion of the unemployed receiving benefits during the

1980s. This analysis did not find a single predominant cause for

the decline but instead found statistical evidence that several factors contributed to the decline (the figures in parentheses show the

share of the decline attributed to each factor):

1. The decline in the proportion of the unemployed from manufacturing industries (4–18 percent);

2. Geographic shifts in composition of the unemployed among regions of the country (16 percent);

3. Changes in State program characteristics (22–39 percent):

—Increase in the base period earnings requirements (8–15 percent);

—Increase in income denials for UC receipt (10 percent); and

—Tightening up other nonmonetary eligibility requirements

(3–11 percent);

4. Changes in Federal policy such as partial taxation of UC benefits (11–16 percent); and

5. Changes in unemployment as measured by the Current Population Survey (CPS) (1–12 percent).

The group of unemployed most likely to be insured are job losers.

Chart 4–1 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.

TABLE 4–2.—INSURED UNEMPLOYMENT AS A PERCENT OF TOTAL UNEMPLOYMENT, BY MONTH, SELECTED YEARS 1967–99

Year Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 

1967 .......................................... 52 52 54 54 50 30 39 41 33 33 35 47 1968 .......................................... 57 50 52 50 45 26 34 38 33 34 38 48 1969 .......................................... 54 54 52 48 43 27 35 36 31 33 40 51 1970 .......................................... 57 54 52 53 53 36 42 45 42 44 48 53 1971 .......................................... 58 58 61 59 56 42 45 48 44 46 47 55 1972 .......................................... 56 58 56 52 49 36 41 38 33 34 38 47 1973 .......................................... 51 46 46 44 43 31 36 37 34 38 38 48 1974 .......................................... 53 54 57 60 54 40 43 44 39 42 48 60 1975 .......................................... 66 73 77 81 79 72 77 79 73 74 76 80 1976 .......................................... 78 75 76 73 72 58 66 66 60 59 60 63 1977 .......................................... 67 66 66 66 59 45 52 49 47 48 49 57 1978 .......................................... 54 54 50 47 44 36 39 42 35 37 34 43 1979 .......................................... 48 48 47 47 42 33 39 38 36 38 40 49 1980 .......................................... 51 51 53 52 49 45 49 49 54 49 49 54 1981 .......................................... 54 50 49 46 40 35 37 37 36 34 37 41 1982 .......................................... 47 44 48 49 45 40 42 42 43 48 49 47 1983 .......................................... 50 52 50 53 52 40 39 36 34 33 39 41 1984 .......................................... 40 38 38 36 34 30 31 30 30 31 31 38 1985 .......................................... 40 41 41 39 32 28 30 30 28 27 32 37 1986 .......................................... 38 36 37 35 32 29 32 32 29 30 32 37 1987 .......................................... 37 37 38 35 31 28 30 29 28 26 29 34 1988 .......................................... 37 37 37 35 31 28 30 29 27 27 30 34 1989 .......................................... 35 35 40 37 30 29 33 33 29 31 29 38 1990 .......................................... 40 42 44 41 37 33 36 34 32 34 34 40 1991 .......................................... 47 46 48 49 41 37 39 37 35 34 38 51 1992 .......................................... 56 54 59 59 54 46 48 48 49 50 50 51 1993 .......................................... 50 48 51 52 48 43 47 48 47 44 46 49 1994 .......................................... 43 48 43 38 36 31 33 33 30 32 34 39 

1995 .......................................... 39 41 40 37 35 32 35 34 32 34 31 40 1996 .......................................... 41 43 42 40 34 33 34 34 32 31 33 39 1997 .......................................... 39 39 38 38 33 30 34 33 30 32 35 37 1998 .......................................... 40 41 40 41 35 31 36 34 31 32 36 39 1999 .......................................... 44 43 44 41 38 33 36 35 32 33 35 41 

Source: U.S. Department of Labor, Division of Actuarial Services.

286

CHART 4–1. RATIO OF INSURED UNEMPLOYMENT TO JOB LOSERS (YEARLY AVERAGES),

1967–99

Note.—Insured unemployment data include the Virgin Islands and Puerto Rico, but the data for job losers

do not include these territories.

Source: Chart prepared by the Congressional Research Service based on data from Office of the President

(various years).

Beginning in 1980, the ratio of UC recipients to job losers fell

sharply, reaching an all-time low in 1983 when there were fewer

than 60 regular UC recipients for every 100 job losers. After 1983,

the coverage ratio increased somewhat, so that there were about 75

regular UC claimants for every 100 job losers in 1990. However,

the ratio declined again with the 1990–91 recession. It has since

returned to the prerecession level.

ELIGIBILITY

States have developed diverse and complex methods for determining UC eligibility. In general there are three major factors used

by States: (1) the amount of recent employment and earnings; (2)

demonstrated ability and willingness to seek and accept suitable

employment; and (3) certain disqualifications related to a claimant’s most recent job separation or job offer refusal.

Monetary qualifications

Table 4–3 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. On average, workers must have

worked in two quarters and earned $1,734 to qualify for a minimum monthly benefit. Qualifying annual wages for the minimum

weekly benefit amount vary from $130 in Hawaii to $3,400 in Florida. For the maximum weekly benefit amount, the range is $5,450

287

in Nebraska to $29,432 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 $6,080 in Puerto Rico to $32,850 in

Washington.

TABLE 4–3.—MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM

WEEKLY BENEFIT AMOUNTS AND MAXIMUM TOTAL POTENTIAL BENEFITS, 1999 1

State

Required total earnings in base year

Minimum work

in base year

(quarters) 3 For minimum

weekly benefit

For maximum

weekly benefit

For maximum

potential

benefits 2

Alabama ........................... $2,136 $9,096 $14,819 2Q

Alaska ................................ 1,000 26,750 26,750 2Q

Arizona ............................... 1,500 7,293 15,209 2Q

Arkansas ............................ 1,350 14,612 21,918 2Q

California ........................... 1,125 9,542 11,958

Colorado ............................ 1,000 30,888 30,888

Connecticut ....................... 600 14,480 14,480 2Q

Delaware ............................ 966 13,800 13,800

District of Columbia .......... 1,950 12,051 16,068 2Q

Florida ............................... 3,400 10,725 28,598 2Q

Georgia .............................. 1,872 10,752 23,294 2Q

Hawaii ............................... 130 9,256 9,256 2Q

Idaho ................................. 1,657 8,613 23,039 2Q

Illinois ................................ 1,600 14,079 14,079 2Q

Indiana .............................. 2,750 6,750 21,914 2Q

Iowa ................................... 1,230 6,871 18,642 2Q

Kansas ............................... 2,100 8,430 22,039 2Q

Kentucky ............................ 1,500 20,561 21,561 2Q

Louisiana ........................... 1,200 8,063 20,704 2Q

Maine ................................. 3,120 17,082 17,082 2Q

Maryland ............................ 900 9,000 9,000 2Q

Massachusetts .................. 2,000 11,460 31,833

Michigan ............................ 3,084 11,840 20,720 2Q

Minnesota .......................... 1,250 10,758 25,818 2Q

Mississippi ........................ 1,200 7,600 14,820 2Q

Missouri ............................. 1,500 8,250 17,160 2Q

Montana ............................ 1,440 23,700 23,700 2Q

Nebraska ........................... 1,600 5,850 16,068 2Q

Nevada .............................. 600 9,675 19,350 2Q

New Hampshire ................. 2,800 28,500 28,500 2Q

New Jersey ......................... 2,020 12,067 21,117 2Q

New Mexico ........................ 1,430 7,085 9,707 2Q

New York ........................... 1,600 14,580 14,580 2Q

North Carolina ................... 2,904 12,090 25,116 2Q

North Dakota ..................... 2,795 16,900 21,632 2Q

Ohio ................................... 2,640 10,680 13,884 2Q

Oklahoma .......................... 4,280 9,450 16,575 2Q

Oregon ............................... 1,000 26,320 26,320 2Q

Pennsylvania ..................... 1,320 14,920 14,920 2Q

Puerto Rico ........................ 280 5,320 5,320 2Q

288

TABLE 4–3.—MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM

WEEKLY BENEFIT AMOUNTS AND MAXIMUM TOTAL POTENTIAL BENEFITS, 1999 1—

Continued

State

Required total earnings in base year

Minimum work

in base year

(quarters) 3 For minimum

weekly benefit

For maximum

weekly benefit

For maximum

potential

benefits 2

Rhode Island ..................... 2,060 11,266 25,061 2Q

South Carolina .................. 900 8,931 17,862 2Q

South Dakota ..................... 1,288 8,924 15,132 2Q

Tennessee .......................... 1,560 11,440 22,880 2Q

Texas ................................. 1,702 10,360 26,959 2Q

Utah ................................... 1,800 11,076 27,348 2Q

Vermont ............................. 1,723 12,375 12,375

Virginia .............................. 3,000 11,300 22,600 2Q

Virgin Islands .................... 1,287 8,931 17,862 2Q

Washington ........................ 2,200 10,250 36,900

West Virginia ..................... 2,200 28,600 28,600 2Q

Wisconsin .......................... 1,590 8,460 18,330 2Q

Wyoming ............................ 1,750 7,563 20,082 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 two 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.

In February 1996, a Federal court in Pennington v. Doherty overturned the base year definition in use by most States. The court

agreed with the plaintiff’s contention that Illinois could have used

an alternative base period (the last four completed quarters) and

that this alternative would better carry out Federal law, which requires States to use administrative methods that ensure full payment of UC ‘‘when due.’’ This alternative method would impose

greater costs on the States affected. The Balanced Budget Act of

1997 (Public Law 105–33) revised the Federal law that was central

to the court’s decision so that States have full authority to set base

periods for determining eligibility.

From 1996 to 1999, 16 States increased the required earnings in

the base year to qualify for the minimum weekly benefit amount,

and 1 State decreased it. Thirty-nine States increased and six decreased the qualification requirement for the maximum weekly

benefit amount. Forty-two States increased (and five decreased)

their qualification requirements for maximum potential benefits.

Ability to work and availability for work

All State laws provide that a claimant must be both able to work

and available for work. A claimant must meet these conditions continually to receive benefits.

289

Only minor variations exist in State laws setting forth the requirements concerning ‘‘ability to work.’’ A few States specify that

a claimant must be mentally and physically able to work.

‘‘Available for work’’ is translated to mean being ready, willing,

and able to work. In addition to registration for work at a local employment office, most State laws require that a claimant seek work

actively or make a reasonable effort to obtain work. Generally, a

person may not refuse an offer of, or referral to, ‘‘suitable work’’

without good cause.

Most State laws list certain criteria by which the ‘‘suitability’’ of

a work offer is to be tested. The usual criteria include the degree

of risk to a claimant’s health, safety, and morals; the physical fitness and prior training, experience, and earnings of the person; the

length of unemployment and prospects for securing local work in

a customary occupation; and the distance of the available work

from the claimant’s residence. Generally, as the length of unemployment increases, the claimant is required to accept a wider

range of jobs.

In addition, Federal law requires States to deny benefits provided under the Extended Benefits Program (see below) to any individual who fails to accept work that is offered in writing or is

listed with the State Employment Service, or who fails to apply for

any work to which he is referred by the State agency, if the work:

(1) is within the person’s capabilities; (2) pays wages equal to the

highest of the Federal or any State or local minimum wage; (3)

pays a gross weekly wage that exceeds the person’s average weekly

unemployment compensation benefits plus any supplemental unemployment compensation (usually private) payable to the individual; and (4) is consistent with the State definition of ‘‘suitable’’

work in other respects. Public Law 102–318 suspended these provisions from March 7, 1993, until January 1, 1995.

States must refer extended benefits claimants to any job meeting

these requirements. If the State, based on information provided by

the individual, determines that the individual’s prospects for obtaining work in her customary occupation within a reasonably

short period are good, the determination of whether any work is

‘‘suitable work’’ is made in accordance with State law rather than

the criteria outlined above.

There are certain circumstances under which Federal law provides that State and extended benefits may not be denied. A State

may not deny benefits to an otherwise eligible individual for refusing to accept new work under any of the following conditions: (1)

if the position offered is vacant directly due to a strike, lockout, or

other labor dispute; (2) if the wages, hours, or other conditions of

the work offered are substantially less favorable to the individual

than those prevailing for similar work in the locality; or (3) if, as

a condition of being employed, the individual would be required to

join a union or to resign from or refrain from joining any bona fide

labor organization. Benefits may not be denied solely on the

grounds of pregnancy. The State is prohibited from canceling wage

credits or totally denying benefits except in cases of misconduct,

fraud, or receipt of disqualifying income.

There are also certain conditions under which Federal law requires that benefits be denied. For example, benefits must be deVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00289 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.004 WAYS3 PsN: WAYS3
290

nied to professional and administrative employees of educational

institutions during summer (and other vacation periods) if they

have a reasonable assurance of reemployment; to professional athletes between sport seasons; and to aliens not permitted to work

in the United States.

Disqualifications

The major causes for disqualification from benefits are not being

able to work or available for work, voluntary separation from work

without good cause, discharge for misconduct connected with the

work, refusal of suitable work without good cause, and unemployment resulting from a labor dispute. Disqualification for one of

these reasons may result in a postponement of benefits for some

prescribed period, a cancellation of benefit rights, or a reduction of

benefits otherwise payable.

Of the 14.8 million ‘‘monetarily eligible’’ initial UC claims in

1999, 27.4 percent were disqualified. This figure subdivides into 4.9

percent not being able to work or available for work, 7.3 percent

voluntarily leaving a job without good cause, 4.9 percent being fired

for misconduct on the job, 0.3 percent refusing suitable work, and

10.1 percent committing other disqualifying acts. The total disqualification rate ranged from a low of 11.0 percent in Kentucky

to a high of 94.9 percent in Nebraska, with Colorado the next highest at 86.8 percent. (Note that a claimant can be disqualified for

any week claimed, so it is possible for a claimant to be disqualified

more times than the total number of that claimant’s initial claims

in the benefit year.)

Federal law requires that benefits provided under the Extended

Benefits Program be denied to an individual for the entire spell of

his unemployment if he was disqualified from receiving State benefits because of voluntarily leaving employment, discharge for misconduct, or refusal of suitable work. These benefits will be denied

even if the disqualification were subsequently lifted with respect to

the State benefits prior to reemployment. The person could receive

extended benefits, however, if the disqualification were lifted because he became reemployed and met the work or wage requirement of State law. Public Law 102–318 suspended the restrictions

on extended benefits under Federal law, however, from March 7,

1993, until January 1, 1995. The Advisory Council on Unemployment Compensation was required to study these provisions, and it

recommended that the Federal rules be eliminated. However, Congress has taken no action on this recommendation.

U.S. Department of Labor proposal to use unemployment compensation benefits for family leave

On December 3, 1999, the U.S. Department of Labor (DOL)

issued a Notice of Proposed Rulemaking to create, by regulation, a

voluntary experimental program that would give States the option

of extending UC eligibility to parents who take time off from employment after the birth or placement for adoption of a child under

the Family Medical Leave Act of 1993 (Public Law 103–3). The program is referred to as the birth and adoption UC experiment, also

known colloquially as ‘‘baby UI.’’ The proposal immediately drew

criticism from opponents who argued that the proposal creates a

291

benefit that the Congress did not intend when it created the Family and Medical Leave Act and such benefits would be contrary to

the purpose of UC benefits as stated in the law. Some opponents

argued that the proposal could not be implemented without a new

law being enacted by the Congress. DOL disagreed with this assessment and cited the fact that much of the basic structure of the

UC system, including the requirement that individuals be able and

available for work, was established by regulatory guidance, rather

than statute. DOL also suggested the change was needed to allow

the UC system to keep pace with the changing nature of the work

force, particularly the dramatic increase in the number of working

mothers. The final rule was published in the Federal Register on

June 13, 2000.

Ex-service members

The Emergency Unemployment Compensation Act of 1991 (Public Law 102–164) provided that ex-members of the military be

treated the same as other unemployed workers with respect to the

waiting period for benefits and benefit duration. Before this 1991

action, Congress had placed restrictions on benefits for ex-service

members, so that the maximum number of weeks of benefits an exservice member could receive based on employment in the military

was 13 (as compared with 26 weeks under the regular UC Program

for civilian workers). In addition to a number of restrictive eligibility requirements, ex-service members had to wait 4 weeks from

the date of their separation from the service before they could receive benefits.

Pension offset

The Unemployment Compensation Amendments of 1976 (Public

Law 94–566) required all States to reduce an individual’s UC by

the amount of any government or private pension or retirement

pay received by the individual.

Public Law 96–364, enacted in 1980, modified this offset requirement. Under the modified provision, States are required to make

the offset only in those cases in which the work-related pension

was maintained or contributed to by a ‘‘base period’’ or ‘‘chargeable’’

employer. Entitlement to and the amount and duration of unemployment benefits are based on work performed during this Statespecified base period. A ‘‘chargeable’’ employer is one whose account will be charged for UC received by the individual. However,

the offset must be applied for Social Security benefits without regard to whether base period employment contributed to the Social

Security entitlement.

States are allowed to reduce the amount of these offsets by

amounts consistent with any contributions the employee made toward the pension. This policy allows States to limit the offset to

one-half of the amount of a Social Security benefit received by an

individual who qualifies for unemployment benefits.

Taxation of unemployment compensation benefits

The Tax Reform Act of 1986 (Public Law 99–514) made all UC

taxable after December 31, 1986. The Revenue Act of 1978 first

made a portion of UC benefits taxable beginning January 1, 1979.

292

Table 4–4 illustrates the projected effect of taxing all UC benefits

for calendar year 2000. This table understates the impact of taxation because this analysis uses data collected from a sample of

households for the Current Population Survey (CPS), which is

known to have a problem with respondents underestimating their

annual income from various sources. In particular, total UC benefits reported in the CPS are equal to about two-thirds of benefits

actually paid out. Because of this underreporting of UC benefits in

the CPS and, consequently, underestimates of benefits paid in

2000, taxes collected on benefits probably will be about twice as

high as the $2.9 billion shown in table 4–4.

TABLE 4–4.—PROJECTED EFFECT OF TAXING UNEMPLOYMENT COMPENSATION BENEFITS

BY INCOME LEVEL, CALENDAR YEAR 2000

Level of individual or couple

income 1

Number (in

thousands)

of recipients

of unemployment

compensation

Number (in

thousands)

affected by

taxation of

benefits

Percent

affected

by taxation

Total

amount of

unemployment compensation

benefits, in

millions of

dollars

Total

amount of

taxes on

benefits, in

millions of

dollars

Taxes as a

percent of

total benefits

Less than $10,000 .......... 687 210 30.6 $1,553 $36 2.3

$10,000–$15,000 ............ 634 441 69.6 1,884 161 8.6

$15,000–$20,000 ............ 494 432 87.5 1,607 182 11.3

$20,000–$25,000 ............ 382 343 89.8 1,195 183 15.3

$25,000–$30,000 ............ 363 340 93.5 1,153 198 17.2

$30,000–$40,000 ............ 600 597 99.5 1,823 317 17.4

$40,000–$50,000 ............ 534 534 100.0 1,778 315 17.7

$50,000–$100,000 .......... 1,291 1,291 100.0 4,290 927 21.6

At least $100,000 ........... 281 281 100.0 1,999 621 31.1

Total ........................ 5,265 4,468 84.9 17,282 2,941 17.0

1 Cash income (based on income tax filing unit) plus capital gains realizations.

Source: Congressional Budget Office (CBO) tax simulation model.

AMOUNT AND DURATION OF WEEKLY BENEFITS

In general, the States set weekly benefit amounts as a fraction

of the individual’s average weekly wage up to some Statedetermined maximum. The total maximum duration available nationwide under permanent law is 39 weeks. The regular State programs usually provide up to 26 weeks. The permanent FederalState Extended Benefits Program provides up to 13 additional

weeks in States where unemployment rates are relatively high. An

additional 7 weeks is available under a new optional trigger enacted in 1992, but only 7 States have adopted this trigger as of

July 31, 1997. The temporary Emergency Unemployment Compensation (EUC) Program, which operated from November 1991

through April 1994, provided either 7 or 13 additional weeks of

benefits during its final months of operation. A State offering this

temporary program could not have offered the extended benefits simultaneously, however.

293

The State-determined weekly benefit amounts generally replace

between 50 and 70 percent of the individual’s average weekly

pretax wage up to some State-determined maximum. The average

weekly wage is often calculated only from the calendar quarter in

the base year in which the claimant’s wages were highest. Individual wage replacement rates tend to vary inversely with the claimant’s average weekly pretax wage, with high wage earners receiving lower wage replacement rates. Thus, the national average

weekly benefit amount as a percent of the average weekly covered

wage was only 35 percent in the quarter ending December 31,

1999.

Table 4–5 shows the minimum and maximum weekly benefit

amounts and potential duration for each State program. In 1999,

the national average weekly benefit amount was $215 and the average duration was 14.5 weeks, making the average total benefits

$3,118. The minimum weekly benefit amounts for 2000 vary from

$0 in New Jersey to $102 in Rhode Island. The maximum weekly

benefit amounts range from $133 in Puerto Rico to $646 in Massachusetts.

TABLE 4–5.—AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL

UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS, 1999 AND 2000

State

1999

average

weekly

benefit

2000 weekly benefit

amount 1

1999

average

duration

(weeks)

2000 potential

duration (weeks)

Minimum Maximum Minimum

Maximum

Alabama ............................. $158 $45 $190 10 15 26

Alaska ................................ 194 44–68 248–320 15 16 26

Arizona ............................... 164 40 205 14 12 26

Arkansas ............................ 206 55 309 13 9 26

California ........................... 158 40 230 16 14 26

Colorado ............................. 252 25 337 12 13 26

Connecticut ........................ 233 15–30 382–457 15 26 26

Delaware ............................ 233 20 315 13 24 26

District of Columbia .......... 239 50 309 20 20 26

Florida ................................ 214 32 275 14 26 26

Georgia ............................... 206 39 264 9 9 26

Hawaii ................................ 280 5 371 16 26 26

Idaho .................................. 201 51 273 12 10 26

Illinois ................................ 242 51 284–376 16 26 26

Indiana ............................... 214 50 252 11 8 26

Iowa ................................... 234 39–47 263–323 11 7 26

Kansas ............................... 247 76 306 13 10 26

Kentucky ............................. 214 39 316 12 15 26

Louisiana ........................... 161 10 258 15 26 26

Maine ................................. 198 41–60 254–381 13 26 26

Maryland ............................ 206 25–33 250 14 26 26

Massachusetts ................... 288 27–40 431–646 17 10 30

Michigan ............................ 237 87 300 12 15 26

Minnesota .......................... 279 38 331–410 14 10 26

Mississippi ......................... 156 30 190 14 13 26

Missouri ............................. 180 45 220 13 11 26

294

TABLE 4–5.—AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL

UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS, 1999 AND 2000—Continued

State

1999

average

weekly

benefit

2000 weekly benefit

amount 1

1999

average

duration

(weeks)

2000 potential

duration (weeks)

Minimum Maximum Minimum

Maximum

Montana ............................. 180 63 254 14 8 26

Nebraska ............................ 183 36 206 12 20 26

Nevada ............................... 221 16 282 14 12 26

New Hampshire .................. 221 32 301 10 26 26

New Jersey ......................... 285 0 429 17 15 26

New Mexico ........................ 184 48 254 16 19 26

New York ............................ 245 40 365 18 26 26

North Carolina ................... 225 30 356 10 13 26

North Dakota ...................... 202 43 283 15 12 26

Ohio .................................... 228 77 279–375 13 20 26

Oklahoma ........................... 211 16 283 14 20 26

Oregon ................................ 230 84 360 15 4 26

Pennsylvania ...................... 258 35–40 408–416 16 16 26

Puerto Rico ........................ 104 7 133 19 26 26

Rhode Island ...................... 253 52–102 383–478 13 15 26

South Carolina ................... 188 20 248 11 15 26

South Dakota ..................... 172 28 214 11 15 26

Tennessee .......................... 188 30 255 12 12 26

Texas .................................. 225 48 294 16 9 26

Utah ................................... 205 20 309 12 10 26

Vermont .............................. 208 40 287 13 26 26

Virginia .............................. 192 50 230 10 12 26

Virgin Islands .................... 168 32 233 15 13 26

Washington ........................ 279 94 441 18 16 30

West Virginia ..................... 194 24 318 14 26 26

Wisconsin ........................... 228 44 297 12 12 26

Wyoming ............................. 200 19 261 13 12 26

U.S. average ............ 215 NA NA 15 NA NA

1 A range of amounts is shown for those States that provide dependents’ allowances.

NA—Not applicable.

Source: U.S. Department of Labor.

Most States vary the duration of benefits with the amount of

earnings the claimant has in the base year. Twelve States provide

the same duration for all claimants. The minimum durations range

from 4 weeks in Oregon to 26 weeks in 12 States. The maximum

duration is 26 weeks in 51 States (including the District of Columbia, Puerto Rico, and the Virgin Islands). Two States have longer

maximum durations. Massachusetts and Washington both provide

up to 30 weeks.

From 1999 to 2000, 16 States increased and 3 decreased their

minimum weekly benefit amounts. Thirty-six States raised their

maximum weekly benefit amounts, while no State decreased them.

295

Five States lowered their minimum potential durations, and 13

States raised their minimum duration.

EXTENDED BENEFITS

The Federal-State Extended Benefits Program is available in

every State and provides one-half of a claimant’s total State benefits up to 13 weeks in States with an activated program, for a combined maximum of 39 weeks of regular and extended benefits.

Weekly benefit amounts are identical to the regular State UC benefits for each claimant, and Federal funds pay half the cost. The program activates in a State under one of two conditions: (1) if the

State’s 13-week average insured unemployment rate (IUR) in the

most recent 13 weeks is at least 5.0 percent and at least 120 percent of the average of its 13-week IURs in the last 2 years for the

same 13-week calendar period; or (2) at State option, if its current

13-week average IUR is at least 6.0 percent. All but 12 State programs have adopted the second, optional condition. The 13-week

average IUR is calculated from the ratio of the average number of

insured unemployed persons under the regular State programs in

the last 13 weeks to the average covered employment in the first

four of the last five completed calendar quarters.

In addition to the two automatic triggers, States have the option

of electing an alternative trigger authorized by the Unemployment

Compensation Amendments of 1992 (Public Law 102–318). This

trigger is based on a 3-month average total unemployment rate

(TUR) using seasonally adjusted data. If this TUR average exceeds

6.5 percent and is at least 110 percent of the same measure in either of the prior 2 years, a State can offer 13 weeks of EB. If the

average TUR exceeds 8 percent and meets the same 110-percent

test, 20 weeks of EB can be offered. Analysis of historical data

shows that this TUR trigger would have made EB more widely

available in the past than did the IUR trigger. As of July 31, 1997,

the TUR trigger had been authorized by seven States (Alaska, Connecticut, Kansas, Oregon, Rhode Island, Vermont, and Washington). As of May 2000, EB is not active in any State.

BENEFIT EXHAUSTION

Due to the limited duration of UC benefits, some individuals exhaust their benefits. For the regular State programs, 2.3 million individuals exhausted their benefits in fiscal year 1999, or 32 percent

of claimants who began receiving UC during the 12 months ending

March 1999.

A study of exhaustees was completed in September 1990 by

Corson and Dynarski, under contract to the U.S. Department of

Labor. The purpose of this study was to examine the characteristics

and behavior of exhaustees and nonexhaustees and to explore the

implications of this information. The samples were chosen from individuals who began collecting benefits during the period October

1987 through September 1988. Overall, 1,920 exhaustees and 1,009

nonexhaustees were interviewed.

The study’s authors reached three general conclusions:

1. A large proportion of UC recipients expected to be recalled to

their previous jobs. The unemployment spells of these jobVerDate 20-JUL-2000 13:14 Sep 29, 2000 Jkt 061710 PO 00000 Frm 00295 Fmt 6601 Sfmt 6601 J:\SKAYNE\GB96\61710.004 WAYS3 PsN: WAYS3
296

attached workers were considerably shorter than those of

workers who suffered permanent job losses, and few jobattached workers exhausted their UC benefits. Workers who

were not job-attached—in particular, workers who were dislocated from their previous jobs or who had low skill levels—

were likely to experience long unemployment spells, and a significant proportion of these workers exhausted their UC benefits.

2. Most workers who exhausted their benefits were still unemployed more than a month after receiving their final payment,

and a majority were still unemployed 2 months after receiving

their final payment. Moreover, workers who found jobs after

exhausting their UC benefits were generally receiving lower

wages than on their prior jobs.

3. State exhaustion rate trigger mechanisms would not be clearly

superior to the State IUR triggers in targeting extended benefits to areas with high cyclical unemployment. Substate trigger

mechanisms for extended benefits would do a poor job of targeting extended benefits to local areas with high structural unemployment.

SUPPLEMENTAL BENEFITS

The Extended Benefits (EB) Program was enacted to provide unemployment compensation benefits to workers who had exhausted

their regular benefits during periods of high unemployment. Before

enactment of a permanent EB Program, Congress authorized two

temporary programs, during 1958 and 1959 and again in 1961 and

1962. The Federal-State Extended Unemployment Compensation

Act of 1970 authorized a permanent mechanism for providing extended benefits. Extended benefits rules were amended by the Omnibus Budget Reconciliation Act of 1981 (Public Law 97–35) and

the Unemployment Compensation Amendments of 1992 (Public

Law 102–318).

During the 1970s and 1980s, temporary programs provided supplemental benefits to UC recipients who had exhausted both their

regular and extended benefits during three periods of high unemployment: (1) the Emergency Unemployment Compensation Act of

1971, which provided benefits until March 31, 1973; (2) the Federal

Supplemental Benefits Program, first authorized by the Emergency

Unemployment Compensation Act of 1974, and subsequently extended in 1975 (twice) and in 1977; and (3) the Federal Supplemental Compensation Program, created by the Tax Equity and Fiscal Responsibility Act of 1982, which was subsequently extended

and modified six times and finally expired on June 30, 1985.

More recently, Congress passed the Emergency Unemployment

Compensation Act of 1991 (Public Law 102–164) authorizing a temporary Emergency Unemployment Compensation (EUC) Program.

The EUC Program, which was extended four times, effectively superseded the EB Program and entitled individuals whose regular

unemployment compensation benefits had run out to additional

weeks of assistance. At its peak in 1992, the EUC Program provided benefits for 26 or 33 weeks, depending on the level of unemployment in the respective States. The EUC Program ended on

April 30, 1994.

297

Benefits under the EUC Program were originally financed from

spending authority in the Extended Unemployment Compensation

Account (EUCA) of the Unemployment Trust Fund. However, depletion of EUCA led Congress to fund EUC from general revenues

from July 1992 to October 1993. States that qualified for extended

benefits while EUC was in effect could elect to trigger off extended

benefits. This reduced the State funding burden because 50 percent

of extended benefit costs are financed from State UC accounts

while EUC was entirely federally funded.

Table 4–6 shows several estimates of the cost of the EUC Program at different points in time. A comparison of cost estimates at

the time of enactment with later reviews shows that actual costs

far exceeded anticipated costs due to three factors: exhaustions

from the regular State program were unexpectedly near record levels; claimants were staying on EUC longer than expected; and

large numbers of claimants eligible for both regular benefits and

TABLE 4–6.—CHANGES IN EMERGENCY UNEMPLOYMENT COMPENSATION OUTLAY

ESTIMATES, FISCAL YEARS 1992–94

[In billions of dollars]

Source and time of estimate

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 0.3 0 2.8

Public Law 102–318 .......................................... 0.6 2.0 0 2.6

Public Law 103–6 .............................................. 0 3.1 $2.3 5.4

Public Law 103–152 .......................................... 0 0 1.1 1.1

Total ............................................................... 6.1 5.3 3.4 14.8

By CBO:

Public Law 102–164, Public Law 102–182 ...... 4.3 (1) 0 4.3

Public Law 102–244 .......................................... 2.7 0.6 0 3.3

Public Law 102–318 .......................................... 1.0 3.4 0 4.4

Public Law 103–6 .............................................. 0 3.2 2.3 5.5

Public Law 103–152 .......................................... 0 0 1.1 1.1

Total ............................................................... 8.0 7.2 3.4 18.6

OMB fiscal year 1993 Midsession review, July 1992 9.7 3.1 0 12.8

OMB fiscal year 1994 baseline, January 1993 .......... 11.1 7.1 0 18.2

OMB fiscal year 1994 Clinton budget, April 1993 ..... 11.1 12.3 2.1 25.5

OMB fiscal year 1994 Midsession review, July 1993 11.1 12.7 1.8 25.6

OMB fiscal year 1995 baseline, January 1994 .......... 11.1 13.2 3.7 28.0

OMB fiscal year 1995 Midsession review, July 1994 11.1 13.2 4.2 28.5

1 Less than $50,000,000.

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

298

EUC were choosing EUC. As a result, for the periods fiscal year

1992 and fiscal year 1993 alone, the Office of Management and

Budget (OMB) cost estimates rose from $11.4 billion on the dates

of enactment to $12.8 billion in July 1992, $18.2 billion in January

1993, $23.4 billion in April 1993, $23.8 billion in July 1993, and finally $24.3 billion in January 1994—113 percent higher than originally estimated. Including fiscal year 1994 costs, the Clinton administration’s budget released in July 1994 estimated the final 3-

year cost of EUC benefits to be $28.5 billion, $13.7 billion more

than OMB and $9.9 billion more than CBO had estimated on the

date of enactment.

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

Table 4–7 illustrates benefit amounts for various full-year workers in regular State programs for January 1999. These benefit

amounts are set by the legislatures of the respective States. Column A of the table is for a full-time worker earning the minimum

wage of $5.15 per hour; column B is for a worker earning $6 per

hour; column C shows benefit amounts for a worker earning $9 per

hour; and column D shows a part-time worker earning the minimum wage and working 20 hours per week. All four cases are assumed to have a nonworking spouse and column C assumes the

worker has two children. The weekly benefit amount for the fulltime minimum wage worker (column A) varies from $82 in North

Dakota to $216 in Connecticut. The maximum amount a worker

earning $9 per hour can receive (column C) varies considerably,

from $142 per week in California to $390 in Connecticut.

TABLE 4–7.—WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS,

JANUARY 1999

State

Hypothetical workers 1

ABCD

Alabama ............................................................ $112 $130 $190 $56

Alaska ................................................................ 144 158 256 102

Arizona ............................................................... 107 125 187 54

Arkansas ............................................................ 103 120 180 55

California ........................................................... 81 95 142 41

Colorado ............................................................ 124 144 216 62

Connecticut ....................................................... 216 250 390 113

Delaware ............................................................ 116 136 203 58

District of Columbia .......................................... 103 120 180 52

Florida ............................................................... 103 120 180 52

Georgia .............................................................. 112 130 195 56

Hawaii ............................................................... 128 149 223 64

Idaho ................................................................. 103 120 180 52

Illinois ................................................................ 102 119 178 51

Indiana .............................................................. 125 142 205 71

Iowa ................................................................... 116 136 203 58

Kansas ............................................................... 114 133 199 73

Kentucky ............................................................ 132 154 231 66

299

TABLE 4–7.—WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS,

JANUARY 1999—Continued

State

Hypothetical workers 1

ABCD

Louisiana ........................................................... 107 125 187 54

Maine ................................................................. 132 152 243 71

Maryland ............................................................ 120 138 219 64

Massachusetts .................................................. 128 145 255 77

Michigan ............................................................ NA NA NA NA

Minnesota .......................................................... 103 120 180 52

Mississippi ........................................................ 103 120 180 52

Missouri ............................................................. 107 125 187 54

Montana ............................................................ 107 125 187 63

Nebraska ........................................................... 112 130 195 56

Nevada .............................................................. 107 125 187 54

New Hampshire ................................................. 118 137 206 59

New Jersey ......................................................... 124 144 216 62

New Mexico ........................................................ 103 120 180 52

New York ........................................................... 107 125 180 54

North Carolina ................................................... 103 120 180 52

North Dakota ..................................................... 82 96 144 43

Ohio ................................................................... 103 120 180 0

Oklahoma .......................................................... 116 136 203 58

Oregon ............................................................... 134 156 234 84

Pennsylvania ..................................................... 112 130 202 59

Puerto Rico ........................................................ 103 120 173 52

Rhode Island ..................................................... 124 144 216 62

South Carolina .................................................. 103 120 180 52

South Dakota ..................................................... 103 120 180 52

Tennessee .......................................................... 103 120 180 52

Texas ................................................................. 107 125 187 54

Utah ................................................................... 103 120 180 52

Vermont ............................................................. 119 139 208 60

Virginia .............................................................. 107 125 187 54

Virgin Islands .................................................... 103 120 180 52

Washington ........................................................ 107 125 187 94

West Virginia ..................................................... 107 125 187 54

Wisconsin .......................................................... 107 125 187 54

Wyoming ............................................................ 107 125 187 54

1 Hypothetical workers:

A. $5.15/hour wage; 40 hours/week; 52 weeks/year; nonworking spouse; no children.

B. $6.00/hour wage; 40 hours/week; 52 weeks/year; nonworking spouse; no children.

C. $9.00/hour wage; 40 hours/week; 52 weeks/year; nonworking spouse; two children.

D. $5.15/hour wage; 20 hours/week; 52 weeks/year; nonworking spouse; no children.

NA—Not available. Michigan computes benefits based on aftertax wages.

Source: U.S. Department of Labor.

THE UNEMPLOYMENT TRUST FUND

The Unemployment Trust Fund has 59 accounts. The accounts

consist of 53 State UC benefit accounts, the Railroad Unemployment Insurance Account, the Railroad Administration Account, and

300

four Federal accounts. (The railroad accounts are discussed in section 5 of this volume.) The Federal unified budget accounts for all

Federal-State UC outlays and taxes in the Federal Unemployment

Trust Fund.

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 Employees’ Compensation Account (FECA), which

funds benefits for Federal civilian and military personnel authorized under 5 U.S.C. 85. The 0.8 percent Federal share of the unemployment tax finances the ESAA, EUCA, and FUA, but general

revenues finance the FECA. Present law authorizes interestbearing 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 1999, the Employment Security Administration Account (ESAA) exceeded its fiscal year 1999 ceiling of

$1.4 billion. The 1997 budget bill provided for the distribution of

up to $100 million of excess funds at the end of each of the fiscal

years 1999–2001. The funds will be made available to each State

in the same proportion as the State’s share of funds appropriated

for administration for that fiscal year. This action effectively limits

transfers (known as ‘‘Reed Act’’ transfers) to State accounts that

will occur if trust fund surpluses continue to mount in future years.

The Extended Unemployment Compensation Account (EUCA) balance was below its ceiling of $15.9 billion by $0.3 billion at the

end of fiscal year 1999; the FUA balance was slightly below its $8.0

billion ceiling. Under the administration’s fiscal year 2000 budget

assumptions, the EUCA balance will fall short of its ceiling in fiscal

year 2000, then begin to have end-of-year balances which slightly

exceed its ceiling. The 1997 legislation raised the ceiling on FUA

assets from 0.25 to 0.5 percent of wages in covered employment for

fiscal year 2002 and subsequent years. Like the capping of annual

distributions at $100 million as described above, that change is designed to limit Reed Act transfers to State accounts in coming

years. The reason Congress has taken these actions to increase

ceilings and limit outflows from the Federal funds is that excess

funds in the Unemployment Trust Fund are included in the unified

Federal budget and offset deficits or increase surpluses.

State accounts

The State accounts had recovered substantially from the financial problems that began in the 1970s and continued through the

early 1980s, but the 1990–91 recession reversed that trend. Table

4–8 shows that the State accounts at the beginning of 2000 held

$50.3 billion, which represents a marked improvement over the

balances of $28.8 billion in 1992 and $38.6 billion in 1997.

TABLE 4–8.—FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS, SELECTED YEARS 1970–2000

State

Net reserves in millions of dollars at end of calendar year Reserve ratios by year 2000 reserves as

percentage of

1970 reserves

Averag

cost m

1970 1979 1982 1996 2000 1970 1979 1982 1996 2000 2000 

Alabama .......................... $130 $118 $9 $483 $444 2.96 0.98 0.06 1.42 1.09 37 0.73 Alaska ............................. 35 65 134 194 205 5.51 2.78 2.94 3.42 3.23 59 1.03 Arizona ............................ 119 226 215 627 927 4.25 2.36 1.66 1.64 1.73 41 1.73 Arkansas ......................... 49 24

¥77 203 242 2.26 0.37

¥1.00 1.11 1.08 48 0.66 

California ........................ 1,219 2,738 2,708 2,877 4,930 2.91 2.51 1.83 0.90 1.14 39 0.77 Colorado .......................... 91 137

¥4 511 719 2.54 1.11

¥0.02 1.24 1.22 48 1.11 

Connecticut ..................... 252

¥267

¥252 278 850 0.08

¥1.70

¥1.21 0.62 1.47 838 1.04 

Delaware ......................... 22

¥30

¥35 258 320 1.72

¥1.06

¥0.96 2.96 2.76 160 2.09 

District of Columbia ....... 74

¥44

¥57 99 213 3.22

¥1.05

¥1.03 0.80 1.36 42 1.02 

Florida ............................. 268 665 865 1,948 2,114 2.60 2.13 1.89 1.59 1.32 51 1.61 Georgia ............................ 340 447 397 1,634 1,964 4.74 2.28 1.49 2.19 1.90 40 1.98 Hawaii ............................. 44 79 108 211 251 2.90 2.24 2.43 2.04 2.27 78 1.34 Idaho ............................... 46 93 29 266 267 5.16 3.20 0.85 3.06 2.46 48 1.03 Illinois ............................. 401

¥460

¥2,069 1,639 2,042 1.55

¥0.80

¥3.18 1.19 1.17 75 0.50 

Indiana ............................ 326 418 63 1,273 1,519 3.13 1.69 0.23 2.19 2.12 68 1.56 Iowa ................................ 125 155

¥63 719 775 3.19 1.45

¥0.55 3.00 2.57 81 1.22 

Kansas ............................ 84 238 142 651 468 3.00 2.75 1.29 2.58 1.45 48 0.95 Kentucky .......................... 175 159

¥121 501 678 4.21 1.36

¥0.90 1.67 1.79 43 0.79 

Louisiana ........................ 146 238

¥102 1,131 1,479 2.91 1.51

¥0.47 3.45 3.77 130 1.38 

Maine .............................. 39 0

¥4 112 252 2.86 0

¥0.09 1.22 2.20 77 1.13 

Maryland ......................... 213 273 220 691 815 3.26 1.83 1.11 1.52 1.38 42 0.95 Massachusetts ................ 378 132 436 915 1,921 3.04 0.51 1.23 1.17 1.85 61 1.06 Michigan ......................... 491 112

¥2,186 1,831 2,742 2.49 0.25

¥4.64 1.74 2.14 86 0.73 

Minnesota ....................... 119 70

¥288 513 701 1.76 0.41

¥1.36 0.99 1.03 59 0.62 

TABLE 4–8.—FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS, SELECTED YEARS 1970–2000—Continued

State

Net reserves in millions of dollars at end of calendar year Reserve ratios by year 2000 reserves as

percentage of

1970 reserves

Averag

cost m

1970 1979 1982 1996 2000 1970 1979 1982 1996 2000 2000 

Mississippi ...................... 85 231 257 553 653 3.87 3.47 3.12 3.13 3.00 78 1.91 Missouri .......................... 264 296

¥64 308 525 3.03 1.47

¥0.27 0.61 0.83 27 0.64 

Montana .......................... 26 16 9 126 169 3.33 0.65 0.27 2.10 2.40 72 1.41 Nebraska ......................... 55 81 72 195 185 2.87 1.58 1.14 1.40 1.04 36 1.08 Nevada ............................ 39 95 122 348 472 3.20 2.31 2.02 1.87 1.80 56 1.07 New Hampshire ............... 55 82 75 268 307 4.62 2.42 1.60 2.32 1.98 43 2.11 New Jersey ...................... 448

¥507

¥423 2,029 2,709 2.76

¥1.50

¥0.97 2.06 2.10 76 1.09 

New Mexico ..................... 40 80 101 386 511 3.45 2.14 1.98 3.46 3.88 112 2.77 New York ......................... 1,693 403 819 470 863 3.76 0.51 0.78 0.23 0.33 9 0.25 North Carolina ................ 414 564 400 1,336 1,276 5.22 2.71 1.52 1.92 1.40 27 1.06 North Dakota ................... 13 21 11 50 31 2.53 1.13 0.46 1.20 0.61 24 0.29 Ohio ................................. 693 513

¥1,658 1,751 2,152 3.01 1.02

¥3.04 1.56 1.57 52 0.65 

Oklahoma ........................ 55 177 108 564 586 1.69 1.56 0.62 2.43 2.04 121 1.62 Oregon ............................. 122 320 161 941 1,364 3.39 3.00 1.37 3.19 3.62 107 1.44 Pennsylvania ................... 852

¥1,091

¥2,145 2,032 2,663 3.53

¥2.18

¥3.75 1.85 1.94 55 0.68 

Puerto Rico ..................... 85

¥33

¥47 596 532 4.90

¥0.88

¥1.11 5.91 4.24 87 1.32 

Rhode Island ................... 75

¥96

¥76 116 264 4.34

¥2.75

¥1.81 1.38 2.56 59 0.87 

South Carolina ................ 166 195 50 603 754 4.61 1.96 0.40 1.95 1.92 42 1.31 South Dakota .................. 8 16 9 50 50 3.81 0.95 0.43 1.01 0.79 21 0.88 Tennessee ....................... 212 264 15 827 888 3.57 1.63 0.08 1.63 1.40 39 0.96 Texas ............................... 337 396 142 642 652 1.90 0.65

¥0.16 0.36 0.27 14 0.26 

Utah ................................ 51 67 10 524 626 3.55 1.43 0.16 3.12 2.82 79 1.75 Vermont ........................... 26

¥21

¥27 218 278 3.72

¥1.30

¥1.29 4.63 4.82 130 2.55 

Virginia ........................... 218 103 14 897 1,038 3.41 0.56 0.06 1.40 1.18 35 0.90 

Virgin Islands ................. NA

¥7 ¥3 42 52 NA

¥2.96

¥0.55 7.42 7.96 NA 3.25 

Washington ..................... 226 297 150 1,333 1,753 3.73 1.66 0.70 2.66 2.38 64 1.00 West Virginia .................. 108 39

¥145 157 188 4.07 0.56

¥1.85 1.36 1.47 36 0.46 

Wisconsin ........................ 322 465

¥413 1,557 1,764 4.29 2.37

¥1.53 3.10 2.80 65 1.10 

Wyoming .......................... 19 69 46 147 176 4.29 3.15 1.51 4.32 4.25 99 1.67 

Total ....................... 11,903 8,583

¥2,645 38,632 50,320 3.11 0.91

¥0.24 1.48 1.49 48 0.93 

NA—Not available.Source: U.S. Department of Labor (2000, March). Fourth quarter CY1999 UI Data Summary. Washington, DC.

304

The balances in the State accounts are well below the balances

in the early 1970s (after adjusting for inflation) before serious financial problems began for most States. State reserve ratios (trust

fund balances divided by total wages paid in the respective States

during the year) show that a number of State accounts are at risk

of financial problems in major recessions. The third column from

the right margin of table 4–8 shows that these State ratios are only

48 percent of their levels in 1970. However, no State presently has

outstanding Federal loans to its account.

The second-to-last column of table 4–8 shows for each State the

1999 average ‘‘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 average 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 average

high-cost multiples below 1.0 may face greater risk of insolvency

during recessions.

Twenty States had average high-cost multiples below 1.0; 13 had

average high-cost multiples below 0.8; and 5 had average high-cost

multiples at or below 0.5. Based on this stringent measure, States

with the highest risk factor were Illinois, New York, North Dakota,

Texas, and West Virginia.

Table 4–9 summarizes the beginning balances in the various Unemployment Trust Fund accounts for selected fiscal years. At the

start of fiscal year 2000, the 4 Federal accounts and the 53 State

benefit accounts had a total balance of $72.0 billion. In real terms

this represents a level 28 percent higher than that of 1971. This

increase in real dollars does not allow for the erosion implied by

the large increase in the labor force over this time period (although

table 4–2 shows that an average of 38 percent of unemployed workers was covered, compared with 48 percent in 1970). Overall, a better measure of readiness for a recession is the ratio of the

2000 : 1970 reserve ratios in table 4–8, which shows that aggregate

reserves in 2000 relative to wages were a little less than half the

1970 level.

Whether the State trust fund balances are adequate is ultimately

a matter about which each State must decide. States have a great

deal of autonomy in how they establish and run their unemployment system. However, the framework established by the Federal

Government requires States to actually pay the level of benefits

they determine to be appropriate; in budget terms, unemployment

benefits are an entitlement (although the program is financed by

a dedicated tax imposed on employers and employees and not by

general revenues). Thus, if a recession hits a given State and results in a depletion of that State’s trust account, the State is legally required to continue paying benefits. To do so, the State will

be forced to borrow money from the Federal Unemployment Account. As a result, not only will the State be required to continue

paying benefits, it will also be required to repay the funds plus interest it has borrowed from the Federal loan account. Such States

will probably be forced to raise taxes on their employers, an action

that dampens economic growth and job creation. In short, States

305

have strong incentives to keep adequate funds in their trust fund

accounts.

TABLE 4–9.—BEGINNING-OF-YEAR BALANCES IN UNEMPLOYMENT TRUST FUND

ACCOUNTS, SELECTED FISCAL YEARS 1971–2000

[In millions of dollars]

Account

Year

1971 1976 1980 1983 1997 2000

Employment Security Administration ................. $65 $365 $572 $545 $2,899 $3,066

Extended Unemployment

Compensation .............. 0 116 764 483 9,466 13,147

Federal Unemployment

(reserve for State

loans) .......................... 575 9 567 599 6,747 7,216

Federal Employees’ Compensation ..................... (1) (1) (1) 24 262 297

State Unemployment

Compensation 2 ........... 12,409 6,145 8,272 720 43,657 48,290

Total: Nominal dollars ..................... 13,049 6,635 10,175 2,371 63,031 72,013

Total: Real dollars 3 56,278 20,591 22,758 4,061 66,973 72,013

1 There was no separate account for Federal Employees’ Compensation for this year.

2 Figures are net of loans from Federal funds.

3 Real dollars are obtained using the Consumer Price Index for All Urban Consumers for the preceding

fiscal years.

Source: U.S. Department of the Treasury, Bureau of Public Debt.

THE FEDERAL UNEMPLOYMENT TAX

FUTA imposes a minimum, net Federal payroll tax on employers of 0.8 percent on the first $7,000 paid annually to each employee.

The current gross FUTA tax rate is 6.2 percent, but employers in

States meeting certain Federal requirements and having no delinquent Federal loans are eligible for a 5.4 percent credit, making the

current minimum, net Federal tax rate 0.8 percent. Since most employees earn more than the $7,000 taxable wage ceiling, the FUTA

tax typically is $56 per worker ($7,000 × 0.8 percent), or 3 cents

per hour for a full-time worker. The 1997 budget bill extended the

0.2 percent surtax through 2007. The wage base for the Federal tax was held constant at $3,000

until 1971, and then was increased on three occasions, most recently in 1983.

Chart 4–2 depicts the historical trends in the statutory and effective Federal unemployment tax rates. The effective tax rate equals

FUTA revenue as a percent of total covered wages. Although the

statutory tax rate doubled from 0.4 percent in the late 1960s to 0.8

percent in the late 1980s, the effective tax rate has fluctuated between 0.2 and 0.3 percent in most of those years.

306

1 Alaska, New Jersey, and Pennsylvania also tax employees directly.

CHART 4–2. HISTORY OF FEDERAL UNEMPLOYMENT TAX RATE, 1954–98

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

of Labor.

STATE UNEMPLOYMENT TAXES

The States finance their programs and half of the permanent Extended Benefits Program with employer payroll taxes imposed on

at least the first $7,000 paid annually to each employee.1 States

have adopted taxable wage bases at least as high as the Federal

level because they otherwise would lose the 5.4 percent credit to

employers on the difference between the Federal and State taxable

wage bases. Table 4–10 shows that, as of January 2000, 42 States

had taxable wage bases higher than the Federal taxable wage base,

ranging up to $27,500 in Hawaii.

Although the standard State tax rate is 5.4 percent, State tax

rates based on unemployment experience can range from zero on

some employers in 16 States up to a maximum as high as 10 percent in 2 States.

Estimated national average State tax rates on taxable wages and

total wages for 1999 were 1.8 and 0.6 percent, respectively. Estimated average State tax rates on taxable wages ranged from 0.3

percent in North Carolina to 4.4 percent in Michigan and New

York. Estimated average State tax rates on total wages varied from

0.1 percent in North Carolina to 2.1 percent in Rhode Island.

Table 4–11 shows recent State data on unemployment compensation covered employment, wages, taxable wages, the ratio of taxable to total wages, and average weekly wages. The ratio of taxable

wages to total wages varied from 0.17 in New York to 0.59 in Montana.

307

TABLE 4–10.—STATE UNEMPLOYMENT TAX BASES AND RATES, 1999–2000

State

Estimated 1999 average

tax rates as a percent

of— 2000 tax

base

1999 experience rates 1

Taxable

wages All wages

Minimum Maximum

Alabama ......................... 1.0 0.4 $8,000 0.20 5.40

Alaska ............................. 2.1 1.3 24,800 1.00 5.40

Arizona ............................ 1.1 0.3 7,000 0.50 5.40

Arkansas ......................... 2.0 0.8 9,000 0.10 6.40

California ........................ 2.7 0.7 7,000 0.10 5.40

Colorado .......................... 1.1 0.4 10,000 0.00 5.40

Connecticut ..................... 1.8 0.6 15,000 0.50 5.40

Delaware ......................... 2.2 0.6 8,500 0.10 8.30

District of Columbia ....... 2.2 0.5 9,000 0.10 7.00

Florida ............................. 1.3 0.2 7,000 0.00 5.40

Georgia ........................... 0.3 0.1 8,500 0.02 5.40

Hawaii ............................. 1.7 1.2 27,500 0.00 5.40

Idaho ............................... 1.2 0.8 24,500 0.10 5.40

Illinois ............................. 2.5 0.7 9,000 0.20 6.40

Indiana ........................... 1.3 0.4 7,000 0.20 5.50

Iowa ................................ 0.9 0.5 17,300 0.00 7.50

Kansas ............................ 1.6 0.5 8,000 0.02 7.40

Kentucky ......................... 2.1 0.7 8,000 0.16 9.0

Louisiana ........................ 1.5 0.5 7,000 0.20 5.40

Maine .............................. 3.6 1.1 12,000 1.00 5.81

Maryland ......................... 1.8 0.5 8,500 0.30 7.50

Massachusetts ................ 2.4 0.8 10,800 0.60 7.23

Michigan ......................... 2.7 0.8 9,500 0.10 8.10

Minnesota ....................... 1.1 0.5 19,000 0.10 9.10

Mississippi ...................... 1.7 0.6 7,000 0.40 5.40

Missouri .......................... 1.4 0.3 7,500 0.00 5.58

Montana .......................... 1.3 0.9 17,700 0.00 6.50

Nebraska ......................... 0.6 0.2 7,000 0.00 5.40

Nevada ............................ 1.4 0.8 18,600 0.25 5.40

New Hampshire .............. 0.7 0.2 8,000 0.01 6.50

New Jersey ...................... 1.7 0.8 20,200 0.30 5.40

New Mexico ..................... 1.3 0.7 14,800 0.10 5.40

New York ......................... 2.7 0.6 8,500 0.00 7.70

North Carolina ................ 0.8 0.4 13,900 0.00 5.40

North Dakota .................. 1.1 0.6 16,100 0.10 10.09

Ohio ................................ 1.6 0.5 9,000 0.10 6.40

Oklahoma ........................ 0.5 0.2 9,800 0.00 5.50

Oregon ............................ 2.1 1.2 23,000 0.50 5.40

Pennsylvania ................... 3.7 1.0 8,000 0.30 9.20

Puerto Rico ..................... 3.0 0.7 7,000 1.00 5.40

Rhode Island .................. 3.4 1.4 12,000 0.60 9.81

South Carolina ................ 1.4 0.4 7,000 0.54 5.40

South Dakota .................. 0.6 0.2 7,000 0.00 7.00

Tennessee ....................... 1.5 0.4 7,000 0.00 10.00

Texas ............................... 1.3 0.4 9,000 0.00 6.30

Utah ................................ 0.6 0.4 20,200 0.10 8.10

308

TABLE 4–10.—STATE UNEMPLOYMENT TAX BASES AND RATES, 1999–2000—Continued

State

Estimated 1999 average

tax rates as a percent

of— 2000 tax

base

1999 experience rates 1

Taxable

wages All wages

Minimum Maximum

Vermont .......................... 2.5 0.8 8,000 0.40 5.90

Virginia ........................... 0.5 0.2 8,000 0.00 5.58

Virgin Islands ................. 2.0 1.1 14,600 0.10 5.40

Washington ..................... 2.1 1.2 26,500 0.47 5.40

West Virginia .................. 2.8 1.0 8,000 0.00 7.50

Wisconsin ........................ 1.9 0.7 10,500 0.02 9.75

Wyoming ......................... 1.4 0.7 13,600 0.00 8.78

U.S. average .......... 1.8 0.6 NA NA NA

1 Actual rates could be higher if State has an additional tax.

NA—Not applicable.

Note.—This table shows State unemployment tax levels. It does not include the Federal unemployment

tax.

Source: U.S. Department of Labor.

TABLE 4–11.—TWELVE-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY STATE

UNEMPLOYMENT TAXATION FOR PERIOD ENDING DECEMBER 1999

State

Covered

employment

(thousands)

Total wages

(millions)

Taxable wages

(millions)

Ratio of

taxable

wages to

total

wages

Average

weekly

total

wages

Alabama .............. 1,808 $48,746 $13,349 0.27 $518

Alaska ................. 251 8,297 4,039 0.49 636

Arizona ................ 2,067 61,195 15,086 0.25 569

Arkansas ............. 1,082 26,533 8,748 0.33 472

California ............ 13,926 501,849 90,965 0.18 693

Colorado .............. 2,015 65,816 19,825 0.30 628

Connecticut ......... 1,618 67,279 18,792 0.28 800

Delaware ............. 391 13,425 3,087 0.23 660

District of Columbia .................... 413 19,187 3,492 0.18 893

Florida ................. 6,628 186,411 46,847 0.25 541

Georgia ................ 3,656 114,540 30,562 0.27 602

Hawaii ................. 503 14,326 7,626 0.53 547

Idaho ................... 521 13,003 7,108 0.55 480

Illinois ................. 5,725 202,070 46,728 0.23 679

Indiana ................ 2,839 83,335 19,121 0.23 565

Iowa ..................... 1,402 36,704 15,658 0.43 504

Kansas ................ 1,266 34,094 12,406 0.36 518

Kentucky .............. 1,675 45,148 12,280 0.27 518

Louisiana ............. 1,808 48,335 11,694 0.24 514

Maine .................. 552 14,258 3,477 0.24 496

Maryland ............. 2,199 71,590 16,742 0.23 626

309

TABLE 4–11.—TWELVE-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY STATE

UNEMPLOYMENT TAXATION FOR PERIOD ENDING DECEMBER 1999—Continued

State

Covered

employment

(thousands)

Total wages

(millions)

Taxable wages

(millions)

Ratio of

taxable

wages to

total

wages

Average

weekly

total

wages

Massachusetts .... 3,093 119,554 32,406 0.27 743

Michigan ............. 4,357 151,481 35,832 0.24 669

Minnesota ............ 2,487 80,904 31,530 0.39 626

Mississippi .......... 1,103 26,096 7,366 0.28 455

Missouri ............... 2,567 74,813 18,723 0.25 561

Montana .............. 356 7,937 4,660 0.59 492

Nebraska ............. 842 21,647 5,295 0.24 494

Nevada ................ 936 28,629 14,640 0.51 588

New Hampshire ... 576 18,025 4,238 0.24 602

New Jersey ........... 3,651 148,206 55,511 0.37 781

New Mexico ......... 666 16,792 6,911 0.41 485

New York ............. 8,056 331,197 56,720 0.17 791

North Carolina ..... 3,705 105,751 39,559 0.37 549

North Dakota ....... 294 6,749 2,800 0.41 441

Ohio ..................... 5,328 163,063 42,221 0.26 589

Oklahoma ............ 1,370 33,963 13,120 0.39 477

Oregon ................. 1,530 45,638 22,282 0.49 573

Pennsylvania ....... 5,296 168,503 37,077 0.22 612

Puerto Rico .......... 973 17,530 5,356 0.31 347

Rhode Island ....... 441 13,345 5,030 0.38 582

South Carolina .... 1,744 46,059 11,828 0.26 508

South Dakota ...... 340 7,717 2,077 0.27 437

Tennessee ............ 2,548 72,735 17,767 0.24 549

Texas ................... 8,742 278,003 73,613 0.26 612

Utah .................... 975 26,177 12,504 0.48 516

Vermont ............... 278 7,427 1,880 0.25 513

Virginia ................ 3,131 98,617 23,947 0.24 606

Virgin Islands ...... 41 1,059 370 0.35 500

Washington ......... 2,550 86,200 39,044 0.45 650

West Virginia ....... 658 16,470 4,449 0.27 481

Wisconsin ............ 2,634 75,865 22,518 0.30 554

Wyoming .............. 215 5,293 1,964 0.37 473

Total ............. 123,830 3,977,587 1,060,871 0.27 618

Source: U.S. Department of Labor (2000, March). Fourth quarter CY1999 UI Data Summary. Washington,

DC.

ADMINISTRATIVE FINANCING AND ALLOCATION

State unemployment compensation administrative expenses are

federally financed. A portion of revenue raised by FUTA is designated for administration and for maintaining a system of public

employment offices. As explained above, FUTA revenue flows into

three Federal accounts in the Unemployment Trust Fund. One of

these accounts, the Employment Security Administration Account

310

(ESAA), finances administrative costs associated with Federal and

State unemployment compensation and employment services.

Under current law, 80 percent of FUTA revenue is allocated to

ESAA and 20 percent to another Federal account (chart 4–3).

Funds for administration are limited to 95 percent of the estimated

annual revenue that is expected to flow to ESAA from the FUTA

tax. However, 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 of such

amounts as are deemed necessary for the proper and efficient administration of the UC Program during the fiscal year. Allocations

are based on: (1) the population of the State; (2) an estimate of the

number of persons covered by the State unemployment insurance

law; (3) an estimate of the cost of proper and efficient administration of such law; and (4) such other factors as the Secretary of the

U.S. Department of Labor (DOL) finds relevant.

Subject to the limit of available resources, the allocation of State

grants for administration is the sum of resources made available

for 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 DOL, in conjunction with the Department of Treasury, estimates revenue expected from FUTA and the appropriate amount to

be available for administration. The estimate of FUTA revenues is

based on several factors: (1) a wage base of $7,000 per employee;

(2) a tax rate of 0.8 percent (0.64 percentage points for administration and 0.16 percentage points for extended benefits); (3) the administration’s projection of the level of unemployment and the

growth in wages; and (4) the level of covered employment subject

to FUTA. In addition, a determination is made based on the administration’s forecast for unemployment as to whether the rate will

increase by at least 15 percent.

Each year the President’s budget sets forth an estimate of national unemployment in terms of the volume of unemployment

claims per week. This is characterized as average weekly insured

unemployment (AWIU). A portion of AWIU is expressed as ‘‘base’’

and the remainder as ‘‘contingency.’’ At the present time, the base

is set at the level of resources required to process an average weekly volume of 2.0 million weeks of unemployment.

Resources available to each State to administer its UC Program

(i.e., process claims and pay benefits) are provided from either

‘‘base’’ funds or ‘‘contingency’’ funds. At the beginning of the fiscal

year, only the base funds are allocated, while contingency funds are

allocated on a needs basis as workload materializes. Base funds are

distributed to the State for use throughout the fiscal year and are

available regardless of the level of unemployment (workload) realized. If a State processes workloads in excess of the base level, it

311

CHART 4–3. FLOW OF FUTA FUNDS UNDER EXISTING FEDERAL STATUTES

0.8% Employer Tax 1

↓

Monthly Transfer of All Net Collections

↓

➀ EMPLOYMENT SECURITY ADMINISTRATION ACCOUNT (ESAA)—for financing administrative costs of the employment security program.

Monthly 0.64% of the 0.8% employer tax is to be retained in the

ESAA account while 0.16% is to be transferred to ➁. Up to 95%

after transfers to ➁ may be appropriated to finance State administrative costs; balance available to meet Federal administrative

costs.

Statutory limit retained in this account at the beginning of a fiscal

year is 40% of the appropriation for the prior fiscal year.

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

« «

« «««««

Monthly transfers

= 20% of net

collections unless statutory

limit is

reached

Excess if ➁ is

over statutory

limit on September 30 of

any year

Excess if ➀ is

over statutory

limit on October 1 of any

year and ➁ is

not over its

statutory

limit 2

Excess if ➂ is

over statutory

limit on September 30 of

any year

Excess if ➀ and

➁ are over

statutory limit

and ➂ is not,

on October 1

of any year

↓↓↓ « «

« «

« «

➁ EXTENDED UNEMPLOYMENT COMPENSATION ACCOUNT (EUCA)—for

financing Federal-State EB and

EUC Programs

——————————————

Statutory limit: 0.5% of total wages in

covered employment in preceding

calendar year

➂ FEDERAL UNEMPLOYMENT ACCOUNT

(FUA)—for repayable advances to

States with depleted reserves

——————————————

Statutory limit: 0.25% of total wages

in covered employment in preceding

calendar year. Limit will rise to

0.5% starting in fiscal year 2002

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

«

If ➀➁ and ➂ are over statutory limit on October 1 of

any year, excess funds are distributed to State

trust fund accounts if there are no outstanding advances from General Revenue to either FUA or

EUCA

1 Effective tax, after 5.4 is offset against 6.2 percent Federal unemployment tax. Effective rate will drop

to 0.6 percent on January 1, 2008. 2 $100 million of funds that would otherwise be transferred from ➀ to ➁ or distributed to the States

in the same proportion as each State’s share of current appropriation for administration; this distribution

rule applies only to fiscal years 2000–2002.

Source: Chart prepared by the National Foundation for Unemployment Compensation & Workers’ Compensation.

312

receives contingency funds determined by the extent of the resources required to process the additional workload.

The allocation of the base UC grant funds to each State is made

by:

1. Projecting the workloads that each State is expected to process;

2. Determining the staff required to process each State’s projected

workload;

3. Multiplying the final staff-year allocations for each State by

the cost per staff year (i.e., State salary and benefit level) to

determine dollar funding levels; and

4. Allocating overhead resources (administrative and management staff and nonpersonal services).

Each DOL regional office may redistribute resources among the

States in its area with national office approval. The 1997 budget

bill authorized funds over 5 years specifically for program integrity

activities such as claims review and employer tax audits to assist

the States in strengthening their efforts to reduce administrative

error and fraud.

In Public Law 102–164, Congress required the DOL to study the

allocation process and recommend improvements. Public Law 102–

318 extended the study deadline to December 31, 1994. The Department has not yet submitted the report to Congress.

Total grants to States for administrative costs represent about 55

percent of total FUTA tax collections in fiscal year 1999. There has

been considerable interest among State Employment Security

Agencies in recent years in having more of the FUTA revenue returned to the States for administrative expenses. In the 106th Congress, legislation has been introduced which would change the administrative financing of the UC Program.

LEGISLATIVE HISTORY

Major Federal laws passed by Congress since 1990 and their key

provisions are as follows:

The Omnibus Budget Reconciliation Act of 1990 (Public Law

101–508) extended the 0.2 percent FUTA surtax for 5 years

through 1995.

The Emergency Unemployment Compensation Act of 1991 (Public Law 102–164) established temporary emergency unemployment

compensation (EUC) benefits through July 4, 1992. It returned to

States the option of covering nonprofessional school employees between school terms and restored benefits for ex-military members

to the same duration and waiting period applicable to other unemployed workers. It extended the 0.2 percent FUTA surtax for 1 year

through 1996.

The Unemployment Compensation Amendments of 1992 (Public

Law 102–318) extended EUC for claims filed through March 6,

1993, and reduced the benefit periods to 20 and 26 weeks. The law

also gave claimants eligible for both EUC and regular benefits the

right to choose the more favorable of the two. States were authorized, effective March 7, 1993, to adopt an alternative trigger for the

Federal-State EB Program. This trigger is based on a 3-month average total unemployment rate and can activate either a 13- or a

20-week benefit period depending on the rate.

313

The Emergency Unemployment Compensation Amendments of

1993 (Public Law 103–6) extended EUC for claims filed through

October 2, 1993. The law also authorized funds for automated State

systems to identify permanently displaced workers for early intervention with reemployment services.

The Omnibus Budget Reconciliation Act of 1993 (Public Law

103–66) extended the 0.2 percent FUTA surtax for 2 years through

1998.

The Unemployment Compensation Amendments of 1993 (Public

Law 103–152) extended EUC for claims filed through February 5,

1994, and set the benefit periods at 7 and 13 weeks. It repealed

a provision passed in 1992 that allowed claimants to choose between EUC and regular State benefits. It required States to implement a ‘‘profiling’’ system to identify UI claimants most likely to

need job search assistance to avoid long-term unemployment.

The North American Free Trade Agreement Implementation Act

(Public Law 103–182) gave States the option of continuing UC benefits for claimants who elect to start their own businesses.

The Balanced Budget Act of 1997 (Public Law 105–33) gave

States complete authority in setting base periods for determining

eligibility for benefits, authorized appropriations for program integrity activities, limited trust fund distributions to States in fiscal

years 1999–2001, and raised the ceiling on FUA assets from 0.25

percent to 0.5 percent of wages in covered employment starting in

fiscal year 2002. The Taxpayer Relief Act of 1997 (Public Law 105–

34) extended the 0.2 percent FUTA surtax through 2007.

REFERENCES

Corson, W. & Dynarski, M. (1990, September). A study of unemployment insurance recipients and exhaustees: Findings from a

national survey. (Occasional Paper 90–3). Washington, DC:

U.S. Department of Labor.

Office of the President. (1997, February). Economic Report of the

President. Washington, DC: U.S. Government Printing Office.

Pennington v. Doherty. Unemployment Insurance Reporter

(¶22,184). Chicago, IL: Commerce Clearing House.

U.S. Department of Labor. (2000, February). UI Outlook: Fiscal

Year 2001 President’s Budget. Washington, DC: Author.

U.S. Department of Labor, Employment and Training Administration. (2000, March). UI Data Summary (Fourth quarter, calendar year 1999). Washington, DC: Author.