Each state operates its own program but must follow certain federal rules. The amount and duration of the weekly unemployment benefits are based on a worker's prior wages and length of employment. Employers pay taxes into a special fund based on the unemployment and benefits-payment experience of their own work force. The federal government also assesses an unemployment insurance tax of its own on employers. States hope that surplus funds built up during prosperous times can carry them through economic downturns, but they can borrow from the federal government or boost tax rates if their funds run low. States must lengthen the duration of benefits when unemployment rises and remains above a set "trigger" level. The federal government may also permit a further extension of the benefits payment period when unemployment climbs during a recession, paying for the extension out of general federal revenues or levying a special tax on employers. Whether to extend jobless-pay benefits frequently becomes a political issue since any extension boosts federal spending and may lead to tax increases.
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This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr and has been adapted with permission from the U.S. Department of State.