As economy contracts, both unemployment rolls and benefits expand dramatically

As our economy struggles to recover, unemployment insurance is an increasingly important safety net for Americans to survive the loss of employment.

Unemployment insurance found its genesis during our last period of prolonged economic struggle.  Our neighbors in Wisconsin adopted the first unemployment program in the early 1930s, and the Social Security Act of 1935 provided strong incentives for states to participate in a new federal program.  Unemployment insurance today is funded through federal and state taxes on employers. States are allowed to expand upon the basic federal unemployment framework.   

Generally, workers must lose employment through no fault of their own in order to be eligible for benefits, though there are some exceptions to that rule.  Workers receive benefits that are calculated based on the employee's reported quarterly earnings, and adjusted by the number of quarters the employee has been employed.   Workers must show they are actively pursuing work, and in Minnesota can utilize state-provided job search and retraining resources. MPR reports that about one third of eligible people generally decline to apply for unemployment, perhaps figuring they will find work soon. But the economic crisis may have changed that; data suggests fewer people are declining benefits today.

Each week, the federal Department of Labor posts information on rates of participation in unemployment programs.  In the last week for which there is data (the week ending April 18th), there were 7,725 new applications for unemployment, along with 125,426 Minnesotans receiving continuing unemployment insurance, out of the 2.6 million Minnesotans covered by unemployment insurance. Graphing this data from the last ten years shows the particular strain on the system today:

The Minnesota Department of Employment and Economic Development reports that March's 42,806 applications for unemployment was over double a year ago.  Included in that number, the manufacturing sector alone saw an additional 8,000 applications in March of this year versus last.  All industries saw an increase of at least 40% in applications, except utilities, which actually saw a decrease in applications.

All that said, if you're going to have to depend on unemployment insurance, the system is far more generous now than it has been in the recent past.   The Minnesota Budget Project described how unemployment benefits have been extended recently.   Typically, workers are eligible for 26 weeks of benefits.  But in recognition of the nation's dire financial straits, the federal government has made available an additional 33 weeks of benefits.  And once the state unemployment rates pass a certain threshold, yet another 13 weeks of benefits are made available.  As a result, a potential 72 weeks (or about 1.38 years) worth of unemployment benefits have been made available to Minnesotans.  If unemployment continues to remain high, another trigger could be passed to extend benefits even longer still.  

The stimulus (also known as the American Recovery and Reinvestment Act) contained funding that would help shore up state unemployment programs in exchange for loosening the rules of eligibility for unemployment to include certain temporary and seasonal workers.  Many will remember that unemployment benefits became the subject of a game of political football earlier this year when figures like Louisiana Governor Bobby Jindal very publicly declined to participate in the federal program, suggesting that the required rules changes would create new uncompensated long-term costs for states.

Unemployment benefits are taxed, which may seem a bit curious, as most people who are receiving unemployment benefits are receiving them during a period of time when every penny counts.  Taxation started after 1987; previously, unemployment benefits were not taxed.  The federal stimulus package at least rolls back these taxes temporarily, leaving the first $2,400 of unemployment income untaxed.