Unemployment Insurance during a Recession

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Abstract

This brief, part of the Urban Institute's "Recession and Recover" series, examines how the Unemployment Insurance program responds during a recession and how that response may differ in the current recession from its response in the past.

Introduction

State unemployment insurance programs provide weekly unemployment benefits to eligible workers who lose their jobs through no fault of their own. This safety net program is especially important during recessions, when the unemployment rate increases, since it also bolsters consumer spending.

The unemployment rate in November 2008 reached 6.7 percent, which is not unusually high during recessionary periods. However, in the two most recent recessions (1990–91 and 2001), monthly unemployment peaked at just under 8 percent and just over 6 percent, respectively. Most predict that the current recession will peak at over 8 percent.

While over 90 percent of jobs in the United States are covered by unemployment insurance, not all unemployed workers receive benefits. In fact, only 36.3 percent of the unemployed in 2007 received benefits. Some choose not to claim benefits, and others who do apply are found ineligible because they did not earn enough or work long enough before losing their jobs.

States determine a worker’s eligibility based on his or her covered earnings for a 12-month period before being unemployed. Traditionally, this period excluded the three months immediately before unemployment. Many states are trying to increase these workers’ recipiency rate by changing the eligibility, or base, period. Nineteen states have adopted an alternative base period that allows consideration of higher earnings in the most recent three months to determine benefit eligibility.

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