The voices of Urban Institute's researchers and staff
May 27, 2011

Unemployment Insurance Works, So Why Keep It?

May 27, 2011

Unemployment insurance (UI) plays a major role in keeping families with unemployed workers out of poverty.  This role expanded with a small increase in weekly benefits and the extended benefits provisions of the federal emergency bills passed over the past few years.  Recent Congressional Research Service analysis shows that UI benefits cut the poverty rate for unemployed workers and for persons in families with unemployed members by about half.  Without UI benefits, the poverty rate for unemployed people would have neared 25 percent in 2009. With them, it was just over 10 percent.  In all, an estimated 3.3 million people were lifted out of poverty through UI benefits, including almost 1 million children.  These findings are close to those in a study by Urban Institute economist Wayne Vroman using 2008 data.

The American Recovery and Reinvestment Act, which included the first UI benefit enhancements, also contained  Unemployment Insurance Modernization Act provisions  designed to make UI easier for low-income and part-time workers to get.  States received cash incentives for changing eligibility provisions in state programs to allow more types of workers to could get UI.   Forty-two states have enacted one provision, and over 60% have enacted at least two other provisions.

Despite UI’s proven effectiveness as an anti-poverty tool, some states are moving to weaken this rainy day benefit. At least four states have either shortened the eligibility period  for UI payments or are considering the move.  Michigan and Missouri cut the number of weeks workers can get state benefits from 26 to 20 weeks.  Arkansas set a 25- week limit and the Florida legislature just passed a law that would vary the number of weeks of eligibility based on the state unemployment rate—in practice,  unemployed workers would  get 12 weeks of state UI benefits if the state unemployment rate was  5 percent and a maximum of 26 weeks only if the  rate exceeded 12 percent.  As of April, two of these states--Michigan and Florida-- still had troubling unemployment rates well above the national average of 9 percent.

To add insult to injury for the long- term unemployed, Congress is considering a bill (HR 1745) that would allow states to use the federal payments intended for extended benefits to replenish their state UI trust funds or repay the federal  loans taken out to pay UI benefits during the recession.  Although this won’t happen without companion state legislation, states will be sorely tempted since about thirty of them are in the hole to the feds for $45 to $50 billion in loans.  The so-called Job Opportunity, Benefits, and Services (JOBS) Act  would enable some states to avoid raising taxes on businesses  to repay loans and rebuild trust fund balances, but it could backfire by sapping consumer buying power  when what businesses really need  now is more customers.  And it would certainly deepen hardship for many unemployed people and their families who live in places –like Detroit --with far more jobless than jobs.  

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