Examining unemployment insurance: Now is the time

Only about 16 percent of Americans apply for unemployment insurance (UI) benefits when they lose their jobs. Why don’t more apply? Eligibility is a factor; previous work from the Federal Reserve Bank of Minneapolis identifies the broad scope of applicants who tend to be ineligible for benefits. But what about unemployed individuals who skip applying entirely even if they may be eligible?

In times of job losses, UI not only can serve as an important support for workers and their families but also help maintain healthy consumer spending. In 2023, workers received a total of over $30 billion in UI benefits. Following the disruptions of the COVID-19 pandemic, with the economy in a state of relative calm and UI administrators not facing historically high numbers of applications to process, it may be an opportune time to consider a range of UI issues, from program management to fraud prevention to technology updates. Examining UI policies and practices now could help ensure the program is well-positioned to respond to future economic events.

Over the next year, the Minneapolis Fed will publish a series of articles exploring different aspects of UI. This work not only aligns with the Federal Reserve’s mandate to promote maximum employment, it also aligns with a specific mission of the Minneapolis Fed’s Community Development and Engagement team to provide leaders with research and data as they seek to understand outcomes for workers—especially low- and moderate-income workers.

We begin with this article, which lays out the basics about UI, highlights key elements of the program, and notes how it’s been used as an economic driver at important times in our nation’s history.

A joint federal-state support for workers

For nearly 90 years, UI has served as the core government program supporting workers who have lost their jobs through no fault of their own. Created as part of the Social Security Act of 1935, UI is a joint federal-state program. Federal law sets guidelines states must follow, and each state administers its own program under U.S. Department of Labor oversight. This state-by-state approach means that depending on where they live, Americans have divergent experiences with aspects of UI, such as eligibility and the length of time they can access benefits.

In general, there are three qualifications a worker needs to meet to access UI. The individual must:

• Have lost their job through no fault of their own,
• Be “able to work, available to work, and actively seeking work,” and
• Have earned at least a certain amount of money and worked at least a certain amount of time during a “base period” prior to becoming unemployed.

States have the prerogative to interpret these criteria as they wish, and their interpretations can lead to more state variation. For example, instead of determining eligibility based on the amount a worker earned during a traditional base period that typically excludes recent months, some states calculate it using an “alternative base period” (ABP) that reflects wage and employment information from the applicant’s most recently completed quarter of working. This use of ABPs can be more inclusive of lower-income, seasonal, or temporary workers, who may have less stable hours or less consistent earnings during a traditional base period.

A historically important program

At times in the program’s history, the government has used UI to bolster the economy. Several times during economic downturns, such as the recessions of 1981–1982 and 1990–1991, Congress has chosen to extend the maximum number of weeks a person may file for UI benefits. During the Great Recession in 2007–2009, for example, the federal UI extensions supported about 24 million workers—69 million people in total, counting the workers’ family members.

Most recently, in 2020 the American people saw firsthand how the UI system responded to the economic crisis caused by the COVID-19 pandemic. State UI agencies adjudicated millions of claims in short order, processed an influx of federal money, and made policy adjustments as directed by federal and state pandemic-response legislation. These actions affected not only individuals’ financial security but also the broader economy by keeping consumer spending afloat.

Looking ahead

Given the history and role of UI, we’re excited to explore the “why” behind aspects of the program, such as the phenomenon of so many potentially eligible workers not applying for benefits. While we know there are a number of important topics related to UI, including concerns around fraud, funding stability, and technology, our focus will be on UI access and why that access matters for the broader economy. Using both quantitative and qualitative data, we aim to deliver a more complete version of the story in 2025. In the coming weeks, readers can expect our next article in the series, which will examine how variation across UI programs is increasing and why that trend matters for individuals and states.