According to Kevin Hassett, the senior economic adviser to President Trump, the current unemployment rate in the United States stands at approximately 14%. This job loss pace is only comparable to the economic collapse of the Great Depression in the 19030s.
This unprecedented rise in unemployment, caused by the global health crisis, means a massive stress on our already strained unemployment system. Let’s take a look at the concept of unemployment insurance for businesses and how this crisis may change the future of unemployment as we know it.
What is Unemployment Insurance (UI)?
Public unemployment insurance first appeared in Wisconsin in 1932 as part of an effort to provide relief to workers who were unemployed as a result of the 1929 financial collapse. Six other states followed suit before the first federal unemployment insurance program was created as part of the Social Security Act of 1935.
In that year, under the Roosevelt Administration, the federal-state unemployment insurance (UI) program began. It temporarily replaced a portion of wages for workers who had been laid off, as long as they are looking and available for work.
Although benefits vary by state, in most states the program provides up to 26 weeks of benefits to unemployed workers and, on average, replaces half of a workers’ previous wages.
How Is Unemployment Funded?
As business leaders, you know that a portion of the unemployment funds comes directly from your coffers. It is also funded by state taxes and the Federal Unemployment Tax Act (FUTA), which is 6 percent of the first $7,000 of each employee’s wages.
In general, states have some flexibility when it comes to choosing the level of employer tax, the benefit level and duration of benefits, and the eligibility criteria, such as the extent and duration of prior employment. There is considerable variation in how states choose to run this program.
The Brookings Institution, a nonprofit public policy organization based in Washington, DC. explains these variations. For instance, while the standard maximum time for which eligible people can collect benefits is 26 weeks, at the time of writing, states like Florida and North Carolina limit this to 12 weeks.
Current and Future Changes to the Unemployment Insurance
Currently the United States Congress has passed the CARES Act, which is a $2 trillion relief package aimed at alleviating the economic fallout from the COVID-19 pandemic. It extends the duration of UI benefits by 13 weeks and increases payments by $600 per week through July 31st. This implies that maximum UI benefits will exceed 90 percent of average weekly wages in all states.
In addition, extension bills will probably be passed to help states recover from lost revenue, as well as to help small businesses rebuild after this crisis.
Do you have questions about how unemployment insurance works for your business or future legislation that may help your business recover? For more resources on unemployment insurance, check out our resources pages at North Shore Career Center and MassHire North Shore.