The Financing of Benefits in Unemployment Insurance

The current federal-state unemployment insurance system has been in operation throughout the country for over a quarter of a century. As one of the two major social insurance programs created by the Social Security Act of 1935, it has become generally accepted as one of the nation's most important measures against the privation of unemployment and as a stabilizer of the economy in helping offset the down drag on economic activity resulting from excessive joblessness. Despite its general acceptance, however, it has been subjected to vigorous controversy in recent years. Criticism of the program has focused largely upon two issues, the financing of benefits and the extent of the protection afforded the unemployed by the benefit formula.

This paper is concerned with the first of these. The two are closely related, however, since inadequate financing may serve as a deterrent to adequate benefits.