Unemployment Insurance Financing

The strength of a state's unemployment insurance program is dependent on stable and reliable funding. The best systems save surpluses when the economy is growing in order to pay benefits during tough times when benefits are needed the most.

The UI program is based on a built-in system that generates revenue from employer payroll taxes to cover the cost of state UI benefits. The system must collect enough revenue to pay benefits during recessions so that the state is not forced to borrow from the federal government, or worse, cut UI benefits to workers. In recent years, however, many states have moved dangerously away from sound principles of UI financing. Rather than build up their unemployment trust fund reserves in good economic times, states have significantly cut UI payroll taxes, which compromises the ability of the program to grow in order to meet the needs of today's workers. On average, U.S. employers now pay just $280 per worker a year to cover state benefits, and $56 per worker in federal UI taxes to pay for federal extended unemployment benefits and state administration of the UI program.

NELP is a leading source of expertise to help evaluate the financing of state UI programs and make recommendations for reform to strengthen a state's UI financing system. NELP's 2008 report evaluates the status of UI trust funds at a time when the economy is facing another recession and describes key standards to measure the solvency of state UI programs.

For more information on our work in this area, please contact Rick McHugh, rmchugh@nelp.org.

Other key resources:

Urban Institute

Department of Treasury Unemployment Trust Fund Report Page

Department of Labor UI Program Statistics Page