Economic Effects of the Unemployment Insurance Benefit
Business Review Shigeru Fujita July 30, 2010

The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. This article is forthcoming in an issue of the Federal Reserve Bank of Philadelphia’s Business Review.

overall economy itself has started to grow again after the deep recession. For example, in the fourth quarter of 2009, the average unemployment rate was at a insurance. double-digit level, a level we have not seen since the early 1980s, even though real GDP grew by more than 5 percent. One of the main policy reactions to painful developments in the labor market has been the expansion of unemployment components of the social security programs in the U.S. 1 It provides income (and thus

The U.S. labor market has remained weak in recent years, even though the

consumption) protection for those who have lost their jobs involuntarily. During “normal” times, unemployment insurance benefits are provided through the regular pre-unemployment earnings and last 26 weeks in the majority of states. 2 During

The unemployment insurance (UI) system constitutes one of the major

economic downturns, however, the federal government often provides additional government has greatly extended the duration of benefits as a means to combat the surmounting joblessness. As of the summer of 2009, unemployed workers who

unemployment compensation (UC) program, which is funded and administered at

support by extending UI benefits. Especially in the last few years, the U.S. reside in states with a relatively high unemployment rate are entitled to receive UI
The original framework of the unemployment compensation system is contained in the Social Security Act, which was signed into law by President Franklin