Financing Unemployment Insurance

29 Pages Posted: 18 Feb 2014

See all articles by Wayne G. Vroman

Wayne G. Vroman

Urban Institute

Stephen Woodbury

Michigan State University; W.E. Upjohn Institute for Employment Research

Date Written: February 17, 2014


Following the Great Recession, most states’ unemployment insurance (UI) trust funds became insolvent, requiring the states to borrow from the U.S. Treasury to finance benefit payments. This article describes the basics of UI financing and reviews the origins of the financial crisis facing the federal-state UI system. It then examines the main components of the UI payroll tax — the taxable wage base and the experience-rated payroll tax — and considers how these might be modified to avoid future widespread insolvency. We conclude with some speculative remarks on the future of UI financing.

Keywords: unemployment insurance, trust fund insolvency, payroll tax

JEL Classification: H2, J65

Suggested Citation

Vroman, Wayne G. and Woodbury, Stephen, Financing Unemployment Insurance (February 17, 2014). National Tax Journal, Vol. 67, No. 1, 2014, Forthcoming, Available at SSRN:

Wayne G. Vroman (Contact Author)

Urban Institute ( email )

2100 M Street, NW
Washington, DC 20037
United States

Stephen Woodbury

Michigan State University ( email )

East Lansing, MI 48824
United States
517-355-4587 (Phone)
517-432-1068 (Fax)

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States
269-343-5541 (Phone)

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