Financing Unemployment Insurance
29 Pages Posted: 18 Feb 2014
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: Suggested Citation