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Answering Key Questions About Unemployment Insurance Reforms

American Enterprise Institute

June 18, 2024

Chairman LaHood, Ranking Member Davis, and members of the Work and Welfare Subcommittee, thank you for the opportunity to submit testimony on potential improvements to the nation’s unemployment insurance (UI) system to better support American workers, businesses, and taxpayers. My name is Matt Weidinger, and I am a Rowe Scholar in poverty studies at the American Enterprise Institute. Previously, I served for over two decades on the staff of the House Ways and Means Committee, including as the committee’s deputy staff director and for many years as the staff director of this subcommittee.

My testimony reviews possible reforms designed to improve the operation of the UI system in the context of key questions raised during the subcommittee’s June 4, 2024 hearing.

Background on the UI System

The nation’s UI system was created in 1935 in response to the Great Depression. It remains a shared partnership between the federal government and the states, which generally determine eligibility for, the amount of, and the duration of weekly state UI benefit checks—which offer partial wage replacement to eligible individuals. There are 53 “state” UI programs, including those operating in the District of Columbia, Puerto Rico, and the US Virgin Islands.

The “insurance” in its name marks UI as part of a broader array of government social insurance programs for workers, which includes the Social Security Old-Age, Survivors, and Disability Insurance program and the Medicare program. As under those other social insurance programs, state and federal UI payroll taxes (i.e., premiums) are paid in advance, entitling workers to coverage against the loss of income and thus prompting the need for unemployment benefits in the event of a layoff.

A January 2024 report I coauthored with Amy Simon breaks down the respective federal and state roles:

“The federal role in the UI program includes providing states funds to administer program benefits and, in recent decades, creating additional permanent and temporary programs offering extended benefits for those who exhaust up to 26 weeks of state UI checks. Except for the brief recession in 1980, in every recession since 1957, Congress has authorized temporary or “emergency” federal unemployment benefit programs that offered additional weeks of benefits to workers who exhaust state benefits. A permanent joint federal-state program called Extended Benefits, which at most times is supported with 50 percent state and 50 percent federal funds, was created in 1970. During the past two recessions, the Extended Benefits program was temporarily supported with 100 percent federal funds. States administer and pay both state and, when payable, federal unemployment benefits; their administrative costs are generally supported by federal funds.[1]

[1] Matt Weidinger and Amy Simon, Pandemic Unemployment Fraud in Context: Causes, Costs, and Solutions, American Enterprise Institute, January 29, 2024, See the report for additional discussion about state variation in labor markets, UI benefit levels, and payroll taxes.

Read the full testimony.