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Recent prolonged high unemployment has strained the ability of the Unemployment Insurance (UI) system to provide benefits. This paper, prepared at the request of the Senate Budget Committee, describes the operation of the present UI system, analyzes its financial history since 1970, and presents outlay and revenue projections through 1988. In addition, it examines options to improve the financial stability of the system and to use UI more aggressively to help unemployed workers find jobs.
This study was written by Bruce Vavrichek of the Congressional Budget Office's Human Resources and Community Development Division, under the direction of Nancy M. Gordon and Martin D. Levine. Many persons provided valuable technical and critical contributions, including Richard A. Hobbie, Richard Hendrix, Joseph Hight, Mike Miller, James Van Erden, and Wayne Vroman. Francis Pierce edited the manuscript. Ronald Moore typed the several drafts and prepared the paper for publication.
In accordance with CBO's mandate to provide objective and impartial
analysis, this paper contains no recommendations.
Alice M. Rivlin
Director
June 1983
SUMMARY
CHAPTER I. INTRODUCTION
CHAPTER II. THE CURRENT PROGRAM
CHAPTER III. FINANCIAL STATUS OF THE UNEMPLOYMENT INSURANCE SYSTEM
CHAPTER IV. OPTIONS TO REGAIN FINANCIAL STABILITY AND PROMOTE EMPLOYMENT
APPENDIX A. RECENT LEGISLATIVE CHANGES IN UNEMPLOYMENT INSURANCE
APPENDIX B. SENSITIVITY OF UI OUTLAYS AND REVENUES TO ECONOMIC CONDITIONS
| TABLES | |
| 1. | SELECTED BENEFIT AND ELIGIBILITY INFORMATION FOR REGULAR STATE UNEMPLOYMENT INSURANCE PROGRAMS, BY STATE, JANUARY 1983 |
| 2. | STATE UNEMPLOYMENT INSURANCE PAYROLL TAX INDICATORS, JANUARY 1983 |
| 3. | STATE UNEMPLOYMENT INSURANCE OUTLAYS AND REVENUE, 1970-1982 |
| 4. | STATE UNEMPLOYMENT INSURANCE BENEFIT STATISTICS, 1970-1982 |
| 5. | STATE UNEMPLOYMENT INSURANCE TAX STATISTICS, 1970-1982 |
| 6. | FEDERAL UNEMPLOYMENT INSURANCE OUTLAYS AND REVENUE, 1970-1982 |
| 7. | FEDERAL LOANS TO STATES FOR UNEMPLOYMENT INSURANCE, 1975-1983 |
| 8. | STATE UNEMPLOYMENT INSURANCE ACCOUNT BALANCES AT END OF FISCAL YEAR, 1970-1982 |
| 9. | CONGRESSIONAL BUDGET OFFICE PROJECTIONS OF UNEMPLOYMENT AND UI OUTLAYS AND REVENUE, 1983-1988 |
| 10. | EFFECTS OF SELECTED UI OPTIONS ON UNEMPLOYMENT TRUST FUND BALANCES AND THE OVERALL FEDERAL BUDGET |
| B-1. | CBO BASELINE AND ALTERNATIVE ECONOMIC ASSUMPTIONS |
| B-2. | ESTIMATED STATE AND FEDERAL UI OUTLAYS AND REVENUE UNDER ALTERNATIVE ECONOMIC ASSUMPTIONS |
| FIGURES | |
| 1. | UNEMPLOYMENT INSURANCE ACCOUNT STRUCTURE AND FLOW OF FUNDS |
| 2. | PROJECTIONS OF STATE AND FEDERAL UI REVENUES LESS OUTLAYS |
The Unemployment Insurance (UI) system has come under heavy financial pressure in recent years. Annual outlays have frequently surpassed revenues (see Summary Table 1), and over half of the state Unemployment Insurance programs are currently insolvent. Several state UI programs have required large loans from the federal portion of the UI program, which also has needed loans from the general fund. Although no new federal borrowing is expected in the near future--except to provide additional funds for loans to the states--state loans outstanding are projected to continue to rise from $13.7 billion in March 1983 to nearly $19 billion at the end of fiscal year 1985 before beginning to decline.
Cyclical swings are reflected in the design of the UI system, which is intended to run deficits during periods of high unemployment and to offset them with surpluses during times of low unemployment. The recent big shortfalls are largely the result of unusually high unemployment and frequent periods of economic downturn that have not allowed the system to recoup its financial losses (see Summary Figure 1). The state and federal UI programs should all have an annual financial surplus when joblessness drops to about 9 percent. If current economic projections prove to be wrong, however, and the recovery is not sustained, UI financial difficulties could persist and even grow worse.
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