Unemployment Insurance in a Free Society Table of Contents
“Unemployment insurance has changed little since its inception.”
In 1935, the federal government set up the unemployment
insurance (UI) system to pay benefits to laid-off workers. It is
basically a monopoly insurance fund that has changed little
since its inception. State governments administer the system,
and state payroll taxes pay cash benefits to workers. The
federal government collects an additional unemployment insurance
tax (FUTA, after the Federal Unemployment Tax Act) from
employers, and makes loans to states when their trust funds run
low. Benefits are paid for a limited period of time, usually up
to six months, while the worker seeks a new job. However,
workers are often eligible for extended benefits that are paid
from general federal tax revenues. Benefits for low-wage workers
typically replace 50 percent to 70 percent of their pay. There
is a ceiling on the maximum benefit, so middle- and higher-
income workers receive a much smaller port