Joan Rankin, age 14, of Portland, Ore., for her question:
HAS UNMEMPLOYMENT INSURANCE SEEN AROUND LONG?
Unemployment insurance is a form of social insurance that is designed to provide income to persons who have lost their jobs. It is insurance that is wage related and is payable as a matter of right to any insured eligible worker. Unemployment insurance in the United States has been around since the 1930s.
Two major goals are involved in unemployment insurance: a plan that will prevent unemployed persons from undergoing severe hardships and a system to get those without jobs back to work.
The need for a compulsory unemployment insurance program in the U.S. became apparent during the depression of the 1930s. Before that time, only a few companies had adopted voluntary unemployment insurance plans and even fewer had capital funds strong enough to withstand the strain of prolonged unemployment.
The first state to set up an unemployment insurance system was Wisconsin in 1932.
The basis for nationwide unemployment insurance was the Social Security Act of 1935, which established a federal state cooperative program designed to provide insured workers with partial replacement of wages lost by involuntary unemployment. The program was financed by taxes levied on business payrolls.
Under the Social Security Act, the federal share of payroll taxes covers the cost of administering the unemployment insurance and employment service programs. The state share may be used only for benefit costs. Each state sets its own rules and has charge of program administration. State laws vary with regard to eligibility for benefits and amount of benefits.
Initially, eligible workers could draw benefits for a maximum of 20 weeks. Since 1970, benefits have been extended for up to 39 weeks. In 1976, coverage was amended to make laid off workers in all industries eligible for benefits if they met the state's requirements.
Nineteen European countries had compulsory unemployment insurance programs before the U.S. program started. The first was established in Great Britain in 1911 and it expanded quickly to cover most low wage, nonfarm workers.
Today most nations have some form of compulsory unemployment insurance. These programs differ from that in the U.S. in important ways. Potential duration is longer in many developed countries. As an example, no limit is set in Belgium while the limit in Denmark is 30 months. Other nations provide benefits for a shorter period.
Evidence from studies in the U.S., Canada, Great Britain, West Germany and elsewhere indicate that higher benefits encourage some workers to stay unemployed longer. Thus, some small part of total unemployment is probably induced by unemployment insurance. Taxing benefits is one proposes solution to this problem.
With the higher unemployment rates in Western nations since 1973, the protection offered by unemployment insurance has increased in importance.
In the future as in the past, interest is a country's unemployment insurance program will be directly related to the degree of the unemployment problem.