The Unemployment Insurance System

April 1, 2013

In a new series of blog posts, CBO will be highlighting past work and publications relevant to the interests of the current Congress, including new Members and staff.

Recently, I spoke at the Winter Policy Forum of the National Association of State Workforce Agencies. My presentation—which can be viewed below—focused on CBO’s report, Unemployment Insurance in the Wake of the Recent Recession, which was released last November. The unemployment insurance (UI) system is a partnership between the federal government and state governments that provides temporary weekly benefits to qualified workers who lose their job and are seeking work. The presentation provided information on several aspects of the UI system, including:

  • Changes during recent years in the number of recipients of UI benefits: First-time payments rose from an average of about 8 million per year from 2004 through 2007 to over 14 million in 2009.
  • Federal spending on unemployment insurance: Annual outlays increased from an average of $33 billion from 2004 through 2007 to $119 billion in 2009 and $155 billion in 2010; they dropped to $93 billion in 2012 and we expect them to decline further over the next few years.
  • The effects of the UI system on households’ consumption, job searches, decisions about accepting new employment, and the economy: In CBO’s assessment, the increase in UI outlays during the past several years has raised consumer spending, output, and employment relative to what they otherwise would have been.
  • Options that the Congress considered for extending UI benefits, and
  • Alternative long-run policy approaches, including restructuring benefits to encourage employment, changing the roles of the federal government and state governments, and changing the way resources are allocated within the UI system.

With the enactment of the American Taxpayer Relief Act of 2012 in January, lawmakers extended unemployment benefits—as they existed at the end of 2012—through 2013. In particular, that law extended emergency unemployment compensation for a year, allowing certain people who have been unemployed for a long time to receive benefits through December 2013. That extension will cost the federal government about $30 billion, CBO estimates. In addition, CBO estimates that gross domestic product adjusted for inflation will be 0.2 percent higher in the fourth quarter of 2013 and that full-time-equivalent employment will be 0.3 million higher at that time than if the expanded unemployment insurance benefits had expired at the end of 2012.

William Carrington is an analyst in CBO’s Microeconomic Studies Division.