Unemployment Insurance

DEFINITION of 'Unemployment Insurance'

Unemployment insurance is a small source of income for workers who have lost their jobs through no fault of their own. Workers who quit or who are self-employed are generally not eligible for unemployment insurance and must provide their own rainy-day funds to cover situations where no work is available. Unemployment insurance, for those who are eligible, is paid to workers by state governments from a fund of unemployment taxes collected from employers.

BREAKING DOWN 'Unemployment Insurance'

Unemployment insurance provides cash stipends to unemployed workers who are actively seeking employment. The unemployment initiative is a joint program between individual state governments and the federal government. Each state has its own unemployment insurance program, but all states must follow specific guidelines outlined by federal law, making unemployment benefits fairly ubiquitous across state lines. The U.S. Department of Labor oversees the program and ensures compliance within each state.

The unemployment insurance program offers up to 26 weeks of cash benefits a year for workers who meet specific eligibility requirements. The weekly cash stipend is meant to replace half of an employee's normal wage, on average. States pay for the weekly unemployment insurance using taxes levied on employers. Three states, however, also require minimal employee contributions to the state unemployment fund.

Those who do not find employment after the 26-week period may become eligible for an extended benefits program. This program gives unemployed workers an additional 13 to 20 weeks of unemployment insurance but only if the state's overall unemployment situation has deteriorated dramatically.

Eligibility and Claim Requirements for Unemployment Insurance

A person who becomes unemployed must meet two requirements to be considered for unemployment insurance. An unemployed individual has to meet state-mandated thresholds for either wages earned or time worked in a stated base period. The state must also determine that he is unemployed through no fault of his own. A person can file unemployment insurance claims If these two requirements are fulfilled.

An individual files his claim in the state in which he worked and subsequently lost his job. He can file his claim by phone or over the Internet at a state's unemployment insurance agency. It takes two to three weeks for processing and approval of a claim. After a person is approved, he must either file weekly or bi-weekly claims that test his employment situation and whether or not he remains eligible for payment. An unemployed worker cannot refuse work during a week, and on each weekly or bi-weekly claim, he must report any income made, even freelance work. Failure to do so can result in ineligibility.

RELATED TERMS
  1. Continuing Claims

    Continuing claims refers to unemployed workers that qualify for ...
  2. Unemployment Compensation

    Funds paid by the state to unemployed workers who have lost their ...
  3. Unemployment Claim

    A request made by an individual to the state government to receive ...
  4. Unemployment Rate

    The percentage of the total labor force that is unemployed but ...
  5. Unemployment

    Unemployment occurs when a person who is actively searching for ...
  6. Federal-State Unemployment Compensation ...

    A social safety net that provides temporary financial assistance ...
Related Articles
  1. Markets

    What "Unemployment" Really Means

    Unemployment occurs when a person who is actively searching for employment is unable to find work. The most frequently cited measure of unemployment is the unemployment rate. This is the number ...
  2. Markets

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  3. Markets

    Understanding the Unemployment Rate

    The unemployment rate is the percentage of people in the labor force who are unemployed but seeking a job.
  4. Markets

    Macroeconomics: Unemployment

    By Stephen Simpson Labor is a driving force in every economy – wages paid for labor fuel consumer spending, and the output of labor is essential for companies. Likewise, unemployed workers ...
  5. Markets

    How The Unemployment Rate Affects Everybody

    Depending on how it's measured, the unemployment rate is open to interpretation. Learn how to find the real rate.
  6. Markets

    What Qualifies as Full Employment?

    Full employment is an economic term describing a situation where all available labor resources are being utilized to their highest extent.
  7. Managing Wealth

    No Paycheck Doesn't Necessarily Mean No Income

    If you lose your job, be sure to apply for unemployment benefits. It's not welfare, but an insurance program that you and your employer have already paid into.
  8. Markets

    Where Unemployment Hits Hardest

    A look at the demographics of unemployment, and what that means for workers around the nation.
  9. Markets

    How Labor Force Participation Rate Affects U.S. Unemployment

    While a falling unemployment rate sounds like a good thing, it can actually be indicative of people leaving the labor force because they can't find a job.
  10. Markets

    Understanding Frictional Unemployment

    Frictional unemployment is one aspect of natural unemployment, which is unemployment caused by things other than an underperforming economy.
RELATED FAQS
  1. Is there a natural rate of cyclical unemployment?

    Learn more about cyclical unemployment and find out about the relationship of cyclical unemployment to the natural unemployment ... Read Answer >>
  2. Unemployment resulting from changes in the basic composition of the economy ... ...

    The correct answer is a. An example of structural unemployment is the technological revolution. Computers might have eliminated ... Read Answer >>
  3. What is the difference between structural unemployment and cyclical unemployment?

    Learn more about unemployment in an economy, what structural and cyclical unemployment are, and the differences between these ... Read Answer >>
  4. Do rising unemployment rates tend to increase or decrease investor sentiment and ...

    Discover whether rising unemployment rates tend to increase or decrease consumer confidence and investor sentiment. Unemployment ... Read Answer >>
  5. When does cyclical unemployment become structural unemployment?

    Learn about the conditions under which cyclical unemployment becomes structural unemployment. Find out more about the relationship ... Read Answer >>
  6. What is the difference between frictional unemployment and structural unemployment?

    Learn about structural unemployment and frictional unemployment, the differences between the two types and their main characteristics. Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center