DEFINITION of 'Unemployment Compensation'

Funds paid by the state to unemployed workers who have lost their jobs due to layoffs or retrenchment. Unemployment compensation is meant to provide a source of income for jobless workers until they can find employment. In order to be eligible for it, certain criteria must be satisfied by an unemployed worker, such as having worked for a minimum stipulated period and actively looking for employment. Unemployment compensation provides partial income replacement only for a defined length of time or until the worker finds employment, whichever comes first.


Also known as unemployment insurance or unemployment benefits.

BREAKING DOWN 'Unemployment Compensation'

Unemployment compensation is paid by many developed nations and some developing economies. In the United States, unemployment compensation was ushered in by the Social Security Act of 1935, when the economy was struggling through the Depression. The U.S. unemployment compensation system is jointly managed by the federal and state governments and financed through payroll taxes on employers in most states. In Canada, the system is called Employment Insurance and is funded by premiums paid by both employers and employees.

RELATED TERMS
  1. Unemployment

    Unemployment occurs when a person who is actively searching for ...
  2. Unemployment Claim

    A request made by an individual to the state government to receive ...
  3. Structural Unemployment

    A longer-lasting form of unemployment caused by fundamental shifts ...
  4. Concealed Unemployment

    When people who are out of work are not counted in official unemployment ...
  5. Natural Unemployment

    The lowest rate of unemployment that an economy can sustain over ...
  6. Workers' Compensation

    Workers' compensation is a publicly-sponsored system that pays ...
Related Articles
  1. Insights

    The Cost of Unemployment to the Economy

    Unemployment carries many costs, both obvious and hidden, for an economy.
  2. Personal Finance

    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 ...
  3. Personal Finance

    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.
  4. Financial Advisor

    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.
  5. Personal Finance

    Jobs with the Lowest Unemployment Rates

    These jobs have low unemployment rates and high demand – both now and likely in the future.
  6. Insights

    The Downside of Low Unemployment

    Yes, the unemployment rate can be too low.
  7. Investing

    Did Your State Cut Unemployment Benefits?

    Many of the states now cutting back on unemployment benefits significantly under-funded their coffers prior to the Great Recession.
  8. Personal Finance

    How Unemployment Stats Affect Employed People

    Unemployment is still hovering close to 10%, but what does it all mean to you? Find out how unemployment statistics affect your employment.
  9. Insights

    Leading Economic Indicators: U.S. Bureau of Labor Monthly Stats

    The Bureau of Labor Statistics' monthly employment figures are a key economic indicator. Here's how they work.
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. 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 >>
  3. 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 >>
  4. 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 >>
  5. What's the difference between cyclical unemployment and seasonal unemployment?

    Learn about the key differences between cyclical and seasonal unemployment. Read about distinguishing features of each of ... Read Answer >>
  6. What are the key points when getting ready to file for unemployment aid?

    Before filing for unemployment aid, you must be unemployed, have worked in the past, lost the job through no your fault of ... Read Answer >>
Hot Definitions
  1. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  2. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  5. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  6. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
Trading Center