[Background Material and Data on Programs within the Jurisdiction of the Committee on Ways and Means (Green Book)]
[Program Descriptions]
[Section 4. Unemployment Compensation]
[From the U.S. Government Printing Office, www.gpo.gov]


[1998 Green Book] SECTION 4. UNEMPLOYMENT COMPENSATION

                                CONTENTS

Overview
Benefits
  Coverage
  Number of Covered Workers
  Eligibility
  Amount and Duration of Weekly Benefits
Extended Benefits
Benefit Exhaustion
Supplemental Benefits
Hypothetical Weekly Benefit Amounts for Various Workers in the 
        Regular State Programs
The Unemployment Trust Fund
  Financial Condition of the Unemployment Trust Fund
  The Federal Unemployment Tax
  State Unemployment Taxes
Administrative Financing and Allocation
Legislative History
References

                                OVERVIEW

     The Social Security Act of 1935 (Public Law 74-271) 
created the Federal-State Unemployment Compensation (UC) 
Program. The program has two main objectives: (1) to provide 
temporary and partial wage replacement to involuntarily 
unemployed workers who were recently employed; and (2) to help 
stabilize the economy during recessions. The U.S. Department of 
Labor oversees the system, but each State administers its own 
program. Because Federal law defines the District of Columbia, 
Puerto Rico, and the Virgin Islands as States for the purposes 
of UC, there are 53 State programs.
     The Federal Unemployment Tax Act of 1939 (Public Law 76- 
379) and titles III, IX, and XII of the Social Security Act 
form the framework of the system. The Federal Unemployment Tax 
Act (FUTA) imposes a 6.2 percent gross tax rate on the first 
$7,000 paid annually by covered employers to each employee. 
Employers in States with programs approved by the Federal 
Government and with no delinquent Federal loans may credit 5.4 
percentage points against the 6.2 percent tax rate, making the 
minimum net Federal unemployment tax rate 0.8 percent. Since 
all States have approved programs, 0.8 percent is the effective 
Federal tax rate. This Federal revenue finances administration 
of the system, half of the Federal-State Extended Benefits 
Program, and a Federal account for State loans. The individual 
States finance their own programs, as well as their half of the 
Federal-State Extended Benefits Program.
    In 1976, Congress passed a surtax of 0.2 percent of taxable 
wages to be added to the permanent FUTA tax rate (Public Law 
94-566). Thus, the current effective 0.8 percent FUTA tax rate 
has two components: a permanent tax rate of 0.6 percent, and a 
surtax rate of 0.2 percent. The surtax has been extended five 
times, most recently by the Taxpayer Relief Act of 1997 (Public 
Law 105-34) through December 31, 2007.
    FUTA generally determines covered employment. FUTA also 
imposes certain requirements on the State programs, but the 
States generally determine individual qualification 
requirements, disqualification provisions, eligibility, weekly 
benefit amounts, potential weeks of benefits, and the State tax 
structure used to finance all of the regular State benefits and 
half of the extended benefits.
     The Social Security Act provides for the administrative 
framework: title III authorizes Federal grants to the States 
for administration of the State UC laws; title IX authorizes 
the various components of the Federal unemployment trust fund; 
title XII authorizes advances or loans to insolvent State UC 
Programs.
    Table 4-1 provides a statistical overview of the UC 
Program.

                                BENEFITS

                                Coverage

     In order to qualify for benefits, an unemployed person 
usually must have worked recently for a covered employer for a 
specified period of time and earned a certain amount of wages. 
About 118 million individuals were covered by all UC Programs 
in 1995, representing 97 percent of all wage and salary workers 
and 89 percent of the civilian labor force.
    FUTA covers certain employers that State laws also must 
cover for employers in the States to qualify for the 5.4 
percent Federal credit. Since employers in the States would 
lose this credit and their employees would not be covered if 
the States did not have this coverage, all States cover the 
required groups: (1) except for nonprofit organizations, State-
local governments, certain agricultural labor, and certain 
domestic service, FUTA covers employers who paid wages of at 
least $1,500 during any calendar quarter or who employed at 
least one worker in at least 1 day of each of 20 weeks in the 
current or prior year; (2) FUTA covers agricultural labor for 
employers who paid cash wages of at least $20,000 for 
agricultural labor in any calendar quarter or who employed 10 
or more workers in at least 1 day in each of 20 different weeks 
in the current or prior year; and (3) FUTA covers domestic 
service employers who paid cash wages of $1,000 or more for 
domestic service during any calendar quarter in the current or 
prior year.

                                                            TABLE 4-1.--UNEMPLOYMENT COMPENSATION PROGRAM DATA, FISCAL YEARS 1987-98                                                            
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Fiscal years                                                          
                                                               ---------------------------------------------------------------------------------------------------------------------------------
                           Statistic                                                                                                                                    1997           1998     
                                                                  1987      1988      1989      1990      1991      1992      1993      1994      1995      1996    (estimated)  (projected) \1\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total civilian unemployment rate (percent)....................       6.4       5.6       5.3       5.4       6.5       7.3       7.0       6.3       5.6       5.5         5.3            5.5   
Insured unemployment rate (percent) \2\.......................       2.5       2.2       2.1       2.3       3.1       3.1       2.7       2.6       2.3       2.3         2.3            2.3   
Coverage (millions)...........................................      98.0     101.2     104.3     106.1     105.1     104.9     106.6     109.7     112.9     114.9       116.6          117.7   
Average weekly benefit amount:                                                                                                                                                                  
     Current dollars..........................................       134       140       145       154       163       167       172       175       179       182         187            195   
     In 1997 dollars \3\......................................       191       192       189       192       193       192       192       190       189       187         187            189   
State unemployment compensation:                                                                                                                                                                
     Beneficiaries (millions).................................       7.5       6.8       7.0       8.1      10.2       9.6       7.8       8.2       7.9       8.1         8.2            8.6   
     Regular benefit exhaustions (millions)...................       2.5       1.9       1.9       2.2       3.2       3.9       3.3       3.1       2.7       2.7         2.6            2.6   
     Regular benefits paid (billions of dollars)..............      15.0      13.2      13.5      16.8      24.4      25.6      21.9      21.7      20.9      22.0        22.4           24.2   
     Extended benefits (State share: billions of dollars).....      0.04      0.04     (\6\)      0.03      0.01      0.02      0.00      0.15      0.04      0.01        0.02           0.03   
     State tax collections (billions of dollars)..............      19.1      18.3      17.3      16.0      15.3      17.6      21.0      22.5      23.2      22.7        23.5           24.5   
     State trust fund impact (income-outlays: billions of                                                                                                                                       
     dollars) \4\.............................................     +4.11     +5.12     +3.80     -0.88     -9.13     -8.03     -0.93     +0.66     +2.24     +0.75       +1.15          +0.29   
Federal unemployment compensation accounts:                                                                                                                                                     
     Federal tax collections (billions of dollars) \5\........      5.08      5.50      4.45      5.36      5.33      5.41  \7\ 4.23      5.46      5.70      5.85        5.92           5.98   
     Outlays: Federal EB share plus Federal supplemental                                                                                                                                        
     benefits (billions of dollars)...........................      0.04      0.04     (\6\)      0.03      0.01     11.15     13.17      4.37      0.05  \8\ -0.0                              
                                                                                                                                                                 1        0.02           0.03   
State administrative costs (billions of dollars):                                                                                                                                               
     Unemployment Insurance Service...........................      1.56      1.61      1.71      1.74      1.95      2.49      2.52      2.43      2.38      2.31        2.34           2.55   
     Employment Service.......................................      0.90      0.95      1.00      1.01      1.05      1.02      0.90      0.90      1.05      1.06        1.02           1.01   
                                                               ---------------------------------------------------------------------------------------------------------------------------------
         Total administrative costs...........................      2.46      2.56      2.71      2.75      3.00      3.51      3.42      3.33      3.43      3.36        3.36           3.56   
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\1\ Based on the President's fiscal year 1998 budget.                                                                                                                                           
\2\ The average number of workers claiming State unemployment compensation benefits as a percent of all workers covered.                                                                        
\3\ Adjusted using CPI-U.                                                                                                                                                                       
\4\ Excludes interest earned.                                                                                                                                                                   
\5\ Net of reduced credits.                                                                                                                                                                     
\6\ Less than $5 million.                                                                                                                                                                       
\7\ Reflects a book adjustment of minus $967 million.                                                                                                                                           
\8\ Reflects reclaimed benefits in excess of benefits paid.                                                                                                                                     
                                                                                                                                                                                                
Source: U.S. Department of Labor. (1997d, February). UI Outlook: Fiscal Year 1998 President's Budget. Washington, DC.                                                                           


     FUTA requires coverage of nonprofit organization employers 
of at least four workers for 1 day in each of 20 different 
weeks in the current or prior year and State-local governments 
without regard to the number of employees. Nonprofit and State-
local government organizations are not required to pay Federal 
unemployment taxes; they may choose instead to reimburse the 
system for benefits paid to their laid-off employees.
     States may cover certain employment not covered by FUTA, 
but most States have chosen not to expand FUTA coverage 
significantly. The following employment is therefore generally 
not covered: (1) self-employment; (2) certain agricultural 
labor and domestic service; (3) service for relatives; (4) 
service of patients in hospitals; (5) certain student interns; 
(6) certain alien farmworkers; (7) certain seasonal camp 
workers; and (8) railroad workers (who have their own 
unemployment program).

                        Number of Covered Workers

     Although the UC system covers 97 percent of all wage and 
salary workers, table 4-2 shows that on average only 36 percent 
of unemployed persons were receiving UC benefits in 1996. This 
compares with a peak of 81 percent of the unemployed receiving 
UC benefits in April 1975 and a low point of 26 percent in June 
1968 and in October 1987. Despite high unemployment during the 
early 1980s, there was a downward trend in the proportion of 
unemployed persons receiving regular State benefits until the 
mid-1980s. The proportion receiving UC rose sharply in December 
1991 due to the temporary Emergency Unemployment Compensation 
(EUC) Program.
    In May 1988, Mathematica Policy Research, Inc. (MPR), under 
contract to the U.S. Department of Labor, released a study on 
the decline in the proportion of the unemployed receiving 
benefits during the 1980s. This analysis did not find a single 
predominant cause for the decline but instead found statistical 
evidence that several factors contributed to the decline (the 
figures in parentheses show the share of the decline attributed 
to each factor):
 1. The decline in the proportion of the unemployed from 
        manufacturing industries (4-18 percent);
 2. Geographic shifts in composition of the unemployed among 
        regions of the country (16 percent);
 3. Changes in State program characteristics (22-39 percent):
    --Increase in the base period earnings requirements (8-15 
            percent);
    --Increase in income denials for UC receipt (10 percent); 
            and
    --Tightening up other nonmonetary eligibility requirements 
            (3-11 percent);
 4. Changes in Federal policy such as partial taxation of UC 
        benefits (11-16 percent); and
 5. Changes in unemployment as measured by the Current 
        Population Survey (CPS) (1-12 percent).

                                 TABLE 4-2.--INSURED UNEMPLOYMENT AS A PERCENT OF TOTAL UNEMPLOYMENT, BY MONTH, 1967-96                                 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      Year                         Jan.    Feb.    Mar.    Apr.     May    June    July    Aug.    Sept.   Oct.    Nov.    Dec.    Avg. 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1967............................................      52      52      54      54      50      30      39      41      33      33      35      47      43
1968............................................      57      50      52      50      45      26      34      38      33      34      38      48      42
1969............................................      54      54      52      48      43      27      35      36      31      33      40      51      41
1970............................................      57      54      52      53      53      36      42      45      42      44      48      53      48
1971............................................      58      58      61      59      56      42      45      48      44      46      47      55      52
1972............................................      56      58      56      52      49      36      41      38      33      34      38      47      45
1973............................................      51      46      46      44      43      31      36      37      34      38      38      48      41
1974............................................      53      54      57      60      54      40      43      44      39      42      48      60      50
1975............................................      66      73      77      81      79      72      77      79      73      74      76      80      75
1976............................................      78      75      76      73      72      58      66      66      60      59      60      63      67
1977............................................      67      66      66      66      59      45      52      49      47      48      49      57      56
1978............................................      54      54      50      47      44      36      39      42      35      37      34      43      43
1979............................................      48      48      47      47      42      33      39      38      36      38      40      49      42
1980............................................      51      51      53      52      49      45      49      49      54      49      49      54      50
1981............................................      54      50      49      46      40      35      37      37      36      34      37      41      41
1982............................................      47      44      48      49      45      40      42      42      43      48      49      47      45
1983............................................      50      52      50      53      52      40      39      36      34      33      39      41      44
1984............................................      40      38      38      36      34      30      31      30      30      31      31      38      34
1985............................................      40      41      41      39      32      28      30      30      28      27      32      37      34
1986............................................      38      36      37      35      32      29      32      32      29      30      32      37      33
1987............................................      37      37      38      35      31      28      30      29      28      26      29      34      32
1988............................................      37      37      37      35      31      28      30      29      27      27      30      34      32
1989............................................      35      35      40      37      30      29      33      33      29      31      29      38      33
1990............................................      40      42      44      41      37      33      36      34      32      34      34      40      37
1991............................................      47      46      48      49      41      37      39      37      35      34      38      51      42
1992............................................      56      54      59      59      54      46      48      48      49      50      50      51      52
1993............................................      50      48      51      52      48      43      47      48      47      44      46      49      48
1994............................................      43      48      43      38      36      31      33      33      30      32      34      39      37
1995............................................      39      41      40      37      35      32      35      34      32      34      31      40      36
1996............................................      41      43      42      40      34      33      34      34      32      31      33      39      36
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Division of Actuarial Services.                                                                                       


     The group of unemployed most likely to be insured are job 
losers. Chart 4-1 shows the number of unemployment compensation 
claimants measured as a percentage of the number of job losers. 
This coverage ratio remained fairly stable from 1968 through 
1979. Over that 12-year span, there were from 90 to 110 
recipients of regular State UC for every 100 job losers. This 
ratio fluctuated somewhat over the business cycle, but it was 
otherwise quite stable.

    CHART 4-1. RATIO OF INSURED UNEMPLOYMENT TO JOB LOSERS (YEARLY 
                           AVERAGES), 1968-96





    Note._Insured unemployment data include the Virgin Islands 
and Puerto Rico, but the data for job losers do not include 
these territories.

    Source: Chart prepared by the Congressional Research 
Service based on data from Economic Report of the President, 
various years.
     Beginning in 1980, the ratio of UC recipients to job 
losers fell sharply, reaching an all-time low in 1983 when 
there were fewer than 60 regular UC recipients for every 100 
job losers. After 1983, the coverage ratio increased somewhat, 
so that there were about 75 regular UC claimants for every 100 
job losers in 1990. However, the ratio declined again with the 
1990-91 recession. It has since returned to the prerecession 
level.

                              Eligibility

     States have developed diverse and complex methods for 
determining UC eligibility. In general there are three major 
factors used by States: (1) the amount of recent employment and 
earnings; (2) demonstrated ability and willingness to seek and 
accept suitable employment; and (3) certain disqualifications 
related to a claimant's most recent job separation or job offer 
refusal.
Monetary qualifications
    Table 4-3 shows the State monetary qualification 
requirements in the base year for the minimum and maximum 
weekly benefit amounts, and for the maximum total potential 
benefits. The base year is a recent 1-year period that most 
States (48) define as the first 4 of the last 5 completed 
calendar quarters before the unemployed person claims benefits. 
Most States require employment in at least 2 calendar quarters 
of the base year. Qualifying annual wages for the minimum 
weekly benefit amount vary from $130 in Hawaii to $3,400 in 
Florida. For the maximum weekly benefit amount, the range is 
$5,450 in Nebraska to $29,432 in Colorado. The range of 
qualifying wages for the maximum total potential benefit, which 
is the product of the maximum weekly benefit amount and the 
maximum potential weeks of benefits, is from $6,080 in Puerto 
Rico to $32,850 in Washington.

TABLE 4-3.--MONETARY QUALIFICATION REQUIREMENTS FOR MINIMUM AND MAXIMUM WEEKLY BENEFIT AMOUNTS AND MAXIMUM TOTAL
                                          POTENTIAL BENEFITS, 1997 \1\                                          
----------------------------------------------------------------------------------------------------------------
                                                           Required total earnings in base year                 
                                                         ----------------------------------------  Minimum work 
                          State                           For minimum  For maximum   For maximum   in base year 
                                                             weekly       weekly      potential   (quarters) \3\
                                                            benefit      benefit    benefits \2\                
----------------------------------------------------------------------------------------------------------------
 Alabama................................................       $1,032       $8,616       $14,039             2Q 
Alaska..................................................        1,000       26,750        26,750             2Q 
Arizona.................................................        1,500        6,919        14,429             2Q 
Arkansas................................................        1,323       14,196        21,294             2Q 
California..............................................        1,125        9,542        11,958                
Colorado................................................        1,000       29,432        29,432                
Connecticut.............................................          600       14,120        14,120             2Q 
Delaware................................................          966       13,800        13,800                
District of Columbia....................................        1,950       14,001        18,668             2Q 
Florida.................................................        3,400        9,750        25,998             2Q 
Georgia.................................................        1,350       10,750        22,358             2Q 
Hawaii..................................................          130        9,126         9,126             2Q 
Idaho...................................................        1,430        8,417        21,885             2Q 
Illinois................................................        1,600       13,481        13,481             2Q 
Indiana.................................................        2,750        6,468        20,150             2Q 
Iowa....................................................        1,173        6,641        18,018             2Q 
Kansas..................................................        1,950        8,100        21,060             2Q 
Kentucky................................................        1,500       20,717        20,717             2Q 
Louisiana...............................................        1,200        7,237        18,583             2Q 
Maine...................................................        3,042       16,614        16,614             2Q 
Maryland................................................          900        9,000         9,000             2Q 
Massachusetts...........................................        2,000       10,860        30,167                
Michigan................................................        2,020       12,060        21,105             2Q 
Minnesota...............................................        1,250       10,205        24,492             2Q 
Mississippi.............................................        1,200        7,200        14,040             2Q 
Missouri................................................        1,500        5,833        13,650             2Q 
Montana.................................................        1,356       23,000        23,000             2Q 
Nebraska................................................        1,200        5,450        14,352             2Q 
Nevada..................................................          600        9,262        19,266             2Q 
New Hampshire...........................................        2,800       27,500        27,500             2Q 
New Jersey..............................................        2,020       12,467        21,817             2Q 
New Mexico..............................................        1,421        7,085         9,447             2Q 
New York................................................        1,600       11,980        11,980             2Q 
North Carolina..........................................        2,603       12,090        24,180             2Q 
North Dakota............................................        2,795       16,315        20,883             2Q 
Ohio....................................................        2,640       10,280        13,364             2Q 
Oklahoma................................................        1,500        9,412        16,315             2Q 
Oregon..................................................        1,000       25,120        25,120             2Q 
Pennsylvania............................................        1,320       14,400        14,400             2Q 
Puerto Rico.............................................          280        6,080         6,080             2Q 
Rhode Island............................................        1,780       10,909        24,267             2Q 
South Carolina..........................................          900        8,619        17,238             2Q 
South Dakota............................................        1,288        8,602        14,586             2Q 
Tennessee...............................................        1,560       11,440        22,880             2Q 
Texas...................................................        1,628        9,842        26,611             2Q 
Utah....................................................        1,800       10,608        26,000             2Q 
Vermont.................................................        1,723        9,765         9,765                
Virginia................................................        3,250       11,200        22,400             2Q 
Virgin Islands..........................................        1,287        9,009        18,018             2Q 
Washington..............................................        1,950        9,125        32,850                
West Virginia...........................................        2,200       28,000        28,000             2Q 
Wisconsin...............................................        1,590        8,460        18,330             2Q 
Wyoming.................................................        1,750        7,375        19,666             2Q 
----------------------------------------------------------------------------------------------------------------
\1\ Based on benefits for total unemployment. Amounts payable can be stretched out over a longer period in the  
  case of partial unemployment.                                                                                 
\2\ Based on maximum weekly benefit amount paid for maximum number of weeks. Total potential benefits equal a   
  worker's weekly benefit amount times this potential duration.                                                 
\3\ Number of quarters of work in base year required to qualify for minimum benefits. ``2Q'' denotes that State 
  directly or indirectly requires work in at least 2 quarters of the base year. States without an entry have the
  minimum work requirement specified as a wage amount.                                                          
                                                                                                                
Source: U.S. Department of Labor.                                                                               


     A Federal court in Pennington v. Doherty overturned the 
base year definition in use by most States. The court agreed 
with the plaintiff's contention that Illinois could have used 
an alternative base period (the last 4 completed quarters) and 
that this alternative would better carry out Federal law, which 
requires States to use administrative methods that ensure full 
payment of UC ``when due.'' This alternative method would 
impose greater costs on the States affected. The Balanced 
Budget Act of 1997 (Public Law 105-33) revised the Federal law 
that was central to the court's decision so that States have 
full authority to set base periods for determining eligibility.
     From 1996 to 1997, 11 States increased the required 
earnings in the base year to qualify for the minimum weekly 
benefit amount, and 1 State decreased it. Forty States 
increased and one decreased the qualification requirement for 
the maximum weekly benefit amount. Thirty-nine States increased 
(and two decreased) their qualification requirements for 
maximum potential benefits.
Ability to work and availability for work
    All State laws provide that a claimant must be both able to 
work and available for work. A claimant must meet these 
conditions continually to receive benefits.
     Only minor variations exist in State laws setting forth 
the requirements concerning ``ability to work.'' A few States 
specify that a claimant must be mentally and physically able to 
work.
    ``Available for work'' is translated to mean being ready, 
willing, and able to work. In addition to registration for work 
at a local employment office, most State laws require that a 
claimant seek work actively or make a reasonable effort to 
obtain work. Generally, a person may not refuse an offer of, or 
referral to, ``suitable work'' without good cause.
    Most State laws list certain criteria by which the 
``suitability'' of a work offer is to be tested. The usual 
criteria include the degree of risk to a claimant's health, 
safety, and morals; the physical fitness and prior training, 
experience, and earnings of the person; the length of 
unemployment and prospects for securing local work in a 
customary occupation; and the distance of the available work 
from the claimant's residence. Generally, as the length of 
unemployment increases, the claimant is required to accept a 
wider range of jobs.
    In addition, Federal law requires States to deny benefits 
provided under the Extended Benefit (see below) Program to any 
individual who fails to accept any work that is offered in 
writing or is listed with the State employment service, or who 
fails to apply for any work to which he is referred by the 
State agency, if the work: (1) is within the person's 
capabilities; (2) pays wages equal to the highest of the 
Federal or any State or local minimum wage; (3) pays a gross 
weekly wage that exceeds the person's average weekly 
unemployment compensation benefits plus any supplemental 
unemployment compensation (usually private) payable to the 
individual; and (4) is consistent with the State definition of 
``suitable'' work in other respects. Public Law 102-318 
suspended these provisions from March 7, 1993, until January 1, 
1995.
     States must refer extended benefits claimants to any job 
meeting these requirements. If the State, based on information 
provided by the individual, determines that the individual's 
prospects for obtaining work in her customary occupation within 
a reasonably short period are good, the determination of 
whether any work is ``suitable work'' is made in accordance 
with State law rather than the criteria outlined above.
    There are certain circumstances under which Federal law 
provides that State and extended benefits may not be denied. A 
State may not deny benefits to an otherwise eligible individual 
for refusing to accept new work under any of the following 
conditions: (1) if the position offered is vacant directly due 
to a strike, lockout, or other labor dispute; (2) if the wages, 
hours, or other conditions of the work offered are 
substantially less favorable to the individual than those 
prevailing for similar work in the locality; or (3) if, as a 
condition of being employed, the individual would be required 
to join a union or to resign from or refrain from joining any 
bona fide labor organization. Benefits may not be denied solely 
on the grounds of pregnancy. The State is prohibited from 
canceling wage credits or totally denying benefits except in 
cases of misconduct, fraud, or receipt of disqualifying income.
    There are also certain conditions under which Federal law 
requires that benefits be denied. For example, benefits must be 
denied to professional and administrative employees of 
educational institutions during summer (and other vacation 
periods) if they have a reasonable assurance of reemployment; 
to professional athletes between sport seasons; and to aliens 
not permitted to work in the United States.
Disqualifications
     The major causes for disqualification from benefits are 
not being able to work or available for work, voluntary 
separation from work without good cause, discharge for 
misconduct connected with the work, refusal of suitable work 
without good cause, and unemployment resulting from a labor 
dispute. Disqualification for one of these reasons may result 
in a postponement of benefits for some prescribed period, a 
cancellation of benefit rights, or a reduction of benefits 
otherwise payable.
    Of the 17.3 million ``monetarily eligible'' initial UC 
claims in 1996, 23.7 percent were disqualified. This figure 
subdivides into 4.4 percent not being able to work or available 
for work, 6.3 percent voluntarily leaving a job without good 
cause, 4.1 percent being fired for misconduct on the job, 0.3 
percent refusing suitable work, and 8.7 percent committing 
other disqualifying acts. The total disqualification rate 
ranged from a low of 7.5 percent in Tennessee to a high of 
114.8 percent in Nebraska, with Colorado the next highest at 
68.7 percent. (Note that a claimant can be disqualified for any 
week claimed, so it is possible for a claimant to be 
disqualified more times than the total number of that 
claimant's initial claims in the benefit year.)
     Federal law requires that benefits provided under the 
Extended Benefits Program be denied to an individual for the 
entire spell of his unemployment if he was disqualified from 
receiving State benefits because of voluntarily leaving 
employment, discharge for misconduct, or refusal of suitable 
work. These benefits will be denied even if the 
disqualification were subsequently lifted with respect to the 
State benefits prior to reemployment. The person could receive 
extended benefits, however, if the disqualification were lifted 
because he became reemployed and met the work or wage 
requirement of State law. Public Law 102-318 suspended the 
restrictions on extended benefits under Federal law, however, 
from March 7, 1993, until January 1, 1995. The Advisory Council 
on Unemployment Compensation was required to study these 
provisions, and it recommended that the Federal rules be 
eliminated. However, Congress has taken no action on this 
recommendation.
Ex-service members
    The Emergency Unemployment Compensation Act of 1991 (Public 
Law 102-164) provided that ex-members of the military be 
treated the same as other unemployed workers with respect to 
the waiting period for benefits and benefit duration. Before 
this 1991 action, Congress had placed restrictions on benefits 
for ex-service members, so that the maximum number of weeks of 
benefits an ex-service member could receive based on employment 
in the military was 13 (as compared with 26 weeks under the 
regular UC Program for civilian workers). In addition to a 
number of restrictive eligibility requirements, ex-service 
members had to wait 4 weeks from the date of their separation 
from the service before they could receive benefits.
Pension offset
    The Unemployment Compensation Amendments of 1976 (Public 
Law 94-566) required all States to reduce an individual's UC by 
the amount of any government or private pension or retirement 
pay received by the individual.
     Public Law 96-364, enacted in 1980, modified this offset 
requirement. Under the modified provision, States are required 
to make the offset only in those cases in which the work-
related pension was maintained or contributed to by a ``base 
period'' or ``chargeable'' employer. Entitlement to and the 
amount and duration of unemployment benefits are based on work 
performed during this State-specified base period. A 
``chargeable'' employer is one whose account will be charged 
for UC received by the individual. However, the offset must be 
applied for Social Security benefits without regard to whether 
base period employment contributed to the Social Security 
entitlement.
    States are allowed to reduce the amount of these offsets by 
amounts consistent with any contributions the employee made 
toward the pension. This policy allows States to limit the 
offset to one-half of the amount of a Social Security benefit 
received by an individual who qualifies for unemployment 
benefits.
Taxation of unemployment insurance benefits
    The Tax Reform Act of 1986 (Public Law 99-514) made all UC 
taxable after December 31, 1986. The Revenue Act of 1978 first 
made a portion of UC benefits taxable beginning January 1, 
1979.
     Table 4-4 illustrates the projected effect of taxing all 
UC benefits for calendar year 1998. This table understates the 
impact of taxation because this analysis uses data collected 
from a sample of households for the Current Population Survey 
(CPS), which is known to have a problem with respondents 
underestimating their annual income from various sources. In 
particular, total UC benefits reported in the CPS are equal to 
about two-thirds of benefits actually paid out. Because of this 
underreporting of UC benefits in the CPS and, consequently, 
underestimates of benefits paid in 1998, taxes collected on 
benefits probably will be about twice as high as the $4.0 
billion shown in table 4-4.

  TABLE 4-4.--PROJECTED EFFECT OF TAXING UNEMPLOYMENT COMPENSATION BENEFITS BY INCOME LEVEL, CALENDAR YEAR 1998 
----------------------------------------------------------------------------------------------------------------
                                                  In thousands                       In millions                
                                           -------------------------          -------------------------         
                                                            Number    Percent                           Taxes as
                                              Number of    affected  affected  Total amount    Total        a   
 Level of individual or couple income \1\    recipients       by        by          of       amount of   percent
                                                 of        taxation  taxation  unemployment   taxes on  of total
                                            unemployment      of               compensation   benefits  benefits
                                            compensation   benefits              benefits                       
----------------------------------------------------------------------------------------------------------------
Less than $10,000.........................        1,118         477      42.7       $2,090        $117       5.6
$10,000-$15,000...........................          820         648      79.0        2,071         202       9.8
$15,000-$20,000...........................          658         610      92.8        1,890         284      15.0
$20,000-$25,000...........................          649         636      98.0        1,926         383      19.9
$25,000-$30,000...........................          552         540      97.7        1,389         294      21.1
$30,000-$40,000...........................          955         948      99.3        3,141         560      17.8
$40,000-$50,000...........................          697         695      99.8        2,277         392      17.2
$50,000-$100,000..........................        1,417       1,415      99.9        4,867       1,058      21.7
At least $100,000.........................          250         250     100.0        2,447         751      30.7
                                           ---------------------------------------------------------------------
    All...................................        7,115       6,220      87.4       22,097       4,041      18.3
----------------------------------------------------------------------------------------------------------------
\1\ Cash income (based on income tax filing unit) plus capital gains realizations.                              
                                                                                                                
Source: Congressional Budget Office tax simulation model.                                                       


                 Amount and Duration of Weekly Benefits

     In general, the States set weekly benefit amounts as a 
fraction of the individual's average weekly wage up to some 
State-determined maximum. The total maximum duration available 
nationwide under permanent law is 39 weeks. The regular State 
programs usually provide up to 26 weeks. The permanent Federal-
State Extended Benefits Program provides up to 13 additional 
weeks in States where unemployment rates are relatively high. 
An additional 7 weeks is available under a new optional trigger 
enacted in 1992, but only 7 States have adopted this trigger as 
of July 31, 1997. The temporary Emergency Unemployment 
Compensation (EUC) Program, which operated from November 1991 
through April 1994, provided either 7 or 13 additional weeks of 
benefits during its final months of operation. A State offering 
this temporary program could not have offered the extended 
benefits simultaneously, however.
    The State-determined weekly benefit amounts generally 
replace between 50 and 70 percent of the individual's average 
weekly pretax wage up to some State-determined maximum. The 
average weekly wage is often calculated only from the calendar 
quarter in the base year in which the claimant's wages were 
highest. Individual wage replacement rates tend to vary 
inversely with the claimant's average weekly pretax wage, with 
high wage earners receiving lower wage replacement rates. Thus, 
the national average weekly benefit amount as a percent of the 
average weekly covered wage was only 35 percent in the quarter 
ending December 31, 1996.
     Table 4-5 shows the minimum and maximum weekly benefit 
amounts and potential duration for each State program. In 1996, 
the national average weekly benefit amount was $189 and the 
average duration was 14.9 weeks, making the average total 
benefits $2,820. The minimum weekly benefit amounts for 1997 
vary from $5 in Hawaii to $87 in Indiana. The maximum weekly 
benefit amounts range from $152 in Puerto Rico to $543 in 
Massachusetts.

TABLE 4-5.--AMOUNT AND DURATION OF WEEKLY BENEFITS FOR TOTAL UNEMPLOYMENT UNDER THE REGULAR STATE PROGRAMS, 1996
                                                    AND 1997                                                    
----------------------------------------------------------------------------------------------------------------
                                                           1996       1997 weekly       1996     1997 potential 
                                                         average  benefit amount \1\   average  duration (weeks)
                         State                            weekly -------------------- duration -----------------
                                                         benefit  Minimum   Maximum    (weeks)  Minimum  Maximum
----------------------------------------------------------------------------------------------------------------
Alabama................................................     $142      $22       $180       10        15       26
Alaska.................................................      172    44-68    248-320       15        16       26
Arizona................................................      151       40        185       14        12       26
Arkansas...............................................      170       49        273       12         9       26
California.............................................      152       40        230       17        14       26
Colorado...............................................      208       25        283       12        13       26
Connecticut............................................      222    15-25    353-403       16        26       26
Delaware...............................................      224       20        300       17        24       26
District of Columbia...................................      236       50        309       19        20       26
Florida................................................      178       32        250       14        26       26
Georgia................................................      166       37        215       10         9       26
Hawaii.................................................      270        5        351       18        26       26
Idaho..................................................      182       44        259       12        10       26
Illinois...............................................      213       51    257-341       17        26       26
Indiana................................................      187       87        217       11         8       26
Iowa...................................................      200    34-41    231-283       12        11       26
Kansas.................................................      202       67        270       14        10       26
Kentucky...............................................      171       22        246       12        15       26
Louisiana..............................................      128       10        193       15        26       26
Maine..................................................      171    36-54    210-315       14        26       26
Maryland...............................................      195    25-33        250       16        26       26
Massachusetts..........................................      254    14-21    362-543       16        10       30
Michigan...............................................      205       60        300       11        15       26
Minnesota..............................................      234       38        314       14        10       26
Mississippi............................................      141       30        180       14        13       26
Missouri...............................................      154       45        175       13        11       26
Montana................................................      165       57        230       14         8       26
Nebraska...............................................      161       20        184       12        20       26
Nevada.................................................      194       16        247       14        12       26
New Hampshire..........................................      153       32        228       10        26       26
New Jersey.............................................      255       60        374       17        15       26
New Mexico.............................................      157       43        218       16        19       26
New York...............................................      206       40        300       19        26       26
North Carolina.........................................      193       25        310       10        13       26
North Dakota...........................................      175       43        251       12        12       26
Ohio...................................................      202       66    257-345       14        20       26
Oklahoma...............................................      175       16        251       13        20       26
Oregon.................................................      191       73        314       15         4       26
Pennsylvania...........................................      219    35-40    362-370       17        16       26
Puerto Rico............................................       94        7        152       18        26       26
Rhode Island...........................................      228    41-51    336-420       16        15       26
South Carolina.........................................      165       20        221       11        15       26
South Dakota...........................................      150       28        187       11        15       26
Tennessee..............................................      155       30        220       12        12       26
Texas..................................................      189       44        266       16         9       26
Utah...................................................      198       17        272       11        10       26
Vermont................................................      168       31        217       14        26       26
Virginia...............................................      173       65        224       10        12       26
Virgin Islands.........................................      150       32        231       27        13       26
Washington.............................................      209       78        365       19        16       30
West Virginia..........................................      176       24        296       15        26       26
Wisconsin..............................................      202       53        282       12        12       26
Wyoming................................................      181       17        236       14        12       26
                                                        --------------------------------------------------------
     U.S. average......................................      189       NA         NA       15        NA       NA
----------------------------------------------------------------------------------------------------------------
\1\ A range of amounts is shown for those States that provide dependents' allowances.                           
                                                                                                                
NA--Not applicable.                                                                                             
                                                                                                                
Source: U.S. Department of Labor.                                                                               


     Most States vary the duration of benefits with the amount 
of earnings the claimant has in the base year. Twelve States 
provide the same duration for all claimants. The minimum 
durations range from 4 weeks in Oregon to 26 weeks in 12 
States. The maximum duration is 26 weeks in 51 States 
(including the District of Columbia, Puerto Rico, and the 
Virgin Islands). Two States have longer maximum durations. 
Massachusetts and Washington both provide up to 30 weeks.
     From 1996 to 1997, 13 States increased (and none 
decreased) their minimum weekly benefit amounts. Forty-one 
States raised their maximum weekly benefit amounts, while one 
State decreased them. No States lowered their minimum potential 
durations, but two States raised their minimum duration.

                            EXTENDED BENEFITS

     The Federal-State Extended Benefits Program available in 
every State provides one-half of a claimant's total State 
benefits up to 13 weeks in States with an activated program, 
for a combined maximum of 39 weeks of regular and extended 
benefits. Weekly benefit amounts are identical to the regular 
State UC benefits for each claimant, and Federal funds pay half 
the cost. The program activates in a State under one of two 
conditions: (1) if the State's 13-week average insured 
unemployment rate (IUR) in the most recent 13 weeks is at least 
5.0 percent and at least 120 percent of the average of its 13-
week IURs in the last 2 years for the same 13-week calendar 
period; or (2) at State option, if its current 13-week average 
IUR is at least 6.0 percent. All but 12 State programs have 
adopted the second, optional condition. The 13-week average IUR 
is calculated from the ratio of the average number of insured 
unemployed persons under the regular State programs in the last 
13 weeks to the average covered employment in the first 4 of 
the last 5 completed calendar quarters.
    In addition to the two automatic triggers, States have the 
option of electing an alternative trigger authorized by the 
Unemployment Compensation Amendments of 1992 (Public Law 102-
318). This trigger is based on a 3-month average total 
unemployment rate (TUR) using seasonally adjusted data. If this 
TUR average exceeds 6.5 percent and is at least 110 percent of 
the same measure in either of the prior 2 years, a State can 
offer 13 weeks of EB. If the average TUR exceeds 8 percent and 
meets the same 110-percent test, 20 weeks of EB can be offered. 
Analysis of historical data shows that this TUR trigger would 
have made EB more widely available in the past than did the IUR 
trigger. As of July 31, 1997, the TUR trigger had been 
authorized by seven States (Alaska, Connecticut, Kansas, 
Oregon, Rhode Island, Vermont, and Washington). As of September 
1997, EB was active only in Puerto Rico using the 6.0 percent 
IUR trigger.

                           BENEFIT EXHAUSTION

     Due to the limited duration of UC benefits, some 
individuals exhaust their benefits. For the regular State 
programs, 2.7 million individuals exhausted their benefits in 
fiscal year 1996, or 33 percent of claimants who began 
receiving UC during the 12 months ending March 31, 1996.
    A study of exhaustees was completed in September 1990 by 
Corson and Dynarski, under contract to the U.S. Department of 
Labor. The purpose of this study was to examine the 
characteristics and behavior of exhaustees and nonexhaustees 
and to explore the implications of this information. The 
samples were chosen from individuals who began collecting 
benefits during the period October 1987 through September 1988. 
Overall, 1,920 exhaustees and 1,009 nonexhaustees were 
interviewed.
    The study's authors reached three general conclusions:
 1. A large proportion of UC recipients expected to be recalled 
        to their previous jobs. The unemployment spells of 
        these job-attached workers were considerably shorter 
        than those of workers who suffered permanent job 
        losses, and few job-attached workers exhausted their UC 
        benefits. Workers who were not job-attached--in 
        particular, workers who were dislocated from their 
        previous jobs or who had low skill levels--were likely 
        to experience long unemployment spells, and a 
        significant proportion of these workers exhausted their 
        UC benefits.
 2. Most workers who exhausted their benefits were still 
        unemployed more than a month after receiving their 
        final payment, and a majority were still unemployed 2 
        months after receiving their final payment. Moreover, 
        workers who found jobs after exhausting their UC 
        benefits were generally receiving lower wages than on 
        their prior jobs.
 3. State exhaustion rate trigger mechanisms would not be 
        clearly superior to the State insured unemployment rate 
        (IUR) triggers in targeting extended benefits to areas 
        with high cyclical unemployment. Substate trigger 
        mechanisms for extended benefits would do a poor job of 
        targeting extended benefits to local areas with high 
        structural unemployment.

                          SUPPLEMENTAL BENEFITS

     The Extended Benefits (EB) Program was enacted to provide 
unemployment compensation benefits to workers who had exhausted 
their regular benefits during periods of high unemployment. 
Before enactment of a permanent EB Program, Congress authorized 
two temporary programs, during 1958 and 1959 and again in 1961 
and 1962. The Federal-State Extended Unemployment Compensation 
Act of 1970 authorized a permanent mechanism for providing 
extended benefits. Extended benefits rules were amended by the 
Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35) 
and the Unemployment Compensation Amendments of 1992 (Public 
Law 102-318).
    During the 1970s and 1980s, temporary programs provided 
supplemental benefits to UC recipients who had exhausted both 
their regular and extended benefits during three periods of 
high unemployment: (1) the Emergency Unemployment Compensation 
Act of 1971, which provided benefits until March 31, 1973; (2) 
the Federal Supplemental Benefits (FSB) Program, first 
authorized by the Emergency Unemployment Compensation Act of 
1974, and subsequently extended in 1975 (twice) and in 1977; 
and (3) the Federal Supplemental Compensation (FSC) Program, 
created by the Tax Equity and Fiscal Responsibility Act of 
1982, which was subsequently extended and modified six times 
and finally expired on June 30, 1985.
     More recently, Congress passed the Emergency Unemployment 
Compensation Act of 1991 (Public Law 102-164) authorizing a 
temporary Emergency Unemployment Compensation (EUC) Program. 
The EUC Program, which was extended four times, effectively 
superseded the EB Program and entitled individuals whose 
regular unemployment compensation benefits had run out to 
additional weeks of assistance. At its peak in 1992, the EUC 
Program provided benefits for 26 or 33 weeks. The EUC Program 
ended on April 30, 1994.
    Benefits under the EUC Program were originally financed 
from spending authority in the extended unemployment 
compensation account (EUCA) of the unemployment trust fund. 
However, depletion of EUCA led Congress to fund EUC from 
general revenue from July 1992 to October 1993. States that 
qualified for extended benefits while EUC was in effect could 
elect to trigger off extended benefits. This reduced the State 
funding burden because 50 percent of extended benefit costs are 
financed from State UC accounts while EUC was entirely 
federally funded.
    Table 4-6 shows several estimates of the cost of the EUC 
Program at different points in time. A comparison of cost 
estimates at the time of enactment with later reviews shows 
that actual costs far exceeded anticipated costs due to three 
factors: exhaustions from the regular State program were 
unexpectedly near record levels; claimants were staying on EUC 
longer than expected; and large numbers of claimants eligible 
for both regular benefits and EUC were choosing EUC. As a 
result, for the periods fiscal year 1992 and fiscal year 1993 
alone, OMB cost estimates rose from $11.4 billion on the dates 
of enactment to $12.8 billion in July 1992, $18.2 billion in 
January 1993, $23.4 billion in April 1993, $23.8 billion in 
July 1993, and finally $24.3 billion in January 1994--113 
percent higher than originally estimated. Including fiscal year 
1994 costs, the Clinton administration's budget released in 
July 1994 estimated the final 3-year cost of EUC benefits to be 
$28.5 billion, $13.7 billion more than OMB and $9.9 billion 
more than CBO had estimated on the date of enactment.

    TABLE 4-6.--CHANGES IN EMERGENCY UNEMPLOYMENT COMPENSATION OUTLAY   
                     ESTIMATES, FISCAL YEARS 1992-94                    
                        [In billions of dollars]                        
------------------------------------------------------------------------
                                                Fiscal years            
       Source and time of estimate        -----------------------  Total
                                            1992     1993   1994        
------------------------------------------------------------------------
Estimates at time of enactment                                          
  By OMB:                                                               
    Public Law 102-164, Public Law 102-                                 
     182.................................    $3.0   ($0.1)   0      $2.9
    Public Law 102-244...................     2.5     0.3    0       2.8
    Public Law 102-318...................     0.6     2.0    0       2.6
    Public Law 103-6.....................     0       3.1   $2.3     5.4
    Public Law 103-152...................     0       0      1.1     1.1
                                          ------------------------------
      Total..............................     6.1     5.3    3.4    14.8
                                          ==============================
  By CBO:                                                               
    Public Law 102-164, Public Law 102-                                 
     182.................................     4.3  (\1\)     0       4.3
    Public Law 102-244...................     2.7     0.6    0       3.3
    Public Law 102-318...................     1.0     3.4    0       4.4
    Public Law 103-6.....................     0       3.2    2.3     5.5
    Public Law 103-152...................     0       0      1.1     1.1
                                          ------------------------------
      Total..............................     8.0     7.2    3.4    18.6
                                          ==============================
OMB fiscal year 1993 Midsession review,                                 
 July 1992...............................     9.7     3.1    0      12.8
OMB fiscal year 1994 baseline, January                                  
 1993....................................    11.1     7.1    0      18.2
OMB fiscal year 1994 Clinton budget,                                    
 April 1993..............................    11.1    12.3    2.1    25.5
OMB fiscal year 1994 Midsession review,                                 
 July 1993...............................    11.1    12.7    1.8    25.6
OMB fiscal year 1995 baseline, January                                  
 1994....................................    11.1    13.2    3.7    28.0
OMB fiscal year 1995 Midsession review,                                 
 July 1994...............................    11.1    13.2    4.2    28.5
------------------------------------------------------------------------
\1\ Less than $50,000,000.                                              
                                                                        
Source: Office of Management and Budget (OMB) and Congressional Budget  
  Office (CBO).                                                         


HYPOTHETICAL WEEKLY BENEFIT AMOUNTS FOR VARIOUS WORKERS IN THE REGULAR 
                             STATE PROGRAMS

     Table 4-7 illustrates benefit amounts for various full-
year workers in regular State programs for January 1997. These 
benefit amounts are set by the legislatures of the respective 
States. Column A of the table is for a full-time worker earning 
the minimum wage of $5.15 per hour; column B is for a worker 
earning $6 per hour; column C shows benefit amounts for a 
worker earning $9 per hour; and column D shows a part-time 
worker earning the minimum wage and working 20 hours per week. 
All four cases are assumed to have a nonworking spouse and 
column C assumes the worker has two children. The weekly 
benefit amount for the full-time minimum wage worker (column A) 
varies from $65 in North Dakota to $216 in Connecticut. The 
maximum amount a worker earning $9 per hour can receive (column 
C) varies considerably, from $142 per week in California to 
$383 in Connecticut.

              TABLE 4-7.--WEEKLY STATE BENEFIT AMOUNTS FOR VARIOUS FULL-YEAR WORKERS, JANUARY 1997              
----------------------------------------------------------------------------------------------------------------
                                                                          Hypothetical worker \1\               
                          State                          -------------------------------------------------------
                                                                 A             B             C             D    
----------------------------------------------------------------------------------------------------------------
Alabama.................................................        $180          $180          $180          $112  
Alaska..................................................         120           134           232            78  
Arizona.................................................         107           125           185            54  
Arkansas................................................         206           240           240           103  
California..............................................          94           105           142            55  
Colorado................................................         123           144           216            61  
Connecticut.............................................         216           250           383           113  
Delaware................................................         117           135           203            58  
District of Columbia....................................         108           125           195            56  
Florida.................................................         103           120           180            51  
Georgia.................................................         107           124           187            53  
Hawaii..................................................         128           149           223            64  
Idaho...................................................         103           120           180            51  
Illinois................................................         118           141           237            60  
Indiana.................................................         120           142           204            60  
Iowa....................................................         122           142           234            60  
Kansas..................................................         113           132           198            67  
Kentucky................................................         127           148           222            63  
Louisiana...............................................         100           117           176            50  
Maine...................................................         128           138           229            67  
Maryland................................................         112           130           203            56  
Massachusetts...........................................         103           120           230            51  
Michigan................................................          NA            NA            NA            NA  
Minnesota...............................................         103           120           180            51  
Mississippi.............................................         103           120           180            51  
Missouri................................................         120           140           175            60  
Montana.................................................         107           124           187            53  
Nebraska................................................         110           128           184            56  
Nevada..................................................         107           124           187            53  
New Hampshire...........................................         115           130           173            59  
New Jersey..............................................         131           154           248            66  
New Mexico..............................................         103           120           180            51  
New York................................................         103           120           180            52  
North Carolina..........................................         103           120           180            51  
North Dakota............................................          65           120           180             0  
Ohio....................................................         123           144           238             0  
Oklahoma................................................         107           124           187            53  
Oregon..................................................         133           156           234            73  
Pennsylvania............................................         114           132           197            61  
Puerto Rico.............................................         104           120           152            52  
Rhode Island............................................         123           144           236            61  
South Carolina..........................................         103           120           180            51  
South Dakota............................................         103           120           180            51  
Tennessee...............................................         205           220           220           102  
Texas...................................................         108           125           188            54  
Utah....................................................         104           120           180            52  
Vermont.................................................         119           138           208            59  
Virginia................................................         107           123           186             0  
Virgin Islands..........................................         108           120           180            54  
Washington..............................................         214           249           365           107  
West Virginia...........................................         112           131           198            57  
Wisconsin...............................................         107           124           187            53  
Wyoming.................................................         107           124           187            53  
----------------------------------------------------------------------------------------------------------------
\1\ Hypothetical workers:                                                                                       
A. $5.15/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.                                    
B. $6.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.                                    
C. $9.00/hr. wage; 40 hrs./wk.; 52 wks./yr.; nonworking spouse; two children.                                   
D. $5.15/hr. wage; 20 hrs./wk.; 52 wks./yr.; nonworking spouse; no children.                                    
                                                                                                                
NA--Not available. Michigan computes benefits based on aftertax wages.                                          
                                                                                                                
Source: U.S. Department of Labor.                                                                               


                       THE UNEMPLOYMENT TRUST FUND

     The unemployment trust fund has 59 accounts. The accounts 
consist of 53 State UC benefit accounts, the railroad 
unemployment insurance account, the railroad administration 
account, and four Federal accounts. (The railroad accounts are 
discussed in section 5 of this document.) The Federal unified 
budget accounts for all Federal-State UC outlays and taxes in 
the Federal unemployment trust fund.
     The four Federal accounts in the trust fund are: (1) the 
employment security administration account (ESAA), which funds 
administration; (2) the extended unemployment compensation 
account (EUCA), which funds the Federal half of the Federal-
State Extended Benefits Program; (3) the Federal unemployment 
account (FUA), which funds loans to insolvent State UC 
Programs; and (4) the Federal employee compensation account 
(FECA), which funds benefits for Federal civilian and military 
personnel authorized under 5 U.S.C. 85. The 0.8 percent Federal 
share of the unemployment tax finances the ESAA, EUCA, and FUA, 
but general revenues finance the FECA. Present law authorizes 
interest-bearing loans to ESAA, EUCA, and FUA from the general 
fund. The three accounts may receive noninterest-bearing 
advances from one another to avoid insufficiencies.

           Financial Condition of the Unemployment Trust Fund

Federal accounts
    At the end of fiscal year 1996, the employment security 
administration account (ESAA) exceeded its fiscal year 1997 
ceiling of $1.4 billion. The 1997 budget bill provides for the 
distribution of up to $100 million of excess funds at the end 
of fiscal years 1999-2001. The funds will be made available to 
each State in the same proportion as the State's share of funds 
appropriated for administration for that fiscal year. This 
action effectively limits transfers (known as ``Reed Act'' 
transfers) to State accounts that would occur if trust fund 
surpluses continued to mount in future years.
     The extended unemployment compensation account (EUCA) 
balance was below its ceiling of $13.4 billion by $3.9 billion 
at the end of fiscal year 1997; the Federal unemployment 
account (FUA) balance was slightly above its $6.7 billion 
ceiling. Under the administration's fiscal year 1998 budget 
assumptions, the EUCA balance will continue to fall short of 
its ceiling until fiscal year 1999. The 1997 legislation raised 
the ceiling on FUA assets from 0.25 to 0.5 percent of wages in 
covered employment for fiscal year 2002 and subsequent years. 
Like the capping of annual distributions at $100 million as 
described above, that change is designed to prevent Reed Act 
transfers to State accounts in coming years.
State accounts
    The State accounts had recovered substantially from the 
financial problems that began in the 1970s and continued 
through the early 1980s, but the 1990-91 recession reversed 
that trend. Table 4-8 shows that the State accounts at the 
beginning of 1997 held $38.6 billion, which represents a marked 
improvement over the balance of $28.8 billion in 1992.
     The balances in the State accounts are well below the 
balances in the early 1970s after adjusting for inflation, 
before serious financial problems began for most States. State 
reserve ratios (trust fund balances divided by total wages paid 
in the respective States during the year) show that a number of 
State accounts are at risk of financial problems in major 
recessions. The third column from the right margin of table 4-8 
shows that these State ratios are only 48 percent of their 
levels in 1970. However, no State presently has outstanding 
Federal loans to its account.
    The second-to-last column of table 4-8 shows for each State 
the 1996 ``high-cost multiple,'' the ratio of the State's 
reserve ratio to its highest cost rate. The highest cost rate 
is determined by choosing the highest ratio of costs to total 
covered wages paid in a prior year. States with high-cost 
multiples of at least 1.0 have reserves that could withstand a 
recession as bad as the worst one they have experienced 
previously. States with high-cost multiples below 1.0 may face 
greater risk of insolvency during recessions.
    Thirty-eight States had high-cost multiples below 1.0; 29 
had high-cost multiples below 0.8; and 13 had high-cost 
multiples below 0.5. Based on this most stringent measure, 
States with the highest risk factor were Arkansas, California, 
Connecticut, the District of Columbia, Illinois, Maine, 
Massachusetts, Michigan, Missouri, New York, Rhode Island, 
Texas, and West Virginia.

                           TABLE 4-8.--FINANCIAL CONDITION OF STATE UNEMPLOYMENT COMPENSATION PROGRAMS, SELECTED YEARS 1970-96                          
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           Net reserves (end of calendar year)                         Reserve ratios                         High-cost 
                                  ---------------------------------------------------------------------------------------------------          multiple 
              States                            [In millions of dollars]                                 [Percent]                    1996/ ------------
                                  ---------------------------------------------------------------------------------------------------  1970             
                                     1970     1975       1979       1982       1996      1970      1975      1979      1982     1996          1996  Rank
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama..........................     $130      $(2)      $118          $9       $483      2.96    (0.03)     0.98      0.06    1.42     48   0.65    34
Alaska...........................       35       75         65         134        194      5.51     3.07      2.78      2.94    3.42     62   0.79    25
Arizona..........................      119       67        226         215        627      4.25     1.35      2.36      1.66    1.64     39   0.66    33
Arkansas.........................       49        2         24         (77)       203      2.26     0.04      0.37     (1.00)   1.11     49   0.41    45
California.......................    1,219      546      2,738       2,708      2,877      2.91     0.88      2.51      1.83    0.90     31   0.40    46
Colorado.........................       91       47        137          (4)       511      2.54     0.70      1.11     (0.02)   1.24     49   0.99    18
Connecticut......................      252     (232)      (267)       (252)       278      0.08    (2.27)    (1.70)    (1.21)   0.62    775   0.19    52
Delaware.........................       22        0        (30)        (35)       258      1.72        0     (1.06)    (0.96)   2.96    172   1.15    11
District of Columbia.............       74       (3)       (44)        (57)        99      3.22    (0.09)    (1.05)    (1.03)   0.80     25   0.43    43
Florida..........................      268       80        665         865      1,948      2.60     0.42      2.13      1.89    1.59     61   0.85    24
Georgia..........................      340      268        447         397      1,634      4.74     2.28      2.28      1.49    2.19     46   1.03    15
Hawaii...........................       44        5         79         108        211      2.90     0.23      2.24      2.43    2.04     70   0.96    20
Idaho............................       46       54         93          29        266      5.16     3.21      3.20      0.85    3.06     59   0.96    19
Illinois.........................      401      (31)      (460)     (2,069)     1,639      1.55    (0.08)    (0.80)    (3.18)   1.19     77   0.45    42
Indiana..........................      326      198        418          63      1,273      3.13     1.31      1.69      0.23    2.19     70   1.22    10
Iowa.............................      125       63        155         (63)       719      3.19     0.96      1.45     (0.55)   3.00     94   1.14    12
Kansas...........................       84      135        238         142        651      3.00     2.65      2.75      1.29    2.58     86   1.31     9
Kentucky.........................      175      137        159        (121)       501      4.21     1.95      1.36     (0.90)   1.67     40   0.60    36
Louisiana........................      146      141        238        (102)     1,131      2.91     1.58      1.51     (0.47)   3.45    119   1.12    13
Maine............................       39        1          0          (4)       112      2.86     0.07         0     (0.09)   1.22     43   0.43    44
Maryland.........................      213       29        273         220        691      3.26     0.29      1.83      1.11    1.52     47   0.69    29
Massachusetts....................      378      (99)       132         436        915      3.04    (0.61)     0.51      1.23    1.17     38   0.37    47
Michigan.........................      491     (286)       112      (2,186)     1,831      2.49    (1.05)     0.25     (4.64)   1.74     70   0.47    41
Minnesota........................      119      (35)        70        (288)       513      1.76    (0.33)     0.41     (1.36)   0.99     56   0.51    39
Mississippi......................       85       90        231         257        553      3.87     2.25      3.47      3.12    3.13     81   1.59     4
Missouri.........................      264       95        296         (64)       308      3.03     0.75      1.47     (0.27)   0.61     20   0.31    51
Montana..........................       26        8         16           9        126      3.33     0.57      0.65      0.27    2.10     63   0.69    30
Nebraska.........................       55       29         81          72        195      2.87     0.84      1.58      1.14    1.40     49   0.90    23
Nevada...........................       39        5         95         122        348      3.20     0.22      2.31      2.02    1.87     58   0.68    31
New Hampshire....................       55       29         82          75        268      4.62     1.56      2.42      1.60    2.32     50   0.92    22
New Jersey.......................      448     (348)      (507)       (423)     2,029      2.76    (1.54)    (1.50)    (0.97)   2.06     75   0.62    35
New Mexico.......................       40       33         80         101        386      3.45     1.61      2.14      1.98    3.46    100   2.11     2
New York.........................    1,693      574        403         819        470      3.76     1.02      0.51      0.78    0.23      6   0.09    53
North Carolina...................      414      342        564         400      1,336      5.22     2.71      2.71      1.52    1.92     37   0.78    26
North Dakota.....................       13       22         21          11         50      2.53     1.94      1.13      0.46    1.20     47   0.51    38
Ohio.............................      693      294        513      (1,658)     1,751      3.01     0.91      1.02     (3.04)   1.56     52   0.51    40
Oklahoma.........................       55       27        177         108        564      1.69     0.46      1.56      0.62    2.43    144   1.77     3
Oregon...........................      122       24        320         161        941      3.39     0.40      3.00      1.37    3.19     94   0.99    17
Pennsylvania.....................      852      (86)    (1,091)     (2,145)     2,032      3.53    (0.25)    (2.18)    (3.75)   1.85     52   0.55    37
Puerto Rico......................       85      (26)       (33)        (47)       596      4.90    (0.95)    (0.88)    (1.11)   5.91    121   1.34     8
Rhode Island.....................       75      (41)       (96)        (76)       116      4.34    (1.76)    (2.75)    (1.81)   1.38     32   0.32    49
South Carolina...................      166       95        195          50        603      4.61     1.61      1.96      0.40    1.95     42   0.67    32
South Dakota.....................        8       20         16           9         50      3.81     1.96      0.95      0.43    1.01     27   0.95    21
Tennessee........................      212      200        264          15        827      3.57     1.95      1.63      0.08    1.63     46   0.75    27
Texas............................      337      231        396         142        642      1.90     0.71      0.65     (0.16)   0.36     19   0.31    50
Utah.............................       51       32         67          10        524      3.55     1.22      1.43      0.16    3.12     88   1.55     5
Vermont..........................       26      (25)       (21)        (27)       218      3.72    (2.53)    (1.30)    (1.29)   4.63    124   1.46     6
Virginia.........................      218      122        103          14        897      3.41     1.08      0.56      0.06    1.40     41   1.07    14
Virgin Islands...................       NA       NA         (7)         (3)        42        NA       NA     (2.96)    (0.55)   7.42     NA   2.57     1
Washington.......................      226      (67)       297         150      1,333      3.73    (0.71)     1.66      0.70    2.66     71   0.69    28
West Virginia....................      108       78         39        (145)       157      4.07     1.70      0.56     (1.85)   1.36     33   0.34    48
Wisconsin........................      322      121        465        (413)     1,557      4.29     0.99      2.37     (1.53)   3.10     72   0.99    16
Wyoming..........................       19       31         69          46        147      4.29     3.02      3.15      1.51    4.32    101   1.43     7
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................   11,903    3,070      8,583      (2,645)    38,632      3.11     0.53      0.91     (0.24)   1.48     48   0.67  ....
--------------------------------------------------------------------------------------------------------------------------------------------------------
NA--Not available.                                                                                                                                      
                                                                                                                                                        
Source: U.S. Department of Labor. (1997b, March). 4th quarter CY96 UI data summary. Washington, DC.                                                     

    Table 4-9 summarizes the beginning balances in the various 
unemployment trust fund accounts for selected fiscal years. At 
the start of fiscal year 1998, the 4 Federal accounts and the 
53 State benefit accounts had a total balance of $63.0 billion. 
In real terms this represents a level 14 percent higher than 
that of 1971. This increase in real dollars does not allow for 
the erosion implied by the large increase in the labor force 
over this time period (although table 4-2 shows that an average 
of 36 percent of unemployed workers was covered, compared with 
48 percent in 1970). Overall, a better measure is the ratio of 
the 1996-70 reserve ratios in table 4-8, which shows that 
aggregate reserves in 1996 relative to wages were a little less 
than half the 1970 level.

    TABLE 4-9.--BEGINNING-OF-YEAR BALANCES IN UNEMPLOYMENT TRUST FUND ACCOUNTS, SELECTED FISCAL YEARS 1971-98   
                                            [In millions of dollars]                                            
----------------------------------------------------------------------------------------------------------------
                              Account                                  1971     1976     1980     1983     1997 
----------------------------------------------------------------------------------------------------------------
Employment security administration.................................      $65     $365     $572     $545   $2,899
Extended unemployment compensation.................................        0      116      764      483    9,466
Federal unemployment (reserve for State loans).....................      575        9      567      599    6,747
Federal employee compensation......................................    (\1\)    (\1\)    (\1\)       24      262
State unemployment compensation \2\................................   12,409    6,145    8,272      720   43,657
                                                                    --------------------------------------------
    Total: Nominal dollars.........................................   13,049    6,635   10,175    2,371   63,031
                                                                    --------------------------------------------
    Total: Real dollars \3\........................................   55,305   20,510   23,126    3,977   63,031
----------------------------------------------------------------------------------------------------------------
\1\ There was no separate account for Federal employee compensation for this year.                              
\2\ Figures are net of loans from Federal funds.                                                                
\3\ Real dollars are obtained using CPI-U for the preceding fiscal years.                                       
                                                                                                                
Source: U.S. Department of the Treasury, Bureau of Public Debt.                                                 


     Whether the State trust fund balances are adequate is 
ultimately a matter about which each State must decide. States 
have a great deal of autonomy in how they establish and run 
their unemployment system. However, the framework established 
by the Federal Government requires States to actually pay the 
level of benefits they determine to be appropriate; in budget 
terms, unemployment benefits are an entitlement (although the 
program is financed by a dedicated tax imposed on employers and 
employees and not by general revenues). Thus, if a recession 
hits a given State and results in a depletion of that State's 
trust account, the State is legally required to continue paying 
benefits. To do so, the State will be forced to borrow money 
from the Federal unemployment account. As a result, not only 
will the State be required to continue paying benefits, it will 
also be required to repay the funds plus interest it has 
borrowed from the Federal loan account. Such States will 
probably be forced to raise taxes on their employers, an action 
that dampens economic growth and job creation. In short, States 
have strong incentives to keep adequate funds in their trust 
fund accounts.

                      The Federal Unemployment Tax

     FUTA imposes a minimum, net Federal payroll tax on 
employers of 0.8 percent on the first $7,000 paid annually to 
each employee. The current gross FUTA tax rate is 6.2 percent, 
but employers in States meeting certain Federal requirements 
and having no delinquent Federal loans are eligible for a 5.4 
percent credit, making the current minimum, net Federal tax 
rate 0.8 percent. Since most employees earn more than the 
$7,000 taxable wage ceiling, the FUTA tax typically is $56 per 
worker ($7,000  0.8 percent), or 3 cents per hour for 
a full-time worker. The 1997 budget bill extended the 0.2 
percent surtax through 2007.
     The wage base was held constant at $3,000 until 1971, and 
then was increased on three occasions.
    Chart 4-2 depicts the historical trends in the statutory 
and effective Federal unemployment tax rates. The effective tax 
rate equals FUTA revenue as a percent of total covered wages. 
Although the statutory tax rate doubled from 0.4 percent in the 
late 1960s to 0.8 percent in the late 1980s, the effective tax 
rate has fluctuated between 0.2 and 0.3 percent in most of 
those years.

     CHART 4-2. HISTORY OF FEDERAL UNEMPLOYMENT TAX RATE, 1954-96 





    Source: Chart prepared by the Congressional Research 
Service based on data from the U.S. Department of Labor.

                        State Unemployment Taxes

     The States finance their programs and half of the 
permanent Extended Benefits Program with employer payroll taxes 
imposed on at least the first $7,000 paid annually to each 
employee.\1\ States have adopted taxable wage bases at least as 
high as the Federal level because they otherwise would lose the 
5.4 percent credit to employers on the difference between the 
Federal and State taxable wage bases. Table 4-10 shows that, as 
of January 1997, 41 States had taxable wage bases higher than 
the Federal taxable wage base, ranging up to $26,000 in Hawaii.
---------------------------------------------------------------------------
    \1\ Alaska, New Jersey, and Pennsylvania also tax employees 
directly.
---------------------------------------------------------------------------
     Although the standard State tax rate is 5.4 percent, State 
tax rates based on unemployment experience can range from zero 
on some employers in 17 States up to a maximum as high as 10 
percent in 3 States.

                          TABLE 4-10.--STATE UNEMPLOYMENT TAX BASES AND RATES, 1996-97                          
----------------------------------------------------------------------------------------------------------------
                                                               Estimated 1996                  1997 experience  
                                                             average tax rates                    rates \1\     
                                                             as a percent of--    1997 tax ---------------------
                           State                           ---------------------    base                        
                                                             Taxable      All                Minimum    Maximum 
                                                              wages      wages                                  
----------------------------------------------------------------------------------------------------------------
Alabama...................................................        1.0       0.4     $8,000      0.14        6.74
Alaska....................................................        2.2       1.5     24,200      1.00        6.50
Arizona...................................................        1.7       0.4      7,000      0.10        5.40
Arkansas..................................................        2.0       1.0      9,000      0.00        6.00
California................................................        3.8       1.0      7,000      0.10        5.40
Colorado..................................................        1.1       0.4     10,000      0.00        5.40
Connecticut...............................................        4.0       1.2     12,000      0.50        6.40
Delaware..................................................        2.6       0.8      8,500      0.10        8.00
District of Columbia......................................        3.4       0.9      9,000      0.10        7.40
Florida...................................................        1.6       0.5      7,000      0.10        5.40
Georgia...................................................        1.4       0.5      8,500      0.01        8.64
Hawaii....................................................        2.2       1.6     26,000      0.00        5.40
Idaho.....................................................        1.8       1.2     22,800      0.10        6.80
Illinois..................................................        2.7       0.8      9,000      0.20        6.40
Indiana...................................................        1.4       0.4      7,000      0.20        5.70
Iowa......................................................        0.9       0.5     15,200      0.00        9.00
Kansas....................................................        0.9       0.3      8,000      0.02        5.40
Kentucky..................................................        2.0       0.7      8,000      0.30       10.00
Louisiana.................................................        1.7       0.7      7,700      0.30        6.00
Maine.....................................................        3.7       1.2      7,000      0.50        7.50
Maryland..................................................        2.3       0.8      8,500      0.10        9.20
Massachusetts.............................................        3.7       1.3     10,800      0.60        9.30
Michigan..................................................        4.4       1.4      9,500      0.00       10.00
Minnesota.................................................        1.4       0.7     16,300      0.10        9.00
Mississippi...............................................        1.3       0.5      7,000      0.10        5.40
Missouri..................................................        2.0       0.5      8,000      0.00        8.70
Montana...................................................        1.2       0.8     16,000      0.00        6.40
Nebraska..................................................        0.6       0.2      7,000      0.00        5.40
Nevada....................................................        1.5       0.9     17,200      0.30        5.40
New Hampshire.............................................        1.0       0.3      8,000      0.01        6.50
New Jersey................................................        2.6       1.2     18,600      0.40        6.47
New Mexico................................................        1.4       0.6     14,200      0.10        5.40
New York..................................................        4.4       1.0      7,000      0.00        5.40
North Carolina............................................        0.3       0.1     12,100      0.00        5.70
North Dakota..............................................        1.0       0.5     14,200      0.10        5.40
Ohio......................................................        2.6       0.9      9,000      0.10        6.50
Oklahoma..................................................        1.1       0.4     11,100      0.10        6.20
Oregon....................................................        2.1       1.3     20,000      0.50        5.40
Pennsylvania..............................................        4.1       1.2      8,000      0.30        9.20
Puerto Rico...............................................        2.9       0.9      7,000      1.00        5.40
Rhode Island..............................................        3.7       2.1     17,600      0.80        8.40
South Carolina............................................        2.0       0.7      7,000      0.19        5.40
South Dakota..............................................        0.5       0.2      7,000      0.00        9.50
Tennessee.................................................        1.8       0.6      7,000      0.00       10.00
Texas.....................................................        1.5       0.5      9,000      0.00        6.00
Utah......................................................        0.8       0.5     17,800  (\2\)           8.00
Vermont...................................................        2.6       0.9      8,000      0.40        8.40
Virginia..................................................        1.2       0.4      8,000      0.00        6.20
Virgin Islands............................................        1.8       1.2     14,400      0.10        9.50
Washington................................................        2.0       1.2     21,300      0.36        5.40
West Virginia.............................................        3.0       1.1      8,000      0.00        7.50
Wisconsin.................................................        2.2       0.9     10,500      0.00        8.90
Wyoming...................................................        1.4       0.7     12,200      0.00        8.50
                                                           -----------------------------------------------------
    U.S. average..........................................        2.4       0.8         NA     NA         NA    
----------------------------------------------------------------------------------------------------------------
\1\ Actual rates could be higher if State has an additional tax.                                                
\2\ Not specified.                                                                                              
                                                                                                                
NA--Not applicable.                                                                                             
                                                                                                                
Note.--This table shows State unemployment tax levels. It does not include the Federal unemployment tax.        
                                                                                                                
Source: U.S. Department of Labor.                                                                               


     Estimated national average State tax rates on taxable 
wages and total wages for 1996 were 2.4 and 0.8 percent, 
respectively. Estimated average State tax rates on taxable 
wages ranged from 0.3 percent in North Carolina to 4.4 percent 
in Michigan and New York. Estimated average State tax rates on 
total wages varied from 0.1 percent in North Carolina to 2.1 
percent in Rhode Island.
    Table 4-11 shows recent State data on unemployment 
compensation covered employment, wages, taxable wages, the 
ratio of taxable to total wages, and average weekly wages. The 
ratio of taxable wages to total wages varied from 0.17 in New 
York to 0.62 in Montana.

 TABLE 4-11.--TWELVE-MONTH AVERAGE EMPLOYMENT AND WAGES COVERED BY STATE UNEMPLOYMENT TAXATION FOR PERIOD ENDING
                                                 SEPTEMBER 1996                                                 
----------------------------------------------------------------------------------------------------------------
                                                                                              Ratio of          
                                                         Covered                   Taxable     taxable   Average
                        State                           employment  Total wages     wages     wages to   weekly 
                                                       (thousands)   (millions)   (millions)    total     total 
                                                                                                wages     wages 
----------------------------------------------------------------------------------------------------------------
 Alabama.............................................        1,723      $41,953      $12,278      0.29      $468
 Alaska..............................................          239        7,767        3,731      0.48       625
 Arizona.............................................        1,829       47,254       12,575      0.27       497
 Arkansas............................................        1,036       22,546        7,993      0.35       419
 California..........................................       12,747      397,619       82,400      0.21       600
 Colorado............................................        1,803       49,963       16,440      0.33       533
 Connecticut.........................................        1,532       55,240       13,807      0.25       693
 Delaware............................................          360       10,817        2,698      0.25       579
 District of Columbia................................          413       16,209        3,468      0.21       754
 Florida.............................................        6,016      151,072       40,331      0.27       483
 Georgia.............................................        3,354       90,174       25,658      0.28       517
 Hawaii..............................................          502       13,462        7,422      0.55       516
 Idaho...............................................          476       10,934        5,933      0.54       442
 Illinois............................................        5,448      167,370       42,701      0.26       591
 Indiana.............................................        2,700       70,086       17,480      0.25       499
 Iowa................................................        1,319       30,637       13,036      0.43       447
 Kansas..............................................        1,166       28,078       10,808      0.38       463
 Kentucky............................................        1,569       37,473       10,800      0.29       459
 Louisiana...........................................        1,714       41,180       11,511      0.28       462
 Maine...............................................          518       12,002        3,086      0.26       446
 Maryland............................................        2,035       58,885       14,707      0.25       557
 Massachusetts.......................................        2,900       96,530       28,913      0.30       640
 Michigan............................................        4,200      130,584       33,198      0.25       598
 Minnesota...........................................        2,321       65,608       25,467      0.39       544
 Mississippi.........................................        1,039       22,112        6,603      0.30       409
 Missouri............................................        2,418       62,892       17,376      0.28       500
 Montana.............................................          334        6,805        4,193      0.62       391
 Nebraska............................................          793       18,070        4,678      0.26       438
 Nevada..............................................          812       22,104       11,269      0.51       523
 New Hampshire.......................................          530       14,381        3,670      0.26       521
 New Jersey..........................................        3,455      122,120       46,075      0.38       680
 New Mexico..........................................          638       14,587        6,133      0.42       440
 New York............................................        7,625      276,803       45,594      0.16       698
 North Carolina......................................        3,432       85,359       32,364      0.38       478
 North Dakota........................................          279        5,752        2,373      0.41       397
 Ohio................................................        5,089      138,829       38,315      0.28       525
 Oklahoma............................................        1,267       28,578       10,869      0.38       434
 Oregon..............................................        1,423       37,577       18,561      0.49       508
 Pennsylvania........................................        5,024      142,653       33,427      0.23       546
 Puerto Rico.........................................          946       14,837        4,680      0.32       302
 Rhode Island........................................          423       11,268        4,724      0.42       512
 South Carolina......................................        1,614       38,071       10,368      0.27       454
 South Dakota........................................          321        6,439        1,857      0.29       386
 Tennessee...........................................        2,411       60,943       15,891      0.26       486
 Texas...............................................        7,866      216,516       62,489      0.29       529
 Utah................................................          881       21,054       10,002      0.48       460
 Vermont.............................................          264        6,326        1,708      0.27       461
 Virginia............................................        2,888       77,734       20,808      0.27       518
 Virgin Islands......................................           40          971          341      0.35       472
 Washington..........................................        2,305       64,995       30,375      0.47       542
 West Virginia.......................................          641       15,037        4,187      0.28       451
 Wisconsin...........................................        2,480       63,452       20,248      0.32       492
 Wyoming.............................................          206        4,571        1,677      0.37       427
                                                      ----------------------------------------------------------
     United States...................................      115,362    3,254,281      917,298      0.28       542
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor. (1997c, May). 1st quarter CY97 UI data summary. Washington, DC.               

                 ADMINISTRATIVE FINANCING AND ALLOCATION

     State unemployment compensation administrative expenses 
are federally financed. A portion of revenue raised by FUTA is 
designated for administration and for maintaining a system of 
public employment offices.
    As explained above, FUTA revenue flows into three Federal 
accounts in the unemployment trust fund. One of these accounts, 
the employment security administration account (ESAA), finances 
administrative costs associated with Federal and State 
unemployment compensation and employment services.
     Under current law, 80 percent of FUTA revenue is allocated 
to ESAA and 20 percent to another Federal account (chart 4-3). 
Funds for administration are limited to 95 percent of the 
estimated annual revenue that is expected to flow to ESAA from 
the FUTA tax. Funds for administration may be augmented by 
three-eighths of the amount in ESAA at the beginning of the 
fiscal year, or $150 million, whichever is less, if the rate of 
insured unemployment is at least 15 percent higher than it was 
over the corresponding calendar quarter in the immediately 
preceding year.
     Title III of the Social Security Act authorizes payment to 
each State with an approved unemployment compensation law of 
such amounts as are deemed necessary for the proper and 
efficient administration of the UC Program during the fiscal 
year. Allocations are based on: (1) the population of the 
State; (2) an estimate of the number of persons covered by the 
State unemployment insurance law; (3) an estimate of the cost 
of proper and efficient administration of such law; and (4) 
such other factors as the Secretary of Labor finds relevant.

     CHART 4-3. FLOW OF FUTA FUNDS UNDER EXISTING FEDERAL STATUTES 





    Source: Chart prepared by the National Foundation for 
Unemployment Compensation & Workers' Compensation.


    Subject to the limit of available resources, the allocation 
of State grants for administration is the sum of resources made 
available for two major areas, the Unemployment Insurance 
Service (UI) and the Employment Service (ES). Each area has its 
own allocation methodology subject to general constraints set 
forth in the Social Security Act and the Wagner-Peyser Act.
    Each year, as part of the development of the President's 
budget, the Department of Labor, in conjunction with the 
Department of Treasury, estimates revenue expected from FUTA 
and the appropriate amount to be available for administration. 
The estimate of FUTA revenues is based on several factors: (1) 
a wage base of $7,000 per employee; (2) a tax rate of 0.8 
percent (0.64 percentage points for administration and 0.16 
percentage points for extended benefits); (3) the 
administration's projection of the level of unemployment and 
the growth in wages; and (4) the level of covered employment 
subject to FUTA. In addition, a determination is made based on 
the administration's forecast for unemployment as to whether 
the rate will increase by at least 15 percent.
     Each year the President's budget sets forth an estimate of 
national unemployment in terms of the volume of unemployment 
claims per week. This is characterized as average weekly 
insured unemployment (AWIU). A portion of AWIU is expressed as 
``base'' and the remainder as ``contingency.'' At the present 
time, the base is set at the level of resources required to 
process an average weekly volume of 2.8 million weeks of 
unemployment.
    Resources available to each State to administer its UC 
Program (i.e., process claims and pay benefits) are provided 
from either ``base'' funds or ``contingency'' funds. At the 
beginning of the fiscal year, only the base funds are 
allocated, while contingency funds are allocated on a needs 
basis as workload materializes. Base funds are distributed to 
the State for use throughout the fiscal year and are available 
regardless of the level of unemployment (workload) realized. If 
a State processes workloads in excess of the base level, it 
receives contingency funds determined by the extent of the 
resources required to process the additional workload.
    The allocation of the base UC grant funds to each State is 
made by:
 1. Projecting the workloads that each State is expected to 
        process;
 2. Determining the staff required to process each State's 
        projected workload;
 3. Multiplying the final staff-year allocations for each State 
        by the cost per staff year (i.e., State salary and 
        benefit level) to determine dollar funding levels; and
 4. Allocating overhead resources (administrative and 
        management staff and nonpersonal services).
     Each Department of Labor regional office may redistribute 
resources among the States in its area with national office 
approval. The 1997 budget bill authorized funds over 5 years 
specifically for program integrity activities such as claims 
review and employer tax audits to assist the States in 
strengthening their efforts to reduce administrative error and 
fraud.
    In Public Law 102-164, Congress required the Department of 
Labor to study the allocation process and recommend 
improvements. Public Law 102-318 extended the study deadline to 
December 31, 1994. The Department has not yet submitted the 
report to Congress.

                           LEGISLATIVE HISTORY

     Major Federal laws passed by Congress since 1990 and their 
key provisions are as follows:
    The Omnibus Budget Reconciliation Act of 1990 (Public Law 
101-508) extended the 0.2 percent FUTA surtax for 5 years 
through 1995.
     The Emergency Unemployment Compensation Act of 1991 
(Public Law 102-164) established temporary emergency 
unemployment compensation (EUC) benefits through July 4, 1992. 
It returned to States the option of covering nonprofessional 
school employees between school terms and restored benefits for 
ex-military members to the same duration and waiting period 
applicable to other unemployed workers. It extended the 0.2 
percent FUTA surtax for 1 year through 1996.
    The Unemployment Compensation Amendments of 1992 (Public 
Law 102-318) extended EUC for claims filed through March 6, 
1993, and reduced the benefit periods to 20 and 26 weeks. The 
law also gave claimants eligible for both EUC and regular 
benefits the right to choose the more favorable of the two. 
States were authorized, effective March 7, 1993, to adopt an 
alternative trigger for the Federal-State EB Program. This 
trigger is based on a 3-month average total unemployment rate 
and can activate either a 13- or a 20-week benefit period 
depending on the rate.
    The Emergency Unemployment Compensation Amendments of 1993 
(Public Law 103-6) extended EUC for claims filed through 
October 2, 1993. The law also authorized funds for automated 
State systems to identify permanently displaced workers for 
early intervention with reemployment services.
     The Omnibus Budget Reconciliation Act of 1993 (Public Law 
103-66) extended the 0.2 percent FUTA surtax for 2 years 
through 1998.
    The Unemployment Compensation Amendments of 1993 (Public 
Law 103-152) extended EUC for claims filed through February 5, 
1994, and set the benefit periods at 7 and 13 weeks. It 
repealed a provision passed in 1992 that allowed claimants to 
choose between EUC and regular State benefits. It required 
States to implement a ``profiling'' system to identify UI 
claimants most likely to need job search assistance to avoid 
long-term unemployment.
     The North American Free Trade Agreement Implementation Act 
(Public Law 103-182) gave States the option of continuing UC 
benefits for claimants who elect to start their own businesses. 
Authorization expires in December 1998.
    The Balanced Budget Act of 1997 (Public Law 105-33) gave 
States complete authority in setting base periods for 
determining eligibility for benefits, authorized appropriations 
for program integrity activities, limited trust fund 
distributions to States in fiscal years 1999-2001, and raised 
the ceiling on FUA assets from 0.25 percent to 0.5 percent of 
wages in covered employment starting in fiscal year 2002. The 
Taxpayer Relief Act of 1997 (Public Law 105-34) extended the 
0.2 percent FUTA surtax through 2007.

                               REFERENCES

 Corson, W. & Dynarski, M. (1990, September). A study of 
        unemployment insurance recipients and exhaustees: 
        Findings from a national survey. (Occasional Paper 90-
        3). Washington, DC: U.S. Department of Labor.
 Corson, W. & Nicholson, W. (1988). An examination of declining 
        UI claims during the 1980s (Occasional Paper 88-3). 
        Washington, DC: U.S. Department of Labor.
Executive Office of the President. (1997, February). Economic 
        Report of the President. Washington, DC: U.S. 
        Government Printing Office.
Pennington v. Doherty, Congressional Clearing House 
        Unemployment Insurance Report, paragraph 22,184 
        (Northern District of Illinois, February 25, 1997).
U.S. Department of Labor. (1997a, February). UI Outlook: Fiscal 
        Year 1998 President's Budget. Washington, DC: Author.
U.S. Department of Labor, Employment and Training 
        Administration. (1997b, March). UI Data Summary (4th 
        quarter, calendar year 1996). Washington, DC: Author.
U.S. Department of Labor, Employment and Training 
        Administration. (1997c, May). UI Data Summary (1st 
        quarter, calendar year 1997). Washington, DC: Author.
U.S. Department of Labor, Employment and Training 
        Administration. (1997d, August). UI Outlook: FY 1998 
        Midsession Review. Washington, DC.