FINANCING UNEMPLOYMENT INSURANCE

Following the Great Recession, the unemployment insurance (UI) trust funds in most states became insolvent, requiring the states to borrow from the U.S. Department of the Treasury to finance benefit payments. This article describes the basics of UI financing and reviews the origins of the financial crisis facing the federal-state UI system. It then examines the main components of the UI payroll tax — the taxable wage base and the experience-rated payroll tax — and considers how these might be modified to avoid future widespread insolvency. We conclude with some speculative remarks on the future of UI financing