UNEMPLOYMENT compensation is a method of safe-guarding individuals against distress for a short period of time after they become unemployed.

It is designed to compensate only employable persons who are able and willing to work and who are unemployed through no fault of their own. Instead of making the individual get along on a steadily descending level of living until he has exhausted the last shred of his savings, credit, and the generosity of his rela-tives and friends, thus reaching a point of destitution at which he is eligible for relief, unemployment compensation sets aside contributions during periods of employment and pro-vides the individual with benefits as a legal right when he becomes unemployed. During the periods of prosperity a fund is built up, to be available for the payment of benefits in the periods when industry fails to maintain employment. Unemployment compensation is not a system under which every unemployed person is assured of benefits for any and all unemployed time. It provides protection primarily for the person who normally is steadily employed. It can take care of the seasonal worker or the intermittently employed person only for very limited periods of time. It makes no attempt to protect unemployable persons such as those who are so old or so handicapped physically that they are unable to work. In normal times, the great majority of persons covered by unemployment compensation who become unemployed will find new employment before exhausting their benefits, but, in times of cyclical unemployment, the worker covered by a system of unemployment compensation who has exhausted his rights to benefits may have to apply for relief. Mass unemployment, such as that which we have recently experienced, cannot be entirely alleviated by a system of unemployment compensation. Such a system does, however, act as a first line of defense in protecting the industrial worker from distress caused by
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involuntary unemployment. By the distribution of benefits specified in advance, out of a fund built up in an orderly and systematic manner, unemployment compensation can enable individuals to plan their scale of living for a definite length of time in advance. Unemployment compensation can thus act as a cushion to the down-swing of the business cycle when business is beginning to slacken, since it helps to sustain the buying power of the consuming public. People who object to unemployment compensation often say that it represents the wrong approach to the problem of unemployment, since it is admittedly a Band-Aid. They maintain that the important and basic job is to prevent unemployment. Another objection frequently heard is that a system of unemployment compensation will cause increased unem-ployment for two reasons: (1) The imposition of a tax on pay rolls will induce employers to mechanize their plants further and thereby increase the volume of unemployment in the country, and (2) the additional tax placed on industry will result in increased prices to the consuming public, which will inevitably cause a decrease in the consumption of products and thereby a reduction in the number of persons required to produce these goods. Historical Background When unemployment insurance benefits were first being considered as part of the Social Security Act in 1934 and 1935, the total number of unemployed workers in the United States was estimated at between 11 million and 15 million. Existing state relief programs had broken down, and were being supplemented by a series of federal programs. A Committee appointed by President on Economic Security and the congressional committees considering the legislation faced the problem of devising an unemployment insurance program that would fit into the federal-state political system. Supporters of a workmen's compensation approach took the states'
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rights viewpoint, advocating a "state laboratory" system for experimenting "close to the grass roots." It was feared that a federal system could be declared unconstitutional due to its possible encroachment on states' rights. In enacting the unemployment insurance provisions of the Social Security Act in 1935, Congress recognized both national and state concerns over unemployment and measures to alleviate it. Since any unemployment affects the entire nation as well as the state in which it occurs, federal government action was considered as part of its responsibility to promote the general Welfare as specified in the U.S. Constitution. However, Congress also considered it feasible and desirable for the states to administer unemployment insurance programs to meet their local needs. Planning of this legislation was influenced by many preceding programs -- those in other countries, voluntary plans in this country, state workmen's compensation laws and Wisconsins unemployment insurance law. The Social Security Act of 1935 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 (Karger, 2006). 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 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
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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 (EB) 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 through December 31, 2007 ( www.. 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 Program (www.labor.ny.gov/stats/PDFs/History_UI_Legislation.pdf).

Criteria Since no type of unemployment compensation system can attempt to offer protection to the entire working population, the groups to be included and excluded must be definitely specified in the law. An unemployment compensation plan can cover only persons ordinarily employed by others. Self-employed persons, such as farmers and farm tenants, small businesses with less than 8 employees, are obviously outside the scope of unemployment compensation protection and are covered in no system in existence. One of the unemployment compensation problems that have caused the greatest discussion in this country is who shall contribute to the fund? employers alone, or employers and employees jointly? Or shall the State government, too, pay a regular contribution? Although the District of Columbia unemployment compensation law provides for a government contribution there is little sentiment in this country for such regular governmental contributions. Rather the feeling has been that employers alone, or jointly with employees, should bear the cost of unemployment compensation benefits, leaving to governmental funds the problem of financing relief costs and the costs of administering the unemployment compensation laws. The argument in favor of employer contributions only is based on the theory that the employer is responsible for unemployment, and that, by assessing the cost on him, the burden is placed where it rightly belongs and becomes an incentive to stabilize operations and thereby decrease the unemployment in his/her place of employment. The advocates of joint employer-employee
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contributions fall into two groups: employers who feel that employees should also be taxed for benefits for themselves, and students of the problem who believe that employee contributions will lead to higher rates of benefit. In addition some believe that employee contributions remove any notion of charity from the compensation system and prevent criticism on the ground that such payments are relief (Douglas,1931). Perhaps the most controversial problem in the financing of an unemployment compensation law is whether all the contributions shall be pooled into one fund or whether there shall be some recognition of the different unemployment risks in different plants or industries, and adjustments be permitted accordingly. Where the major emphasis is on protection, as in most of the State laws, the tendency has been to pool all contributions, but where prevention is the main objective, as in Wisconsin, the contributions of each employer are available for benefits only to his employees. The advocates of the employer reserve plan, in placing their emphasis on the stabilization of employment, feel that, since the employer is, to a considerable extent, responsible for the unemployment of his plant, he will do everything in his power to prevent that unemployment if he has to pay for it. Those who advocate pooling of contributions maintain that the important thing in building up an unemployment compensation fund is to provide protection against unemployment, leaving to other measures the problem of stabilizing industrial operations and of thereby preventing unemployment. States may, consistent with the Social Security Act, provide employer reserve funds, pooled funds, or combinations of these two types. Decision concerning the type of unemployment to be covered must involve a choice as to whether the plan shall apply only to total unemployment or whether it will include benefits for partial unemployment, seasonal unemployment, and unemployment during depressions. In this
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country total unemployment has consistently been defined as total lack of work or wages for a week, partial unemployment as employment at less than full time in which the earnings for the week bear a certain relationship to the benefit the individual would have received if totally unemployed. All the State laws, except the five which limit their benefits to fulltime unemployment, make some such provision for partial unemployment. Other eligibility considerations addressed in the Social Security act include: What kind of unemployment shall be compensated? How long the waiting period shall be? Who and how shall administer the program? And how large shall the benefits be? Current Trends According to the Bureau of Labor Statistics, the Current unemployment rate fell by 0.4 percentage point to 8.6 percent in November. The official unemployment index, based on a monthly survey of sample households, counts only people who reported looking for work in the past four weeks. It doesn't account for part-time workers who want to work more hours but can't, given the tight job market. And it doesn't include those who have given up trying to find work. When the underemployed and the discouraged are added to the numbers, the unemployment rate rises to 16.6%. The Bureau of Labor Statistics, a unit of the Labor Department, began tracking this alternative measure -- known as the U-6 for its department classification -- in 1995 after economists lobbied for a method comparable to the way Japan, Canada and Western Europe count their unemployed. The truth is that even the broader measure of unemployment doesn't fully capture how difficult the job market is for U.S. workers. It doesn't include self-employed workers whose incomes have
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shriveled. It doesn't look at former full-time employees who have accepted short-term contracts, without benefits, and at a fraction of their former salaries. And it doesn't count the many wouldbe workers who are going back to school, taking on more debt, in hopes that advanced degrees will improve their chances of landing jobs.

Personal Impact News stories about unemployment figures take center stage while the families dealing with the recession suffer, often quietly. People work hard just to stay afloat in hopes that the economy will turn around soon, but often to no avail. While many families do their best to carry on as if nothing is wrong with the world, recessions can have a profound effect on their day-to-day interactions and the way they live. Families may not be able to avoid the effects of the recession, but they can make changes that can improve their situations and help them prepare for the future, while they wait for an economic upswing. Job loss affects the stability of families and individuals. Our status, self-worth, health, and well-being can be drastically impacted by the loss of a job. While many who lose their jobs use the time for growth and exploration, many suffer with depression, alcoholism, and denial. With unemployment rates running extremely high during a recession, individuals and families struggle to find work to pay the bills each month. The inability to find work can be frustrating, terrifying, and depressing, and can lead to even more problems.
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The stress of not finding work, and a loss of income, can lead to damaging inter-family relationships that can take years to mend. Sometimes families must borrow money from relatives or friends, which can result in tense situations. Some families must change their plans, sell their homes, switch schools, and cancel vacations. In other households, there is even an unfortunate increase in child abuse cases.

Reduced income leads to reduced entertainment, dining, and extracurricular activity expenses. People cut back on extras during a recession, so many families must make drastic changes to their pre-recession lifestyle. This means fewer trips, shared experiences, and missed opportunities because of a lack of funds.

Many families depend on the value of their homes as part of their retirement plan. During a recession, however, real estate values fall drastically and foreclosures increase, forcing many families out of their homes. Real estate can no longer be viewed as a safe investment during an economic downturn.

During a recession, families must still pay the household bills, and try to get out of debt. Bankruptcy, judgments, and late payments can all hurt your credit score. Credit history impacts credit card and loan interest rates, insurance rates, and even job opportunities, as some companies review applicants credit histories.

Families must understand the difference between needs and wants during a recession. Families need a safe place to live, clothing, food, and access to affordable health care. As priorities shift for many families during an economic downturn, they can focus on the necessities, and learn more about their innate survival skills.
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References:

The Bureau of Labor Statistics. Retrieved on December 09, 2011 Website http://www.bls.gov Douglas, Paul H., and Director, Aaron, The Problem of Unemployment, New York, The Macmillan Co., 1931, 505 pp., chapter XXVIII, pp. 484-497. A History of UI legislation PDF. Retrieved on December 07, 2011 http://www.labor.ny.gov/stats/PDFs/History_UI_Legislation.pdf Karger, H.J & Stoesz. D (2006). American Social Welfare Policy. (p. 256). Boston, MA. Pearson Education.

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