History of Unemployment Benefits

The unemployment insurance act of 1935 was created to help prevent the negative effects of unemployment.

Unemployment insurance (UI) replaces part of the income that individuals lose after being terminated.

Benefits help unemployed workers maintain their purchasing power while searching for a new job, which helps the economy as a whole.

The UI insurance act came about after the Great Depression, which left countless able-bodied workers unemployed.

Congress responded by creating the Social Security Act of 1935, which included a process to benefits for out-of-work individuals as well as older U.S. citizens who did not have any savings to live off of in their old age.

Over time, the act has evolved to meet the changing needs of unemployed workers as well as employers who pay taxes to fund the program.

Below, learn more about the history of unemployment benefits and find out how the laws have changed over time.

What is unemployment insurance?

UI benefits are provided to eligible workers who have lost their job due to no fault of their own.

Benefits are meant to provide temporary assistance to unemployed individuals who are in the process of finding new jobs. Each state has its own UI program, which is run in partnership with the federal government.

Before you can receive benefits, you must understand how to prove you are eligible and apply for the program, also known as submitting an unemployment claim.

UI insurance funds are paid for by taxes that are imposed on employers. The majority of states require that employers alone pay an employment tax, but three states require that employees make minimal contributions to the program as well.

Learn About UI Benefits Before the Social Security Act

Before the UI insurance act passed nation-wide, several states proposed bills that would provide compensation for workers who were unemployed.

As far back as 1916, Massachusetts proposed a bill. Several years later, Wisconsin followed suit by proposing its own law. Although it did not pass at first, parts of it were modified and reintroduced until the bill finally became law in 1932.

Other states had their own version of the unemployment insurance benefit act, including Connecticut, Minnesota and New York, all of which made minimal progress in the effort to curb the negative effects of unemployment.

History of the Social Security Act of 1935

Early unemployment insurance acts never went far because states were afraid the laws would put employers in their state at a disadvantage.

Because proponents of UI did not want to drive employees to other states, many began to push for the federal government to enact a law that applied to all states. A committee was created in 1928 that would consider the idea of mandatory unemployment insurance at the state level.

There was minimal effort to propose any sort of bill at the federal level until Senator Wagner and Representative Lewis jointly proposed a bill to the committee in 1934.

Related Article: Eligibility for Unemployment Benefits

The bill proposed an equal tax on all employers, which would remove the possibility of states being at a disadvantage when they adopted the law.

All employers who had more than 10 employees would have to pay a certain percentage of unemployment tax on their payrolls under the bill, which would go to a state unemployment reserve fund.

Although the unemployment insurance bill was well-received by employers, labor officials and employment experts, the committee did not initially report the bill to the public because it believed that more research was necessary on the subject.

President Franklin D. Roosevelt recognized that the implications of the bill needed to be investigated further, and as a result, created the Committee on Economic Security to make recommendations based on the bill.

There was some debate as to whether the federal government should force states to adopt the unemployment insurance bill and enact their own laws, or take full control of the program.

In the end, the bill resulted in a federal-state cooperative partnership in which states were given the option to make decisions about the program at the local level.

How Unemployment Benefits Have Evolved

The unemployment insurance act has been amended many times to add or remove certain benefits from the program to meet the changing needs of American workers. For example, after its creation, the bill was altered to provide benefits to unemployed service members who returned home from WWII and the Korean War.

There have also been many times that department of labor unemployment has been extended during periods of high unemployment.

Temporary unemployment compensation funds were provided for the first time in 1958, allowing any state that signed an agreement with the U.S. Secretary of Labor to provide up to 13 weeks of additional benefits to out-of-work individuals during high periods of unemployment.

The Temporary Unemployment Compensation Act of 1958 has been implemented in times of economic downturn, including 1961, 1971 to 1977, 1985 to 1988 and 1991 to 1993, for example.

Countless other unemployment compensation laws have been added to address other specific concerns relating to job loss. Major changes throughout the history of the unemployment act include:

  • The Disaster Relief Act, which allowed individuals who become unemployed as a result of natural disasters to receive temporary assistance.
  • The North American Free Trade Agreement Implementation Act, which, in part, allowed states to give unemployment benefits to individuals for the purpose of helping them become self-employed.
  • The Workforce Innovation and Opportunity Act, which helps unemployed workers receive better access to workforce development programs and work-based training that would help them obtain jobs.
  • The Trade Adjustment Assistance Act, which was created to help workers who lost their jobs or had their hours cut due to a higher rate of imports from other countries.

Learn About UI Benefits and the Middle Class Tax Relief Act

Some of the largest changes to the unemployment insurance act came with the implementation of The Middle Class Tax Relief and Job Creation Act of 2012.

Under this act, unemployed individuals can only become eligible for benefits if they are currently seeking work, are able to work and are available to accept any reasonable job offer.

Furthermore, claimants who receive an overpayment in UI benefits may need to have the excess payment taken out of benefit awards they receive in the future.

Under the act, states are also required to provide reemployment services information to workers who receive emergency unemployment compensation.

Related Article: Employment and Training Programs

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