Unemployment Insurance: A 79-Year Old Promise to American Workers That Needs Renewing
This post was originally published on the Center for Effective Government’s blog on August 14.
“What was the New Deal?…It was, I think, basically an attitude…that found voice in expressions like ‘the people are what matter to government,’ and ‘a government should aim to give all the people under its jurisdiction the best possible life.’” —Sec. Frances Perkins, Labor Secretary and architect of the Social Security Act of 1935
The Unemployment Insurance (UI) program was signed into law by President Franklin D. Roosevelt on Aug. 14, 1935, in the midst of the economy’s most severe contraction. At its lowest point, a quarter of the workforce was jobless, and in some areas, two-thirds of the unemployed had not worked for a year or more.
Beginning in 1929, the Great Depression ambushed the American people. In the weeks before the stock market crash, 429,000 Americans were unemployed. Three months after the crash, 4 million were out of work; by the following year, eight million were jobless. Those lucky enough to keep their jobs saw their wages shrink by 60 percent.
Families were torn apart by poverty and stress: divorce rates soared, marriage rates plummeted, and many men and boys left their homes to look for work.
Joblessness also destroyed public health. Malnutrition among school children was reported. Cases of tuberculosis doubled, and the U.S. Public Health Service reported that families of the unemployed suffered66 percent more illnesses than families that had work. Two years into the Depression, hospitals in New York City reported 100 cases of starvation. Suicides rose by 40 percent.
The Creation of a National Social Insurance Program: A Long Time Coming
The Crash of 1929 was not the first severe economic downturn, nor was it the first time citizens demanded their government provide relief. Economic panics broke out in 1837 and 1857, and severe depressions occurred in 1873 and 1884; all led to large public protests in the nation’s urban areas, protests that were often broken up by the police.
|Before the New Deal, there was no national social safety net for the unemployed.|
Before the New Deal, there was no national social safety net in America or a national system of relief. The poor relied on churches and private charities for help and on a county-based system of poorhouses or poor farms, where the destitute worked for food. In some places, the poor were put up for bid, the authorities accepting the lowest bid from whoever promised to provide care for the elderly, indigents, and orphans. But these were small-scale “solutions” were inappropriate for a growing urban population.
By the second half of the 19th century, the economy was rapidly industrializing, and migration from farm to city changed the conditions of work, the risks faced by workers, and the public discourse around employment. Political leaders and social reformers began to talk about the need for public programs to help those who lost their jobs in the “busts” that regularly followed boom times.relied on churches and private charities for help and on a county-based system of poorhouses or poor farms, where the destitute worked for food. In some places, the poor were put up for bid, the authorities accepting the lowest bid from whoever promised to provide care for the elderly, indigents, and orphans. But these were small-scale “solutions” were inappropriate for a growing urban population.
The earliest unemployment insurance programs were established by trade associations; association members paid into a private fund that would help support them when they were out of work. But it was not until the first decades of the 20th century that reformers envisioned an insurance against unemployment program that would involve the government.
In the wake of a severe recession in 1920-22, Connecticut, Minnesota, Pennsylvania, and Wisconsin introduced bills to require an employer to create a reserve fund from which to pay the workers that the individual employer laid off or fired. Massachusetts and New York introduced bills for a general unemployment fund paid for by workers, employers, and the state. None of these bills passed.
After the crash of 1929, when the number of unemployed reached numbers never seen before, mayors in several cities tried to create work programs for the unemployed but didn’t have the revenue to pay them. City governments were having a hard time paying their employees, teachers, policemen, and took on debt to do so. But as the urban unemployed became increasingly desperate and evictions and hunger grew, social protests and organized resistance to evictions spread. Thousands protested in Cleveland, Philadelphia, Chicago, Los Angeles, and New York demanding public action.
In 1931, two years into the Depression, 52 bills were introduced in state legislatures proposing some kind of assistance to the unemployed. Wisconsin was the first state to pass a mandatory unemployment assistance program, to be paid for by employers, in 1932.
Unfortunately, three years of depression meant individual employers, state governments, and city governments did not have the funds to deal with the growing number and anger of the unemployed. By 1933, almost 1,000 cities had defaulted on their debt, and both state and city governments were begging for federal assistance. National action was clearly needed.
The Federal Government Steps In
Relief came in the form of the Federal Emergency Relief Act, shepherded through Congress by a Republican senator from Wisconsin and two Democratic senators from Colorado and New York. The bill, signed in May 1932, provided $500 million in immediate grants to 45 states to cover their relief efforts. By the time the program ended four years later, the federal government had spent $3 billion on relief for 20 million unemployed Americans. Payments were very modest, just $15.15 per month per family in May 1933, when the average monthly salary was about $110 a month. This was a critical emergency measure, but the nation needed an ongoing program to deal with continuing mass unemployment.
The New Deal’s Unemployment Insurance Program: A Shared Responsibility between States and the Federal Government
“Of course, unemployment insurance alone will not make unnecessary all relief for all people out of a major economic depression, but it is my confident belief that such funds will, by maintaining the purchasing power of those temporarily out of work, act as a stabilizing device in our economic structure and as a method of retarding the rapid downward spiral curve and the onset of severe economic crises.” —Franklin Roosevelt on signing the Social Security Act
When the Social Security Act establishing Unemployment Insurance was signed into law, 12 million Americans were unemployed and an estimated six million had been out of work for more than a year. The program was a compromise that left many important design decisions to state legislators.
Under the law, employers with more than eight employees paid a percentage of their total payroll into the federal Unemployment Trust Fund. A small portion of the money is set aside to pay for administrative costs (staff and costs involved in processing claims). The state draws down the funds that its employers have deposited to pay out unemployment benefits. States can also borrow from the federal government if their funds run out.
|When the Social Security Act establishing Unemployment Insurance was signed into law, 12 million Americans were unemployed and an estimated six million had been out of work more than a year.|
While an important step forward, initially benefits were only available for 13 weeks (later extended to 26). And important classes of workers were excluded from the bill to satisfy Southern legislators – agricultural and domestic workers, disproportionately black, and federal workers could not participate. Benefits were only available to workers who had established a steady work history at a certain wage. In practice, this meant the program mainly served male industrial and commercial workers in the 1930s. In 1939, amendments were made to deliberately exclude more categories of workers: food packagers, nonprofit employees, and students. But since that time, federal reforms of the law have generally expanded the scope of workers eligible for unemployment benefits.
Under the Unemployment Insurance system, states set “work history” requirements that determine eligibility and the benefits levels that unemployed people receive; as a result, access to benefits and benefit amounts vary dramatically across the country. Even today, the percentage of unemployed who actually receive benefits in a state varies from 10 percent to 60 percent, according to the National Employment Law Project. The maximum weekly benefit a worker can receive varies from $235 a week in Mississippi to $674 a week in Massachusetts. Low-wage workers often fail to qualify because they don’t have consistent work histories at high enough wages.
In 1958, the federal government created an extended benefit program that provided an additional 13 weeks of unemployment benefits to individuals who had exhausted state benefits. Eventually, this program expanded to an additional 26 weeks of Emergency Unemployment Compensation, paid mostly by the federal government through special appropriations.
In the wake of the Great Recession, the Obama administration made $7 billion of the Recovery Act available to states to modernize their unemployment insurance programs, encouraging them to expand unemployment coverage to more low-wage workers, women, and part-time workers. This expansion provided critical help to many families as the number of unemployed was rising to almost 15 million in 2010. But the “recovery” from this deep recession has been slow to reach many communities and families around America, and spells of unemployment have been much longer than in other recessions, as the graph below from the Economic Policy Institute shows. The federal government did enact and fund a federal extension of 26 weeks for those who exhausted their 26 weeks of state benefits in 2009. But Republicans in Congress stopped funding for the program in December 2013.
Extending federal unemployment benefits to Americans in need has not been a partisan issue since the program was established almost 80 years ago. It shouldn’t be now. Federal extended benefits need an automatic trigger that doesn’t expire – based on state rates of unemployment and long-term unemployment. Preventing individual economic hardship should not be optional.
|Extending federal unemployment benefits to Americans in need has not been a partisan issue since the program was established almost 80 years ago. It shouldn’t be now.|
As Franklin Roosevelt noted, unemployment insurance helps stabilize the economy – by providing cash to unemployed people to pay for food and goods in their local communities. In fact, the failure to renew the Emergency Unemployment Compensation (EUC) program could cost the nation 240,000 jobs by the end of 2014.
But the most important goal of our unemployment insurance program must be alleviating the devastating impacts of job loss on families and individuals. This is a central risk of living in a complex industrial society, and only government can organize an appropriate response. Almost 80 years ago, government promised to help people beaten down by market forces beyond their control to survive, with enough sustenance to get back on their feet and try again. It’s a promise we need to renew.
Katherine McFate of the Center for Effective Government contributed to this post.