Unemployment Insurance and Workers’ Compensation


The joint federal-state unemployment insurance (UI) system was created in 1935 as part of the Social Security Act to provide a safety net for workers who lose their jobs through no fault of their own. Traditionally, states pay for the basic UI benefit of up to 26 weeks, while the federal government pays for extended benefits during recessions.

Older workers are less likely than their younger counterparts to be unemployed, but once unemployed, older workers tend to be unemployed longer than their younger counterparts. Long-term unemployment skyrocketed during the Great Recession and has remained very high since then, with an often devastating impact on many unemployed people. The longer workers are unemployed, the lower their chances of becoming reemployed. Early intervention in the unemployment process is critical if the unemployed, especially those who are older, are to find gainful employment.

During the recession, Congress extended unemployment insurance benefits several times, making jobless workers in states with high unemployment eligible for up to 99 weeks of benefits. However, those extended federal benefits have been discontinued, eliminating protection for a sizable number of long-term unemployed. Many of those who have been cut off are older workers. The recession also exacerbated ongoing problems with the solvency of state UI trust funds. Small wage bases (most states tax less than $12,000 in earnings per employee) and low tax rates have resulted in inadequate funding levels. UI trust funds’ balances became even lower due to the combination of reduced revenues from employers and increased unemployment. Nearly two-thirds of the states had to borrow from the federal UI trust fund to finance benefits. There is some evidence suggesting states that index their UI taxable wage base were less likely than other states to borrow to cover payments.

States have been reluctant to raise or index UI taxes. Some states have cut the basic benefits portion of their UI benefits rather than addressing their underlying tax structures (for example, some have reduced the basic benefit time period from 26 to 20 weeks).

The American Recovery and Reinvestment Act of 2009 offered states financial incentives to expand and modernize their UI programs. To qualify for the full amount of federal funds, states had to base eligibility on a worker’s most recent earnings and also enact two out of four suggested reforms. One reform measure was to pay UI benefits to unemployed part-time workers seeking part-time work—a change of particular importance to many older workers who may wish or need to work beyond retirement age but who cannot or choose not to work full-time, and also to many working caregivers (mostly women) caring for a parent who is an older adult.

Some states reduce or eliminate UI benefits for claimants receiving earned pension or Social Security payments. This reduction undercuts policies designed to promote economic security in retirement. Similarly, many states reduce or terminate workers’ compensation benefits when recipients become eligible for Social Security retirement benefits. This has adverse effects on retirement security, particularly for workers whose occupational injury or illness prevents them from working for a long period leading up to retirement.

During economic downturns, work sharing is an alternative to layoffs that enables employers to reduce work hours and spread the remaining work among employees who might otherwise be terminated. States that have amended their UI laws can pay partial unemployment benefits to work sharers. Also known as short-time compensation, work-share programs are voluntary, temporary programs that help employers retain experienced workers and allow employees to keep their job skills honed.

Unemployment Insurance and Workers’ Compensation: Policy

Unemployment insurance (UI)

All 50 states should adopt reforms to permit part-time workers and individuals seeking part-time work to receive UI benefits. Waiting periods should be eliminated, UI should be available to job training participants, and the compensation formula used in eligibility determinations should be based on a worker’s most recent earnings.

Until levels of unemployment and discouraged workers decline to more historically typical levels, Congress and the states should provide additional safety-net benefits, training opportunities, and access to jobs programs for those who have exhausted their UI benefits.

AARP opposes cuts in the basic 26 weeks of UI benefits that states have traditionally provided. Congress should relieve states of their immediate loan obligations in exchange for states being required to follow a responsible path to solvency.

States that have not done so should amend their unemployment compensation laws to permit the payment of prorated unemployment benefits (short-term compensation) to employees on reduced work hours.

State UI agencies should ensure that UI applicants understand the importance of beginning their job search early in their unemployment spell. Agencies should have sufficient staffing and other resources to assess the unemployed and refer them to workforce development centers in a timely manner.

Part-time work should be fully recognized in UI programs.

Workers’ compensation

Workers who suffer an occupational injury or illness should be eligible for full workers’ compensation benefits regardless of age or eligibility for Social Security retirement benefits. Offset or termination provisions in state workers’ compensation laws should be repealed.