CBO Releases a Report on Unemployment Insurance

November 28, 2012

Unemployment insurance benefits topped $150 billion during 2010—when the annual unemployment rate peaked at 9.6 percent—up from $33 billion in fiscal year 2007.

As discussed in today’s CBO report—Unemployment Insurance in the Wake of the Recent Recession—benefits grew not only because of increased layoffs of workers, but because of several changes to the unemployment insurance (UI) system over the last few years.

The UI system is a partnership between the federal government and state governments that provides a temporary weekly benefit to qualified workers who lose their job and are seeking work. Since 2008, policymakers have increased the number of weeks for which laid-off workers could receive benefits, and they temporarily raised the amount of those weekly benefits. Under current law, the temporary benefits that have been provided in recent years are set to expire at the end of December 2012.

CBO considered four options that would extend some or all of the current benefits for up to one year. The options would:

  • Afford greater protection against income lost during unemployment,
  • Provide incentives for UI recipients to remain unemployed longer than they otherwise would have, and
  • Lead to more consumer spending and increased demand for goods and services, which CBO expects would boost overall output and employment in the short term.

Federal costs for the options range from $3 billion to $30 billion. For the options that involve extensions for an entire year, CBO estimates that economic output would be $1.10 higher per dollar of budgetary cost, on average, in 2013.

CBO also assessed more fundamental changes to the UI system. Those changes would restructure benefits to encourage employment, alter the mix of federal and state roles in the UI system, or adjust the distribution of resources within the system.

William Carrington of CBO’s Microeconomic Studies Division wrote the report, in close collaboration with Christi Hawley Anthony of CBO’s Budget Analysis Division.