Unemployment Insurance, Part I: A Brief Overview

An Overview of Unemployment Insurance

The start of unemployment insurance as a program dates back to the Social Security Act of 1935. Implemented through Title III and Title IX of the Act, the Social Security Administration comments on its origins, stating partly, “…The choice of old age and unemployment as the risks to be covered by social insurance was a natural development, since the Depression had wiped out much of the lifetime savings of the aged and reduced opportunities for gainful employment…”.¹ During the year this Act was signed, unemployment in the nation reached roughly 20.1%,² after hitting a high of 24.9% two years earlier, and the trend did not slow down for many years.

There have been many periods of high unemployment since the Great Depression: the 1981 Recession (reaching a peak of 10.8% in November and December of 1982), the Great Recession (reaching a peak of 10% in October 2009), and the period around the COVID-19 pandemic (reaching a peak of 14.8% in April 2020).³ Throughout these tumultuous times, unemployment benefits remained a program used by individuals for assistance while they are out of work.

Since unemployment insurance is a joint program with the federal government, states differ in the implementation and operation of these programs. A DOL publication from May 2024 titled “Unemployment Compensation: Federal-State Partnership” describes requirements for both the federal government and state/territorial governments. Federal responsibilities include ensuring compliance with Federal law, appropriate funding for state administration, “broad overall policy,” and maintaining the unemployment trust fund. States are responsible for operations and administration, claims and payments, and the determination of liability and taxes. (Pages 1–2)⁴

The Current Environment

Recent Public Law and Federal Activity

• The One Big Beautiful Bill Act, in Section 73100 (“Ending Unemployment Payments to Jobless Millionaires”), ended unemployment payments to individuals who earned over $1 million in the applicable period.⁵
• H.R. 1156: The Pandemic Unemployment Fraud Enforcement Act passed the U.S. House of Representatives and would extend the statute of limitations for fraud of temporary unemployment insurance programs during the pandemic, from five to ten years, and cancel $5 million of funding for program integrity activities that came from the American Rescue Plan Act of 2021.⁶
• H.R. 6431: The New Opportunities for Business Ownership and Self-Sufficiency Act passed the U.S. House of Representatives and would expand ways for states to implement self-employment assistance programs (SEA), which allow claimants resources to start their own businesses.⁷
• Each government tackles fraud in different ways and the federal government is placing pressure on states with less stringent mechanisms to identify and enforce current laws. DOL sent a letter to all states and territories, making it clear federal officials are going to provide greater oversight of state programs. Examples were provided in the release, such as California ($20 billion debt to the federal government from its program), New York (improper payments over 20%), and Illinois (improper payments over 14%).⁸ The release partly stated:

“The days of excuses are over. States that fail to protect taxpayer dollars should expect consequences. Acting Secretary of Labor Keith Sonderling and I will use every available enforcement tool to demand accountability, recover stolen money, and ensure unemployment benefits only go to eligible Americans.”⁸

—Inspector General Anthony D’Esposito, DOL Press Release

Uncertainty on AI’s Future Impact on Hiring Practices

• Anthropic released a study on March 5, 2026, titled “Labor market impacts of AI: A new measure and early evidence.” The study draws on the O*NET database of job occupations, their organizational data called the “Anthropic Economic Index,” and estimates from a 2023 study on the possibility of large language models completing tasks “twice as fast” (Page 4). Their analysis partly states there has not been a “systematic increase in unemployment for highly exposed workers since late 2022”, although the hiring of younger workers appears to slow in those areas (Page 2).⁹
• A noteworthy study from Gallup was released in April detailing workplace views on the use of AI. One of the findings, as quoted below, shared the idea that the largest companies adopting AI are more likely to reduce their workforce:

“The staffing pattern by AI use is different among the largest organizations. Employees in AI-adopting organizations of 10,000 or more are slightly more likely to report reductions in workforce size (33%) than expansion (30%). This contrasts with organizations of 10,000 or more that have not adopted AI. In these organizations, 36% report hiring and expanding their workforce compared with 23% reporting reductions.”¹⁰

—Gallup Study, “Rising AI Adoption Spurs Workforce Changes”

Policy Implications

Federal guidance and society’s increased use of AI exert influence over state unemployment insurance programs by impacting both the underlying regulations and the future of workplace hiring practices. The policy implication is that each unemployment insurance program faces unique challenges, depending on local economic activity. Governmental organizations must follow federal law, balance the needs of employers and claimants, and maintain an efficient operation. If there is disruption in the economy, it is critical for each program to remain consistent and robust. The use of AI is going to present more challenges to state agencies implementing these programs as new workplace situations will require reliability from the systems built to methodically process claims.

What happens as we turn our focus to individual state programs? Are there specific issues continuing to show up over time, and how do they impact the administration of benefits? Also, does each state process claims in the same manner or are there differences leading toward imbalances? Part II will analyze common difficulties experienced by the agencies and bodies administering unemployment insurance.

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Footnotes

1. Social Security Administration, “Historical Development,” in Social Security Programs in the United States (SSA Pub. No. 13-11758), Office of Research, Evaluation, and Statistics, ssa.gov. ↩
2. U.S. Bureau of Labor Statistics, “Labor Force, Employment, and Unemployment, 1929–39” (annual estimates), series LFU21000100/LFU22000100, data.bls.gov. ↩
3. U.S. Bureau of Labor Statistics, “Unemployment Rate” (Labor Force Statistics from the Current Population Survey), series LNS14000000, data.bls.gov. ↩
4. U.S. Department of Labor, Office of Unemployment Insurance, Division of Legislation, Unemployment Compensation: Federal-State Partnership, May 2024, doleta.gov. ↩
5. One Big Beautiful Bill Act, Pub. L. No. 119-21, § 73100 (“Ending Unemployment Payments to Jobless Millionaires”), July 4, 2025, congress.gov. ↩
6. H.R. 1156, Pandemic Unemployment Fraud Enforcement Act, 119th Cong. (2025) (passed the House Mar. 11, 2025, 295–127), congress.gov. See also Congressional Budget Office, “H.R. 1156, Pandemic Unemployment Fraud Enforcement Act,” cost estimate, February 24, 2025, cbo.gov. ↩
7. H.R. 6431, New Opportunities for Business Ownership and Self-Sufficiency Act, 119th Cong. (2025–2026) (passed the House Apr. 27, 2026), congress.gov. See also Congressional Budget Office, “H.R. 6431, New Opportunities for Business Ownership and Self-Sufficiency Act,” cost estimate, March 3, 2026, cbo.gov. ↩
8. U.S. Department of Labor, Employment and Training Administration, “US Department of Labor Demands Immediate Action from Governors on Unemployment Insurance Fraud,” news release no. ETA-26-780-NAT, June 17, 2026, dol.gov. ↩
9. Maxim Massenkoff and Peter McCrory, “Labor Market Impacts of AI: A New Measure and Early Evidence,” Anthropic, March 5, 2026, anthropic.com. ↩
10. Andy Kemp, “Rising AI Adoption Spurs Workforce Changes,” Gallup, April 13, 2026, gallup.com. ↩

For a firsthand look at how one state agency handles an unemployment claim, see the Side Note on the Texas Workforce Commission's good cause process.

About the Author

Blake Dodd is a policy analyst specializing in workforce programs, regulatory interpretation, and state program evaluation. He has experience advising on funding decisions affecting colleges and employers, with a background in legislative research and budget support in Texas and Louisiana. His writing focuses on how governmental systems implement policy and the importance of alignment with the original intent of a law or regulation.

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