Unemployment Benefit

Definition

The term unemployment benefit refers to a program that provides temporary compensation to an individual that is out of work through no fault of their own.  Unemployment benefits are paid until the individual is fully employed, or the programs maximum benefit is reached.

Explanation

Also referred to as unemployment insurance, unemployment benefit programs are jointly run by state and federal agencies.  These programs provide partial wages to qualifying individuals; typically former employees that have lost their job through no fault of their own.  The exact formula used to calculate the benefit paid varies by state, but typically consider:

  • Prior Earnings:  this may include annual earnings, or the compensation paid over a three to six month timeframe.
  • Dependents:  some states provide an additional benefit if the unemployed person has dependents.  For example, program beneficiaries may receive an additional weekly amount of $25.00 per dependent.
  • Payment Caps:  while prior earnings are considered as part of the benefits formula, the program may also place an upper limit on the total weekly benefit, which is oftentimes indexed to a state's average salary.

Note:  All unemployment compensation benefits are taxable. In addition, individuals that are not fully employed may be entitled to a reduced benefit under their state's program.

During normal economic times, individuals may collect benefits for up to 26 weeks.  When unemployment is relatively high, as is the case during a recession, the duration of benefits may be extended.

Related Terms

cyclical unemployment, frictional unemployment, classical unemployment, natural unemploymentlong term unemployment, technological unemployment, Trade Readjustment Allowance, underemployment, Extended Benefits, Emergency Unemployment Compensation