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A Distinctive System: Origins and Impact of U.S. Unemployment Compensation

In: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century

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  • Katherine Baicker
  • Claudia Goldin
  • Lawrence F. Katz

Abstract

Unemployment compensation in the United States was signed into law in August 1935 as part of the omnibus Social Security Act. Drafted in a period of uncertainty and economic distress, the portions that dealt with unemployment insurance were crafted to achieve a multiplicity of goals, among them passage of the act and a guarantee of its constitutionality. Along with the federal-state structure went experience-rating and characteristics added by the states, such as the limitation on duration of benefits. The U.S. unemployment compensation system is distinctive among countries by virtue of its federal-state structure, experience-rating, and limitation on benefits. We contend that these features were products of the times, reflecting expediency more than efficiency, and thus that UI would have been different had it been passed in another decade. But how different is the UI system in the United States because of these features, and how have they affected the U.S. labor market? We present evidence showing that more seasonality in manufacturing employment in 1909-29 is related to higher UI benefits from 1947 to 1969, if a state's manufacturing employment share is below the national mean. Lobbying activities of seasonal industries appear important in the evolution of the parameters. We also present suggestive evidence on the relationship between declining seasonality and experience-rating.
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Suggested Citation

  • Katherine Baicker & Claudia Goldin & Lawrence F. Katz, 1998. "A Distinctive System: Origins and Impact of U.S. Unemployment Compensation," NBER Chapters, in: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, pages 227-264, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:6895
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    References listed on IDEAS

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    Cited by:

    1. Donald O. Parsons & Torben Tranæs & Helene Bie Lilleør, 1999. "Voluntary Public Unemployment Insurance," EPRU Working Paper Series 03-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Jun 2003.
    2. Malherbet, Franck & L'Haridon, Olivier, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," CEPR Discussion Papers 3614, C.E.P.R. Discussion Papers.
    3. Olivier J. Blanchard & Jean Tirole, 2008. "The Joint Design of Unemployment Insurance and Employment Protection: A First Pass," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 45-77, March.
    4. Marta Lachowska & Isaac Sorkin & Stephen A. Woodbury, 2022. "Firms and Unemployment Insurance Take-up," NBER Working Papers 30266, National Bureau of Economic Research, Inc.
    5. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Discussion Paper Series 54, Julius Maximilian University of Würzburg, Chair of Economic Order and Social Policy.
    6. Parsons, Donald O., 2017. "Employer-Provided Severance Pay: The Emergence of Job Displacement Insurance, 1930–1954," IZA Discussion Papers 11068, Institute of Labor Economics (IZA).
    7. Audrey Guo & Andrew C. Johnston, 2021. "The Finance of Unemployment Compensation and Its Consequences," Public Finance Review, , vol. 49(3), pages 392-434, May.
    8. Michael Huberman & Chris Minns, 2005. "Hours of Work in Old and New Worlds: The Long View, 1870-2000," The Institute for International Integration Studies Discussion Paper Series iiisdp95, IIIS.
    9. L'Haridon, Olivier & Malherbet, Franck, 2009. "Employment protection reform in search economies," European Economic Review, Elsevier, vol. 53(3), pages 255-273, April.
    10. Fishback, Price V. & Kantor, Shawn Everett, 1998. "The Political Economy of Workers' Compensation Benefit Levels, 1910-1930," Explorations in Economic History, Elsevier, vol. 35(2), pages 109-139, April.
    11. Guo, Audrey & Johnston, Andrew C., 2020. "The Finance of Unemployment Compensation and its Consequence for the Labor Market," IZA Discussion Papers 13330, Institute of Labor Economics (IZA).
    12. Kiley Michael T., 2003. "How Should Unemployment Benefits Respond to the Business Cycle?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-22, July.
    13. Sarbini & Slamet Suhartono & Sri Setyadji & Hufron, 2021. "Legal protection of transferred workers after the enabling of the creation law of work," Technium Social Sciences Journal, Technium Science, vol. 20(1), pages 302-307, June.
    14. Neugart, Michael, 2005. "Unemployment insurance: The role of electoral systems and regional labour markets," European Journal of Political Economy, Elsevier, vol. 21(4), pages 815-829, December.
    15. Mukoyama, Toshihiko & Sahin, Aysegl, 2009. "Why did the average duration of unemployment become so much longer?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 200-209, March.
    16. Vincent Fromentin, 2012. "Migration and unemployment duration in OECD countries: A dynamic panel analysis," Economics Bulletin, AccessEcon, vol. 32(2), pages 1113-1124.
    17. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    18. Price Fishback & Samuel Allen & Jonathan Fox & Brendan Livingston, 2010. "A Patchwork Safety Net: A Survey Of Cliometric Studies Of Income Maintenance Programs In The United States In The First Half Of The Twentieth Century," Journal of Economic Surveys, Wiley Blackwell, vol. 24(5), pages 895-940, December.
    19. Glismann, Hans H. & Schrader, Klaus, 2001. "Alternative Systeme der Arbeitslosenversicherung: das Beispiel der Vereinigten Staaten und des Vereinigten Königreichs," Kiel Working Papers 1032, Kiel Institute for the World Economy (IfW Kiel).

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    JEL classification:

    • J0 - Labor and Demographic Economics - - General
    • N0 - Economic History - - General

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