Unemployment Compensation: Definition, Benefits & Purpose

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  • 0:08 Origin of Unemployment…
  • 1:14 Eligibility Requirements
  • 3:43 Unemployment Taxes
  • 4:59 Seeking New Employment
  • 6:48 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley has a JD degree and is an attorney. She has taught and written various law courses.

Unemployment compensation is a type of temporary benefit paid to people who have lost their jobs. This lesson explains unemployment compensation, including its purpose and benefits.

The Origin of Unemployment Compensation

Throughout history, our country has seen times of economic uncertainty when jobs were scarce. Unemployment compensation is a type of temporary assistance created to benefit certain workers who have lost their jobs through no fault of their own.

Unemployment compensation was first established during the Great Depression as a part of the Social Security Act of 1935. During that era, the country saw record numbers of unemployed among the working class.

These monetary benefits were designed to fulfill unemployed workers' most basic needs, such as simple foods and a few rent payments. Often, the unemployment compensation payments were barely enough to provide one meal per day for a family. However, these payments allowed unemployed workers to allocate a reasonable amount of time searching for gainful employment during a time when many people found themselves toiling at hard labor for little pay.

Eligibility Requirements

Each state has its own unemployment compensation program, but each state program must meet federal guidelines as administered by the U.S. Department of Labor. For example, all states make unemployment benefits available only to particular workers under certain circumstances.

Eligibility requirements vary from state to state, but all states make unemployment benefits available only to those workers who are unemployed through 'no fault of their own.' It's helpful to note that most people who collect unemployment compensation have been laid-off from their jobs. Many of those people lost their jobs unexpectedly or suddenly, but this is not a requirement.

Workers who voluntarily leave their jobs are normally ineligible to collect unemployment compensation. This includes:

  • Employees who are fired for misconduct
  • Employees who quit without good cause
  • Employees who resign because of illness
  • Employees who leave to get married
  • Employees who leave to relocate
  • Employees who are involved in a labor dispute
  • Employees who leave to attend college or other vocational school

For the most part, people who quit their jobs can't collect unemployment benefits, but there is one small exception. A worker may be eligible for unemployment benefits if he or she quits for good cause. Good cause is a legal term that generally means, 'adequate or substantial reason to quit.' The unemployment office will determine whether or not the worker had good cause.

For example, let's say that Angela works for Andrew and feels that she's being harassed at work. The harassment has left Angela emotionally distraught, and she feels she can't return to work and face Andrew. She files a harassment complaint with the appropriate authorities and asks to be moved away from Andrew, but her company refuses. Angela resigns rather than face Andrew again. Angela's state unemployment office will consider whether or not Angela had good cause to voluntarily quit her job while her harassment claim is considered with the proper authorities. Angela may be eligible to temporarily collect unemployment benefits while she looks for a new job.

Unemployment Taxes

Unemployment compensation is paid through the collection of unemployment taxes. Businesses are required to pay unemployment taxes to their state on behalf of each worker. These taxes are paid into a pool that is then accessed by the state unemployment office when a worker is deemed eligible for benefits. Unemployment compensation is paid by the government through the state unemployment office.

When a worker is declared eligible for benefits, the unemployment office will determine the amount of taxes that have been paid on that worker's behalf. A worker can't draw more benefits than that worker has earned. Sometimes, a worker can't draw benefits at all.

For example, if a worker hasn't worked for very long, then that worker won't be entitled to collect much, if any, in unemployment compensation. Also, many states require that workers have worked at a particular job for a set period of time before being entitled to collect unemployment compensation for the loss of that job. Also note that self-employed people and freelancers typically don't pay unemployment taxes and for this reason aren't usually entitled to draw unemployment benefits.

Seeking New Employment

Most states require that workers register with the state employment service in order to receive unemployment compensation. This is the government-run employment agency that will assist workers in finding new employment.

Often, the employment service will assist workers in preparing resumes, preparing for interviews, researching possible positions, and in other areas related to career training. Additionally, the employment service will serve as a check-in requirement for the worker.

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