Unemployment Insurance as an Economic Stabilizer: Evidence of Effectiveness Over Three Decades

Abstract

The countercyclical effectiveness of the UI program reflects the capability to dampen fluctuations in GDP during recessions and booms. In recent years, increasing attention has been directed towards the UI program, questioning its relevance for current federal policy and the need for UI in today's modern global economy, and disputing the effectiveness of the program. This study examines conceptual and empirical evidence regarding the countercyclical effectiveness of the UI program. A set of absolute measures of effectiveness is developed and presented to show how the UI program has functioned historically and to examine its current posture. In addition, the role UI plays as an economic stabilizer is evaluated relative to federal tax receipts-perhaps the major automatic stabilizer in the economy.