Unemployment insurance helps the economy as well as individual workers

Part five of an explainer series on Idaho’s unemployment insurance (UI) program.

While most discussions about the unemployment insurance benefits program focus on the role as a safety net for individual workers, this is only one of three major purposes it serves. The two others include as an automatic stabilizer for the greater economy during recessions and to preserve the workforces of industries that experience wide annual swings in business due to changes in weather throughout the year.

As an economic stabilizer, unemployment benefits are an insurance policy for the entire economy during recessions or economic disruptions that affect a large number of workers like the Great Recession after the 2008 global financial collapse or shutdowns caused by the COVID-19 pandemic in 2020.

During these types of events, with a large drop in employment and a reduction in economic activity as payrolls diminish and buying is curtailed, there is a risk of a snowball effect and greater economic consequences as businesses suffer from the reduction in demand. The stabilizer effect the unemployment insurance program provides is meant to hedge against greater economic turmoil that could lead to a much deeper and long period of economic decline.

This objective was also specifically enshrined by the Idaho legislature in 1947 under section 72, chapter 13:

72-1302.DECLARATION OF STATE PUBLIC POLICY. The public policy of this state is as follows: Economic insecurity due to unemployment is a serious threat to the well-being of our people. Unemployment is a subject of national and state concern. This chapter addresses this problem by encouraging employers to offer stable employment and by systematically accumulating funds during periods of employment to pay benefits for periods of unemployment. The legislature declares that the general welfare of our citizens requires the enactment of this measure and sets aside unemployment reserves to be used for workers who are unemployed through no fault of their own.

The third purpose of the unemployment insurance program is to help stabilize and prevent the dispersal of the skilled labor force for industries that experience regular periods of low activity that goes along with the seasonal aspects of the year. The construction industry is one example that has seasonal declines in activity as cold winter weather impedes activity. Rather than seeing experienced workers and skilled tradespeople scatter into the wind and an employer having to find and train a fresh workforce each year, the unemployment insurance program helps employers retain these workers over the short periods of inactivity. Claimants who fall into this type of seasonal work are known as “job-attached.”

This facet of the unemployment insurance program is not a handout to corporations and businesses. Companies with these types of seasonal industries pay higher unemployment insurance taxes compared with industries that do not have such seasonal fluctuations to their operations (see employer experience ratings in UI Blog Two). This benefits consumers as the struggle to find fresh new workers each year would result in lengthier times to complete projects or deliver goods.

While not all workers with seasonal jobs are automatically exempt from seeking work, for those eligible job-attached claimants, they are limited by state rule to 16 weeks of collecting unemployment benefits. Claimants who are not returning to work within 16 weeks of their layoff or work hour reduction are required to look for work.

Job-attached benefit claimants represent 32% of the continued claim activity for Idaho’s unemployment insurance program since 2006. During certain times of year and at certain points of the business cycle, job-attached claims exceed the number of any other type of claim including job seeker (see figure 1).  Before 2017, job-seeking claimants typically outnumbered job attached. After 2017, during the height of seasonal declines, job-attached claims began to outnumber all other claim types. During the unique period of the pandemic, the vast majority of claims were job attached.

The spike of job-attached unemployment claims during the pandemic included nearly every, if not all industries in Idaho. However, during a normal year’s economic activity, the Idaho industries that comprise the majority job-attached claims are the ones with the greatest seasonal swings. As Table 1 shows, construction in Idaho comprise the majority of job-attached claims in most years averaging 20% of all job-attached claims in the past 10 years.

When unemployment exists, it has the potential to create additional social difficulties that can impose additional costs and burdens on the state, and for seasonal industries it can result in the loss of skilled and experience labor. The unemployment insurance program prevents and minimizes the additional consequences and ill-effects that a large unemployed population has the potential to impose.

Craig Shaul, research analyst supervisor
Idaho Department of Labor


Part One: Idaho’s Unemployment Insurance Program Part of a National System

Part Two: Explaining Idaho’s UI Tax System – Claimants and Benefits

Part Three: Explainer on the Unemployment Insurance Trust Fund and Taxes

Part Four: Labor Department works hard to prevent fraud, protect trust fund

Idaho’s unemployment insurance programs are 100% funded by USDOL Employment & Training Administration grants.