Sequester's Impact on Unemployment Insurance

PROJECT UPDATE

With unemployment remaining high, it's important to understand the effects of the sequester on unemployment insurance programs in the states.

The sequester—the automatic across-the-board federal spending cuts required under the Budget Control Act of 2011—went into effect March 1 after being postponed two months by the American Taxpayer Relief Act of 2012. That law reduced the fiscal year 2013 automatic spending cuts mandated by the Budget Control Act to $85 billion from $109 billion. The passage in March of the Consolidated and Further Continuing Appropriations Act of 2013, which provides federal government funding through the fiscal year ending September 2013, subsequently modified funding levels for certain programs.

Unemployment insurance programs are affected by the sequester. Among them are the 100 percent federally funded benefits for the long-term unemployed, which include the Emergency Unemployment Compensation and Extended Benefits programs. Federal grants to states and the District of Columbia to administer unemployment benefits also are subject to the sequester. 

Cuts to federally funded unemployment benefits under the sequester

As of early March, 1.8 million workers—or 15 percent of the total number of unemployed workers—received 100 percent federally funded unemployment insurance benefits. Under the sequester, states, which administer the program, have been instructed by the U.S. Department of Labor to reduce these federally funded benefit payments by roughly 11 percent for the remainder of fiscal year 2013. States that delay implementation of the cuts would later need to impose larger percentage cuts to meet the spending reduction targets.

The reduction in benefits could affect state economic activity. The potential impact would vary because the percentage of each state’s workforce receiving federally funded benefits ranges from a high of about 3.1 percent in Alaska to less than 0.1 percent in South Dakota. See our report, “The Fiscal Cliff and Unemployment Insurance Benefits: Implications for the States” for more details.

The Sequester's Impact on Unemployment Insurance Programs in the States

Percentage of states' labor force receiving federally funded unemployment insurance that could be affected by the sequester and the estimated cuts to federal grants to states for administering the programs.