Employment Security Amendments of 1970

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The Employment Security Amendments of 1970 (ESA) (Public Law 91-373) was a federal law that created the first permanent system for allowing states to extend unemployment insurance benefits for up to 13 weeks after regular benefits expire during times of high national or state unemployment. The legislation also expanded unemployment insurance coverage to more workers, including employees of state hospitals and universities, small businesses, and nonprofit institutions. To pay for the additional costs from the expansion of eligibility and extended benefits, the law raised FUTA taxes and extended unemployment taxes to some businesses that were previously exempt.

President Richard Nixon (R) signed the ESA into law on August 10, 1970.

Background

Before the ESA was passed, Congress had enacted temporary provisions allowing states to extend unemployment insurance benefits for individuals who exhausted regular benefits during periods of high unemployment in 1958 and 1961. No permanent triggers existed to allow for extended benefits if state or national unemployment rates passed a threshold.

Certain workers, including employees of state hospitals and universities, small businesses (businesses that employed fewer than four workers in at least 20 weeks during the year), and nonprofit institutions, were not eligible for benefits before the legislation was passed. Since fewer worker were covered under previous employment security legislation, fewer employers were taxed at lower rates to fund the joint federal-state unemployment insurance program.

The ESA created the first permanent system of triggers allowing states to extend unemployment insurance benefits for up to 13 weeks during times of high national or state unemployment. The legislation also expanded coverage to more workers, including employees of state hospitals and universities, small businesses, and nonprofit institutions. To pay for the additional costs from the expansion of eligibility and extended benefits, the law raised FUTA taxes and extended unemployment taxes to some businesses that were previously exempt.

Provisions

This section includes summaries of some of the major provisions included in the Employment Security Amendments of 1970 (ESA).

Establish the Extended Unemployment Compensation Account

The ESA established the Extended Unemployment Compensation Account (EUCA), which is an account within the federal Unemployment Trust Fund that pays for the federal government's share of extended joint federal-state unemployment insurance benefits established under the ESA. The account is funded with Federal Unemployment Tax Act (FUTA) tax revenues.

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There is hereby established in the Unemployment Trust Fund an extended unemployment compensation account. For the purposes provided for in section 904(e), such account shall be maintained as a separate book account.

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Establish extended benefits

See also: Federal-State Extended Unemployment Compensation Act of 1970

The ESA established a permanent framework for states to pay unemployment insurance benefits to claimants who exhausted their regular benefits during periods of high unemployment. The sections of the ESA establishing the extended benefit program are sometimes referred to as the Federal-State Extended Unemployment Compensation Act of 1970.

The ESA considered a state to have high unemployment when a state's unemployment rate was equal to or greater than 6.5%.

During periods of high unemployment, states enter extended benefits periods, which allow certain individuals who meet their state's criteria to claim extended benefits after exhausting regular benefits. The cost of the 13 weeks of extended benefits is split between the federal government and the states. State Unemployment Trust Funds cover half the cost, and the federal Extended Unemployment Compensation Account covers the remining half.

When an extended benefit period is active in a state, the agency responsible for distributing benefits notifies workers who exhaust their regular benefits that they may be eligible for extended benefits. Some states may determine eligibility and continue extended benefits payments automatically. In other states, workers need to apply for extended benefits.

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(1) The State law shall provide that the State will establish, for each eligible individual who files an application therefor, an extended compensation account with respect to such individual's benefit year. The amount established in such account shall be not less than whichever of the following is the least: (A) 50 per centum of the total amount of regular compensation (including dependents' allowances) payable to him during such benefit year under such law, (B) thirteen times his average weekly benefit amount, or (C) thirty-nine times his average weekly benefit amount, reduced by the regular compensation paid (or deemed paid) to him during such benefit year under such law; except that the amount so determined shall (if the State law so provides) be reduced by the aggregate amount of additional compensation paid (or deemed paid) to him under such law for prior weeks of unemployment in such benefit year which did not begin in an extended benefit period. (2) For purposes of paragraph (1), an individual's weekly benefit amount for a week is the amount of regular compensation (including dependents' allowances) under the State law payable to such individual for such week for total unemployment. ... (1) There is a State “on” indicator for a week if the rate of insured unemployment under the State law for the period consisting of such week and the immediately preceding twelve weeks - (A) equaled or exceeded 120 per centum of the average of such rates for the corresponding thirteen-week period ending in each of the preceding two calendar years, and (B) equaled or exceeded 5 per centum. (2) There is a State “off” indicator for a week if, for the period consisting of such week and the immediately preceding twelve weeks, either subparagraph (A) or subparagraph (B) of paragraph (1) is not satisfied.

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Expand unemployment insurance eligibility

The ESA expanded unemployment insurance benefits to individuals who previously did not qualify for coverage. Workers at state hospitals and universities and nonprofit institutions became eligible.

The legislation also expanded the number of small business employees covered under unemployment insurance, expanding coverage to businesses that employed one or more workers for at least one day in 20 weeks of a year. The program also expanded to cover employers that paid $1,500 in wages or more in a calendar quarter of the current or preceding calendar year.

In total, the ESA expanded coverage to about 4.8 million workers at the time of its passage.

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Section 3306(a) of the Internal Revenue Code of 1954 is amended to read as follows: (a) EMPLOYER.—For purposes of this chapter, the term 'employer' means, with respect to any calendar year, any person who— (1) during any calendar quarter in the calendar year or the preceding calendar year paid wages of $1,500 or more, or (2) on each of some 20 days during the calendar year or during the preceding calendar year, each day being in a different calendar week, employed at least one individual in employment for some portion of the day. (b) (1) Section 6157(a) (1) of such Code (relating to payment of Federal unemployment tax on quarterly or other time period basis) is amended to read as follows: (1) if the person— "(A) during any calendar quarter in the preceding calendar year paid wages of $1,500 or more, or "(B) on each of some 20 days during the preceding calendar year, each day being in a different calendar week, employed at least one individual in employment, compute the tax imposed by section 3301 for each of the first three calendar quarters in the calendar year, and. (2) Section 6157(b) of such Code is amended by striking out "the number of percentage points (including fractional points) by which the rate of tax specified in section 3301 exceeds 2.7 percent" and inserting in lieu thereof "0.5 percent". (c) (1) The amendments made by subsections (a) and (b) (1) shall apply with respect to calendar years beginning after December 31, 1971. (2) The amendment made by subsection (b) (2) shall apply with respect to calendar years beginning after December 31, 1969. ... "(1) except as otherwise provided in subsections (b) and (c), the services to which this paragraph applies are—(A) service excluded from the term 'employment' solely by reason of paragraph (8) of section 3306 (c), and (B) service performed in the employ of the State, or any instrumentality of the State or of the State and one or more other States, for a hospital or institution of higher education located in the State, if such service is excluded from the term 'employment' solely by reason of paragraph (7) of section 3306(c); and (2) the State law shall provide that an organization (or group of organizations) which, but for the requirements of this paragraph, would be liable for contributions with respect to service to which paragraph (1) (A) applies may elect, for such minimum period and at such time as may be provided by State law, to pay (in lieu of such contributions) into the State unemployment fund amounts equal to the amounts of compensation attributable under the State law to such service. The State law may provide safeguards to ensure that organizations so electing will make the payments required under such elections.

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Expand FUTA taxes

The law extended federal unemployment (FUTA) taxes to the smaller employers who were previously exempt from unemployment insurance coverage. The taxable FUTA wage base increased from $3,000 to $4,200, and the federal unemployment tax rate increased from 3.1% to 3.2% of the wage base. The tax offset allowed to employers that paid state unemployment taxes on time remained at 2.7 percent, so the law increased the net federal tax liability for most employers from 0.4% to 0.5%.

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SEC. 3301. RATE OF TAX. There is hereby imposed on every employer (as defined in section 3306(a)) for the calendar year 1970 and each calendar year thereafter an excise tax, with respect to having individuals in his employ, equal to 3.2 percent of the total wages (as defined in section 3306(b)) paid by him during the calendar year with respect to employment (as defined in section 3306(c)). (b) For purposes of section 6157 of the Internal Revenue Code of 1954 (relating to payment of Federal unemployment tax on quarterly or other time period basis), in computing tax as required by subsections (a) (1) and (2) of such section, the percentage contained in subsection (b) of such section apj)licable with respect to wages paid in any calendar quarter in 1970 ending before the date of the enactment of this Act shall be treated as being 0.4 percent. SEC. 302. INCREASE IN WAGE BASE. Effective with respect to remuneration paid after December 31, 1971, section 3306(b) (1) of the Internal Revenue Code of 1954 is amended by striking out "$3,000" each place it appears and inserting in lieu thereof "$4,200".

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Impact of extended benefits on the economy

Experts and economists have observed mixed outcomes from extended unemployment insurance benefit programs. Congressional Budget Office Director Peter Orszag in testimony to Congress in 2008 argued extended unemployment insurance benefits were a cost-effective form of stimulus during recessions and economic downturns because recipients were likely to spend the money quickly and boost aggregate demand. However, Orszag also said extended unemployment benefits could discourage recipients from seeking or accepting work as quickly.

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Based on CBO’s analyses of the family income of long-term UI recipients in previous periods, it seems likely that recipients would quickly spend most of those benefits. For example, an examination of the experiences of long-term UI recipients in 2001 and early 2002 who had not found work soon after their benefits ended—that is, the people for whom extensions of UI benefits are intended—indicated that their average family income was about half of what it had been when they were working. Moreover, more than one-third of the former recipients who had not returned to work had a family income below the poverty line (measured on a monthly basis), and about 40 percent lacked health insurance. ... Because these options would also tend to boost income among families very likely to spend most of the additional money rapidly, the options would be relatively cost-effective. The availability and size of UI benefits may, however, somewhat discourage recipients from searching for work and from accepting less desirable jobs. Extending the duration of benefits or increasing their size means that at least some recipients may remain unemployed longer than they would have without that aid. The effect is probably most pronounced when jobless rates are relatively low; when joblessness is high and work is especially hard to find, extensions of UI benefits appear to lengthen spells of unemployment by a smaller amount.

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Economist Martin Feldstein made similar observations regarding the possible negative effects of extending unemployment insurance benefits. Feldstein argued the disincentive to return to work could reduce earnings, spending, and aggregate demand.

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While raising unemployment benefits or extending the duration of benefits beyond 26 weeks would help some individuals ... it would also create undesirable incentives for individuals to delay returning to work. That would lower earnings and total spending.

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Researchers Ammar Farooq, Adriana Kugler, and Umberto Muratori argued that extending unemployment insurance benefits could allow workers to find better jobs that matched their skills and help businesses find better employees, creating a positive effect in the labor market.

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These results suggest that if a worker can receive UI benefits for a longer period, she will be able to find a job with an employer that is closer to her in terms of quality. This worker then is likely to leave another job open for someone else who is also likely to be better matched, and in turn that other worker can also leave vacant another job and relieve it to someone else, generating a chain reaction that makes many other workers, beyond the one receiving the UI extension, match better in the labor market.

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See also

• Unemployment insurance
• Social Security Act (1935)
• Federal Unemployment Tax Act (1939)
• Federal-State Extended Unemployment Compensation Act (1970)
• Emergency Unemployment Compensation Act of 1971
• Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020)

External links

• Full text of case syllabus and opinions (Justia)
• Supreme Court of the United States
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