Unemployment benefits

Unemployment benefits—also known as unemployment insurance, unemployment payment, unemployment compensation, or simply unemployment—are sums of money that governments pay to people who are out of work. The amount can vary widely by country and individual situation: it might be just enough to cover basic necessities, or it could replace a portion of the person’s previous wages. Typically, these payments go only to people who lost their job through no fault of their own, and recipients usually must show they are actively looking for work.

In British English, these benefits are often called “the dole” or just “benefits,” and receiving them is known as “being on the dole.” The word “dole” comes from an old term meaning “one’s allotted portion,” rooted in the Old English word *dāl*. In Australia and New Zealand, someone on unemployment benefits who makes no effort to find work is called a “dole bludger.” In the United Kingdom, the equivalent term is “layabout,” while in the United States, “slacker” is the common label for someone who chooses not to work.

**History**

The first modern unemployment benefit system was created in the United Kingdom through the National Insurance Act of 1911, passed by the Liberal government of H. H. Asquith. The policy was designed to prevent poverty caused by unemployment, but it also helped the Liberal Party counter the growing influence of the Labour Party among working-class voters. The Act introduced a contributory insurance system covering illness and unemployment for wage earners only—families and the unwaged had to find other support, if any. Key figures in putting the Act into practice were Robert Laurie Morant and William Braithwaite. At the time, Communist parties criticized the benefits as a way to stop workers from starting a revolution, while employers and Tories often viewed them as a “necessary evil.” The scheme was based on actuarial principles and funded by fixed contributions from workers, employers, and taxpayers. It applied only to certain industries, especially volatile ones like shipbuilding, and did not cover dependants. After one week of unemployment, a worker could receive 7 shillings per week for up to 15 weeks in a year. By 1913, 2,300,000 people were insured under the program.

**Expansion and Spread**

The Unemployment Insurance Act of 1920 introduced the dole system in the United Kingdom, providing 39 weeks of benefits to over 11,000,000 workers—nearly the entire civilian working population, except domestic servants, farmworkers, railway workers, and civil servants. Germany introduced unemployment benefits in 1927, and most European countries followed after World War II as welfare states expanded. In the United States, unemployment insurance began in Wisconsin in 1932. The Social Security Act of 1935 then encouraged individual states across the country to adopt their own unemployment insurance plans.

**Processes**

To qualify for unemployment benefits, applicants usually must meet criteria based on their employment history and the reason they became unemployed. Once approved, there is often a waiting period before payments start. In the US, the waiting period has been temporarily waived due to the COVID-19 pandemic, but many states still require a waiting week. Germany and Belgium have no waiting week, while Canada’s current waiting period is seven days. Countries also set a potential benefit duration (PBD)—how long someone can receive payments. This may vary based on past work history and age, or it may be a fixed length for everyone. For example, in Argentina, six months of work history gives a PBD of two months, while 36 months or more can result in a full year, with an extra six months for applicants over 45.

Most countries calculate the benefit amount as a percentage of the applicant’s former income, typically 50–65%. Some countries offer higher replacement rates, such as the Netherlands (75%), Luxembourg (80%), and Denmark (90%). There are often caps on the maximum benefit, ranging from 33% of a country’s average wage (Turkey) to 227% (France). Among OECD countries, the average maximum benefit level is 77%. Most benefits stay constant over the PBD, but countries like the Netherlands, Sweden, Hungary, Slovenia, Spain, and Italy use a declining benefit path, where the replacement percentage drops over time.

Most countries require benefit recipients to search for a new job and may demand proof of job search activities. Benefits can be cut if the applicant fails to meet search requirements or turns down a job offer that the agency considers acceptable. Agencies may also offer resources, training, or education for job seekers. Some countries let beneficiaries take part-time jobs without losing eligibility, which helps reduce the disincentive to accept work that doesn’t fully replace former wages. Unemployment benefits are usually funded by payroll taxes on employers and employees, sometimes supplemented by general tax revenue—either regularly or during economic downturns. Contribution rates typically range from 1 to 3% of gross earnings and are usually split between employers and employees.