Unemployment insurance

The US unemployment insurance includes 53 separate jurisdictions, each with unique laws and operating procedures. The system is financed through a federal tax on payrolls, and the majority of the benefits paid by the system are collected by state-level taxes. During recessions, additional federal involvement kicks in.

Many unemployed workers are not covered either because they are recent entrants to the labor market or they quit jobs voluntarily. Some unemployed are not eligible for the insurance because they have not earned enough in their previous recent jobs or they have exhausted the insurance. Some unemployed don't get covered because they didn't file for the insurance in the first place.

Programs in different states vary due to difference in four general areas: rules of eligibility, what jobs are covered, variation in weekly benefit amounts, and variation in weeks for exhaustion.

Eligibility:
To be eligible, three conditions must be met:
(1) whether a worker has sufficient employment during some defined base period
(2) whether a worker has an acceptable reason for the job separation
(3) whether a worker continues to be unemployed, (in other words, determine if he actively searches new job while collecting the insurance)

The problem of condition (1): it may exclude low-wage, temporary workers and those who have a short labor history.

Condition(2): may be hard to differentiate voluntary quitting
Condition(3): information problem (Hayek's critique I guess...)

Unemployment insurance to some extent prevent major declines in consumption spending in response to layoffs, but we have to consider that variation across workers and those who don't collect insurance. 

Design of unemployment insurance:
1) most models find that optimal replacement ratios are less than 1 when unemployment benefits pose  significant disincentive to find work
2) models that allow for realistic levels of personal borrowing and saving lead to lower optimal replacement ratios than those that do not.
3) replacement rates that decline over the duration of the unemployment spell may be perferable to constant wage replacement rates
4) consider moral hazard when deciding the duration of insurance coverage.