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Government shutdown 101: How will it affect unemployment insurance?

Unemployment insurance is distributed by states but funded by both states and the federal government. It has enough money to survive a short shutdown without interrupting benefits, say members of Congress.

By Staff writer / April 8, 2011

Sally Tan attends a job fair in Boston, April 7. A government shutdown would have to last for months before it disrupted the distribution of unemployment benefits, according to the Labor Department and the House Ways and Means Committee.

Steven Senne / AP

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Few groups of Americans lean as hard on federal assistance as the unemployed. Will their jobless benefits keep flowing if the federal government shuts down?

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The short answer is yes, at least as long as political gridlock doesn't put federal funding on hold for months.

Unemployment insurance (UI) is distributed at the state level, but with money that comes from both state and federal payroll taxes.

"UI benefits will continue to be paid" during a shutdown, according to a Labor Department memorandum issued Thursday.

Each federal agency is determining what activities are essential to preserve, even during a so-called shutdown (a situation in which congressional funding authority expires). The Labor Department memo implies that loans will keep flowing to states for UI benefits. The memo calls for keeping some staff on the job "should there be issues ... with trust fund borrowing" related to jobless benefits.

That's good news for states, since 32 of them have depleted their own unemployment funds and are borrowing federal dollars.

The possible shutdown, which would occur if no House-Senate deal is reached by midnight Friday, comes at a time when the economy is much weaker than in 1995, the last time such a shutdown occurred. Back then, the nation's official unemployment rate was 5.6 percent. Today it's 8.8 percent.

In the most recent week, 382,000 Americans filed for new unemployment insurance claims, while 8.4 million were already drawing unemployment benefits, designed to tide them through a period of finding a new job or career.

In addition to money for jobless benefits, states get federal money to pay for the employees who administer those benefits. But some members of Congress, citing information from the House Ways and Means Committee, say money has recently been transferred to states that should cover them through a shutdown, as long as it's not very lengthy.

Government shutdown 101:

Introduction: What would a shutdown mean for you?

Part 1: What does it mean for veterans?

Part 2: Will I still have to file my taxes?

Part 3: Will Social Security and Medicare be affected?

Part 4: What does it mean for the military?

Part 5: What does it mean for homeland security?

Part 6: What does it mean for Medicaid?

Part 7: How will it affect unemployment insurance?

Part 8: What does it mean for welfare and food stamps?

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