Is Unemployment the Same As Welfare?

Unemployment Compensation

Unemployment insurance benefits are checks issued to people who've lost their jobs through no fault of their own. The state-run programs require the employee to have worked consistently for the previous year and for a business that pays unemployment insurance. Depending on the state, the unemployment benefits will pay 50 to 60 percent of the employee's salary. The employee must actively seek work while collecting the benefits.

Welfare is called Temporary Assistance to Needy Families when paid to families with young children and General Assistance when paid to low-income single adults. The programs have both income and asset limits that participants must meet to qualify for benefits. The amount of the monthly benefit varies, depending on household income and the number of people in the household. Like unemployment compensation, welfare participants are expected to seek work.

If you lose your job and this leaves you with very low income, you may be able to receive both unemployment and welfare benefits. Your unemployment benefits are considered unearned income when your welfare benefits are calculated. This will reduce your welfare benefits, but you'll receive more from both sources, even if one is reduced, than you will if you were only collecting from one source.

Welfare benefits are paid from the government's general fund. Recipients receive something that costs them nothing. This is the opposite of unemployment benefits, which is paid from a pool of funds that are collected from most employers. Employers pay a portion of each employee's income into that fund, so benefits will be there if the employee's laid off. The unemployment premiums paid by employers are designed to cover 6 months of unemployment.

The gray area comes when benefits are extended. The extension is not covered by the unemployment premiums. This drains the fund pool and forces the government to pay benefits out of the general fund. When this happens, unemployment benefits begin resembling welfare, rather than unemployment insurance.