October 23, 2026
Unemployment Insurance provides temporary income replacement to workers who experience job separation due to a lack of work through no fault of their own. To determine eligibility, state UI agencies must establish the conditions surrounding a separation, but they cannot directly observe workplace events. Employers therefore play a key role in providing information to the UI agency.
Experience-rated payroll taxes give employers a financial incentive to participate in this process. Because an employer's tax rate rises with the volume of UI benefits paid to its former workers, experience rating encourages employers to submit information about separating conditions needed for accurate eligibility determination.
However, experience rating also creates an incentive to challenge legitimate claims. The employer dispute rate—the proportion of claims an employer challenges—varies widely. Marta Lachowska and Stephen A. Woodbury find that a worker separating from an employer with a 10-percent higher dispute rate faces a 10-percent higher probability of a dispute.
But disputes rarely lead to benefit nonpayment. A 10-percent increase in an employer’s dispute rate increases the probability of benefit nonpayment by only 1 percent on average—an elasticity of just 0.1. This striking gap between disputes and nonpayments suggests that the state UI agency acts as an effective adjudicator, evaluating conflicting reports and screening out unsupported employer challenges. One result is that, although Black workers face higher dispute rates than White workers, employer challenges have no measurable effect on racial or ethnic gaps in nonpayment rates.
The findings suggest that policymakers should preserve experience rating while addressing administrative complexities and informational barriers that cause eligible claimants to abandon valid claims.
Experts
