A more thorough explanation:

Unemployment compensation is a system that provides monetary payments to workers who have lost their jobs through no fault of their own. The payments are intended to help the workers find a new job without financial distress. Without unemployment compensation, many workers would be forced to take jobs for which they are overqualified or end up on welfare.

In the United States, unemployment insurance is based on a dual program of federal and state statutes. The program was established by the federal Social Security Act in 1935. Each state administers a separate unemployment insurance program, which must be approved by the Secretary of Labor, based on federal standards. The state programs are applicable to areas normally regulated by laws of the U.S.

To support the unemployment compensation systems, a combination of federal and state taxes are levied upon employers. States base employer contributions on the amount of wages the employer has paid, the amount the employer has contributed to the unemployment fund, and the amount that the discharged employees have been compensated from the fund.

For example, if an employee is laid off from their job, they may be eligible to receive unemployment compensation payments for a certain period of time until they find a new job. The payments are funded by taxes paid by their former employer.

During economic recessions, the federal government may provide emergency assistance to allow states to extend the time for which individuals can receive benefits. This is accomplished through a temporary law authorizing the transfer of money to a state from its Extended Unemployment Account.

Overall, unemployment compensation is an important safety net for workers who have lost their jobs and helps to sustain consumer spending during periods of economic adjustment.