Merit rating in state unemployment compensation laws

Most of the new state unemployment insurance acts establish pooled funds with merit rating. Under these acts employers will contribute at rates which differ according to their employment experience. Merit rating is thus a compromise which attempts to combine the stabilization incentive of the employer-reserve plan with the protective strength of the general pool. Merit ratings in practice, however, will be based on hazard rather than merit. They can contribute little to the prevention of the major forms of unemployment. They may seriously impair the adequacy of benefit funds. The objectives of prevention and protection in unemployment insurance are necessarily inconsistent. If it is the purpose of unemployment insurance to induce stabilization, rates should be adjusted according to principles radically different from those provided in existing statutes. If the purpose is to provide security against the loss of income during unemployment, the laws should require the maintenance of an adequate, uniform rate of contributions.