On January 28, 1932, the Wisconsin state legislature enacted the very first unemployment insurance in the United States – three years in advance of the U.S. Social Security Act which established a national unemployment insurance program.

In the aftermath of the Great Depression in 1929, many people lost their jobs through no fault of their own (e.g. they did not quit or were not fired) because of the very poor economy. In fact, by 1932, the national unemployment rate was well above 20% and in certain areas in the country it was much higher. State governments and the federal government worked to find ways to assist people through the difficult economic times.

On January 28, 1932, Wisconsin Governor Philip La Follette signed the nation's first unemployment compensation law. Shortly thereafter, Congress realized the benefits of the program created by Wisconsin and set up a national unemployment insurance program in 1935 through the U.S. Social Security Act.

The Wisconsin legislature’s act to create an unemployment insurance program shows one of the benefits of federalism, i.e. the separation between the national and state governments. In particular, the Wisconsin legislature took a risk in creating a new unemployment insurance program. Congress was then able to see how the program worked and whether it showed any signs of success. After Congress saw the benefits of how the program worked, it passed a national unemployment insurance program. So, this is an example of where a state legislature took the lead in what eventually led to a new federal program.

Today, every state has its own unemployment compensation program. The federal government provides guidelines and incentives to states for unemployment compensation, but each state is still essentially responsible for its own unemployment compensation programs. Generally, state programs provide partial income replacement for up to 26 weeks which is funded through an employer tax.

The American Recovery and Reinvestment Act ("stimulus package") has also made changes in the law to assist individuals who become unemployed through no fault of their own.