responsibility for the administration of its unemployment insurance program subject to the mandate that it maintain an 'adequate' balance in its individual trust fund.1 In each state, employers pay a tax rate based on their unemployment experience, starting with some set minimum rate for relatively low unemployment firms and increasing to some set maximum rate for relatively high unemployment firms. The extent of experience rating, as measured by the spread between the minimum and maximum rates, varies substantially across the states. This paper uses the rent-seeking model of regulation to explain the pattern of unemployment insurance tax rates across the states. Unlike most observers, we recognize that government provision of unemployment insurance, even in the public interest, will have the natural and unavoidable consequences of increasing unemployment and creating cross subsidies. Hence, these results, which so many researchers have found, are not sufficient evidence to reject the public interest model or to suggest changes in the system. We identify a private interest model in which a state's dominant industry will attempt to manipulate the tax rate structure. This industry will attempt to generate greater subsidies if it is characterized by high unemployment, or to reduce the degree of unemployment subsidization if this industry is characterized by low unemployment. As predicted by the rent-seeking model of government, we find a negative relationship between the unemployment level of the state's dominant industry and the experience rating of the state's UI program.