Persuasive Paper Part 2 Unemployment Benefits

Running head: UNEMPLOYMENT BENEFITS 1

Persuasive Paper Part 2: Unemployment Benefits

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UNEMPLOYMENT BENEFITS 2

If we continue embracing provision and extension of the unemployment benefits, the

state’s public debts will keep rising while covering the jobless persons. The Unemployment

insurance (UI) offers financial support to eligible workers or individuals who are unemployed

without own faults and have qualified the state’s eligibility requirements (Marshalle, 2006). The

unemployment program has been one of the areas of interest for researchers since a lot of funds

spent on this program normally lowers a beneficiary’s cost of being jobless. Other than the

escalated cost of providing the benefits, the regulations and unemployment compensation posit a

problem as it reduces job search intensity as well as raising the reservation wages. Although UI

program protects unemployed, the economy is impacted as public debts are rising, beneficiaries

lack incentives to search for jobs as well as undercutting personal savings but can be addressed

via reduction of UI amounts given and minimizing the duration of benefits which will be

advantageous to the economy.

History of Unemployment benefits and regulation

Some industrialized states enacted national unemployment compensation during the early

20th century. However, Unemployment problem was considered part of the Social Security Act

in the United States 1935 when more than ten states such as Great Britain, Australia, Italy, and

Irish Free State had started the program decades before. A committee appointed by the president

regarded economic security of the U.S. was formulated to address the welfare of the millions of

people were jobless by then (Bohdon, 2014). In the enactment of the unemployment

compensation of the Act of Social Security, Congress paid attention to both state and national

concern over the issue as well as alleviation measures. Notably, the planning and implementing

of this legislation were impacted by numerous preceding programs established in other nations,

Workmen’s compensation regulation, voluntary plans in the country, and the law of Wisconsin

UNEMPLOYMENT BENEFITS 3

Insurance. Both states and the federal government collaborate in managing the program and

funds it through the collected taxes.

Not until after the 1930’s depression, did the United States and other countries spark the

interest of adopting the unemployment compensation laws to increase purchasing power as well

as minimize the economic recessions. Bohdon (2014) argues that there had been proposals in

1916 at the Massachusetts state and in New York Legislature in 1921, but none of the bills was

passed until 1935 when six of the United States implemented the law. The law was amended

years later and provided benefits from a person’s income over the most recent period of 52

weeks to the maximum offered by a state. In most of the states, the benefits are provided for a

maximum of period of 26 weeks, but additional weeks can be offered during the high

unemployment times. These benefits are enjoyed by unemployed who have met certain

eligibility conditions that differ according to each state’s rule. Therefore, the beneficiaries must

meet the following requirements including legal right to work in the United States, meeting the

base period, jobless through no personal fault, the immediate availability for work, and

physically capable of working.

Unemployment Benefits Problems

The UI system is expensive and requires a lot of funding as it provides support to

millions of people who are unemployed (Marshalle, 2006). Consequently, the nation’s financial

structure is strained as the resources are utilized in funding the program. Additionally, those who

are employed pay substantial taxes to the state and the federal government to cater for the funds

given to the unemployed. This notion seems to create a balance or bridge the gap between the

employed and the jobless, but this is believed to be an unfair way of doing it as it demotivates

those who are already working. The meaning of being employed is compromised since those

UNEMPLOYMENT BENEFITS 4

working have to pay dearly to sustain the unemployed rather than enjoying their income. The

reality is that the program is capable of maintaining a flow of funds and purchasing power, but

the problem is that it’s done at the expense of the few who are working hence the need for a

change in this regulation.

More so, the unemployment regulation impacts the economic status of a country as the

beneficiaries cease to look for jobs. Most of the individuals get into a comfort zone and no longer

search for employment intensively as the program can be extended during periods of high

unemployment. Eventually, the beneficiaries lose their skills as much of the time is spent while

meeting basic needs under the unemployment insurance. As a result, the incentive of the

unemployed to seek work is reduced, and the initial intent of the program which is to minimize

unemployment hardship is not realized. Also, the system favors some workers (eligible) over the

others (ineligible) since it's only enjoyed by those eligible to the program and disregards

individuals who have been part-timers or insufficient income or earnings to qualify. This notion

is unfortunate as even the part-time staff pays the UI tax from their earnings which ultimately

reduces their earnings thus bearing the burden of a program that does not benefit them.

According to Edwards & Leef (2011), the unemployment compensations impacts on the

individual’s social-economic welfare as it undercuts reasons for personal savings. People save

for various reasons such as precaution against emerging contingencies including unemployment.

Precautionary saving is crucial and most significant of one’s wealth accumulation as there are

fewer incentives to save generous benefits increases. Literary, in a market economy savings, are

translated into capital investments that boost the economy’s productivity and raises workers’

wages. Economist Gruber and Engen research revealed that a 10% increase in the Unemployed

benefits lowers wealth income by an approximate of 7 percent (Edwards & Leef, 2011).

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Consequently, the aspect of personal savings is suppressed as people spend almost the entire

income without having a little for “rainy days.” Why save while the government covers you?

A substantial amount of waste is incurred due to fraud, administrative costs and abuse of

the system. People try to grab the benefits through improper means such as failing to report when

on lands a job and thus continues to reap the benefits (Stone & Chen, 2014). Similarly, there are

those who fraudulently acquire benefits through false identifications, fake terminations, among

other ineligibility. Large cost is involved in raising taxes and administering this complex system.

These escalated cost and abuses are losses to taxpayers as well as the economy. The more the

beneficiaries then, the more the expenses incurred in managing the program and doing the

paperwork. Furthermore, the program does not account for the long-term effects of the

unemployment.

Solutions

Edwards & Leef (2011) argues that the solution to the unemployment benefits reform is

to reform it and switch the system to one based on individual or personal UI savings account just

like it has been done in nations like Chile. Funding the program is expensive and thus cost a lot

of states resources and taxation from the employed. Instead, the federal government should adopt

a system whereby insurance coverage to the unemployed is done by private entities and on

personal savings. This notion will reduce activities such as frauds incurred when providing the

UI benefits to its citizens thus reducing resources usage hence, a reduction of public debts.

The government should reduce the base period for the UI program to a few weeks,

Emergency Unemployment Compensation (EUC). Offering the unemployment benefit for an

extended period lowers the worker's incentives to search for job opportunities. Guerin (n.d)

asserts that some states offer the benefits for 26 weeks or to the extent of half a year. The EUC

UNEMPLOYMENT BENEFITS 6

offers additional duration of benefits once the workers’ regular eligibility period of receiving the

benefits has expired. Similarly, Extended Benefits program that was initiated by the federal

government provides an extension of up to 14 weeks once the former employees have exhausted

their state benefits, but based on the rate of unemployment in the particular state. Therefore, the

federal government should terminate such programs as they lower former staff incentives to seek

for jobs.

The solution to the suppression of personal savings is by reducing the amounts given so

that individuals can not solely rely on the program when their jobs are lost. The benefits should

only offer part of former workers average consumption budget. When the jobless are not to meet

their basic needs when enjoying the UI benefits, both their job search and motivational to save

will increase. If people are provided with adequate compensations, they lack the motivation of

saving part of their earnings as they know that when their jobs are lost, the governments will

cover them through the UI. However, when the amount is minimized those who are currently in

jobs will save more thus reducing the flow of money in the economy but increase investments in

the longrun.

Advantages

Saving the economy’s resources will be advantageous to the state as the resources will be

used productively to help the entire state. The program is costly and thus drains states’ resources

since the number of the unemployment keeps rising due to technological advancements that are

leading to escalated retrenchments (Edward & Leef, 2011). Consequently, since the

unemployment program doesn’t offer a permanent solution to the unemployment problems, the

resources consumed via the program can be equally distributed to the whole economy thus

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creating wider employment opportunities and eventually an increase in the economic growth and

development.

Also, the reduction of the amounts provided to the former employees as the UI can

advantageous to the states since the workers have incentives to save more. Increased savings

results in more investments and thus an expansion of the job market since more employment

opportunities will be created. Eventually, there is an increased flow of funds and a growth of

gross domestic income (GDP). The economy stabilizes because the governments’ results in the

creation of a large multiplier effect on a nation as its increases aggregate demand as argued by

the Keynesian economists.

Conclusively, although UI program protects unemployed, the economy is adversely

affected as public debts are rising due to high administration costs, lowers incentives for personal

savings as people believe the government covers them in the cause of unemployment and it

lowers motivation for job search. However, the problems can be addressed through switching the

program to a personal savings account and reduction of the amount provided as benefits. The

governments offering unemployment insurance has locked businesses and individuals into the

economically damaging system. The Unemployment compensation has various advantages such

as maintaining the flow of funds and purchasing power of the economy through supporting the

jobless persons financially, but, its shortcomings outweigh the advantages hence the need for a

change in the regulation. The limitations include escalated costs in its provision, reducing

incentives to seek employment, failure to address long-term unemployment, reduction of

personal savings, and rising public debts among others. Hence, there is a need to reform the

system through creating a more market- oriented program, changing the tax code to boost or

enhance personal savings and substituting individual savings account for a benefit and current

UNEMPLOYMENT BENEFITS 8

tax system. Consequently, elimination of the Unemployment benefit would have its challenges,

but the long term payoff would be enhanced workforce incentives, sound personal financial

responsibility and more economic growth creating better employment opportunities.

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References

Bohdon M.W. (2014). A History of UI Legislation in the United States and NYS 1935-2014,

Division of Research and Statistics. Retrieved from

https://www.labor.ny.gov/stats/PDFs/History_UI_Legislation.pdf

Edward, C. & Leef, G. (2011). Failures of the Unemployment Insurance System. Washington

DC. Retrieved From https://www.downsizinggovernment.org/labor/

Edwards C. & Leef G. (2011). Failures of the Unemployment Insurance System. Washington

D.C. Retrieved from https://www.downsizinggovernment.org/labor/failures-of-

unemployment-insurance

Marshalle, M.I. (2006). Economics of Unemployment. Nova Publishers.

Stone C. & Chen.W. (2014). Introduction to Unemployment Insurance. Retrieved from

https://www.cbpp.org/research/introduction-to-unemployment-insurance

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