Unemployment Benefit

I INTRODUCTION

Unemployment Benefit, a form of social security insurance, designed to provide income to people who have lost their jobs. Unemployment benefit is intended to prevent unemployed people from undergoing severe hardships and to get the unemployed back to work. Most developed nations have some form of compulsory unemployment benefit or insurance. Unemployment compensation benefits account for approximately 1 percent of aggregate personal income in most developed Western nations. The arrangements for the benefit are often complex, with factors like previous tax and insurance contributions and the manner of dismissal from previous work counting towards the legitimate receipt of financial assistance. The amount and duration of benefits, and their dependence or otherwise on actively seeking re-employment, also vary from country to country—for example, in the United Kingdom in 1997 unemployment benefit for a single person, called the Jobseeker’s Allowance, was set at a level approximately one fifth of the average wage, and recipients were required to sign a Jobseeker’s Agreement setting out a plan for a return to work.

II UNEMPLOYMENT BENEFIT WORLDWIDE

The trade guilds which governed the city of Basel in Switzerland introduced the earliest recorded unemployment benefit scheme in 1789. Trade unions later adopted such measures as part of their package of benefits to members. The first compulsory nationwide scheme was instituted in Great Britain in 1911 and expanded rapidly to cover most low-wage, nonagricultural workers. Norway was one of the first European states to follow suit, in 1915. By the late 1920s, potential duration of benefits was unlimited, and requirements for eligibility had been relaxed so that some workers could draw two weeks of benefits for each week they had been employed. By the early 1930s, 19 European nations had compulsory unemployment benefit programmes. The United States introduced a nationwide unemployment insurance scheme in 1935, as part of the New Deal reforms introduced to tackle the Great Depression. Unemployment benefit systems spread further in the 1940s, introduced by Canada in 1940, Ecuador in 1942, and France in 1946. Switzerland delayed the introduction of compulsory unemployment benefit until 1976.

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Financing of unemployment benefits, the kind and duration of the benefits awarded, and conditions attached vary according to the country. Germany has notably generous provisions but hedges these with restrictions designed to return the unemployed to work as quickly as possible. Potential duration of benefits is longer in many developed countries and shorter in most developing nations, though the International Labour Organization recommends at least 13 weeks’ benefit be available for any year.

Benefits may be related to previous earnings or set at a flat rate, and generally are financed at least partly by income taxes rather than by taxes on employers alone. Where taxes on employers are used, they are usually not related to past records of layoffs. In countries such as the United Kingdom, Canada, Germany, and Norway workers in any field are eligible for benefit; whereas in others such as the United States, Ireland, Japan, and Austria ex-government employees are excluded from the provision. The United States also excludes temporary workers, domestic servants, agricultural workers, and the self-employed. Many states also restrict entitlement for those who have left work voluntarily, for misconduct, or as a result of industrial action. Those unemployed through illness or disablement are usually supported through different schemes.

III ISSUES AND TRENDS

Evidence from studies in developed countries indicates broadly that higher benefits encourage some workers to stay unemployed longer. The failure to base taxes completely on an employer’s record of past layoffs contributes to the greater instability of employment. Thus, it is likely that some small part of total unemployment is induced by unemployment benefit. Taxing benefits, as is now done in the United Kingdom and the United States, is one possible solution to this detrimental side effect of unemployment insurance.

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With the higher unemployment rates in Western nations since 1973, the protection offered by unemployment benefit has increased in importance. If unemployment stays high, pressures for extensions of potential duration and for increased weekly benefits are likely to grow, while public concern about preventing payment to those not seriously seeking work expands. In the United Kingdom, for example, unemployment benefit was renamed “jobseekers’ allowance” in 1995 to reflect the fact that it is designed to help workers find alternative employment.

The purpose and future of unemployment benefit remain a matter of considerable debate. Many wealthy newly industrialized countries, such as Singapore, have resisted its introduction on the grounds that it damages competitiveness and promotes social dependency; such states often see pressure for such programmes as attempts by fearful trade competitors to choke off their economic growth. Developed nations, especially in Europe, are meanwhile faced with persistently high unemployment levels as well as large and economically damaging budget deficits created by the need to finance such social security payments. Increasingly, thinking about unemployment benefit is hinging on its capacity to reduce unemployment. In the future as in the past, interest in a country’s unemployment benefits programme will be directly related to the degree of the unemployment problem.

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