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Pros and cons
 Western Europe (64%)
 Central/Eastern Europe and North America (22-28%)
 APAC (7%)
 Rest of world (1-5%)
Source: Soci...
 Mainly OECD and industrialised countries
 Almost all OECD countries reduced level of unemployment insurance protection ...
• For workers who lose their jobs
involuntarily
• Pools funds from workers
• Pays out according to certain
conditions
• Ba...
 #1: Safety net for unemployed workers to maintain standard of living
 #2: Keeps low income households out of poverty
 ...
 #1: Safety net for unemployed
workers to maintain standard of living
 Only for payouts of at least 84% of
previous inco...
 #2: Keeps low income
households out of poverty
 Only sustainable if national
reserves have deep pockets
 #3: Allows unemployed
more time to look for a job
they prefer
 Recipients can afford to wait to
find a job
 Tradeoff o...
 #4: Automatically stabilises
economy by ensuring
unemployed have ability to
spend on goods & services
 May not be true ...
 #1: Employers use this to justify retrenchments
 #2: Hidden costs
 #3: Workers abuse system
 #4: Politicians wield th...
 #1: Employers use this to justify
retrenchments
 Employers have less reservation to retrench
workers
 European countri...
 #2: Hidden costs
 UI plans are usually financed by employers and
employees with government topping up deficits
 Hidden...
 #3: Workers abuse system
 Canada:
 some workers work for the minimum period (10
weeks) to qualify for UI (32 weeks)
 ...
 #4: Politicians wield this as a carrot to
win votes
 Risk that politicians over-promise
unemployment benefits to win el...
 #5: UI fails when in bad times when it is needed
the most
 South Korea:
 During 1997 Asian Financial Crisis, employers...
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Unemployment Insurance - Pros and Cons

Should all countries implement unemployment insurance?
How did countries with unemployment insurance fare?
What are the pros and cons of having unemployment insurance as an unemployment benefit?

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Unemployment Insurance - Pros and Cons

  1. 1. Pros and cons
  2. 2.  Western Europe (64%)  Central/Eastern Europe and North America (22-28%)  APAC (7%)  Rest of world (1-5%) Source: Social Security Programs Throughout the World, SSA, 2014, 2015 Globally, 28% of workers qualify for unemployment benefits Yet only 12% of these workers receive these benefits  Highest in North America and Europe (80-90%)  APAC (17%)  Lowest in Africa (8%)
  3. 3.  Mainly OECD and industrialised countries  Almost all OECD countries reduced level of unemployment insurance protection in 1990s due to:  Increasing financial strain  Publication of studies which showed high unemployment benefits contribute to higher unemployment rates Source: Social Security Programs Throughout the World, SSA, 2014, 2015 39% of countries have legislated unemployment benefits
  4. 4. • For workers who lose their jobs involuntarily • Pools funds from workers • Pays out according to certain conditions • Based on a % of worker’s last drawn pay • Payouts for a limited period of time • Determined by premium contributions paid before unemployment occurs
  5. 5.  #1: Safety net for unemployed workers to maintain standard of living  #2: Keeps low income households out of poverty  #3: Allows unemployed more time to look for a job they prefer  #4: Automatically stabilises economy by ensuring unemployed have ability to spend on goods & services
  6. 6.  #1: Safety net for unemployed workers to maintain standard of living  Only for payouts of at least 84% of previous income  Worker needs to supplement with own savings
  7. 7.  #2: Keeps low income households out of poverty  Only sustainable if national reserves have deep pockets
  8. 8.  #3: Allows unemployed more time to look for a job they prefer  Recipients can afford to wait to find a job  Tradeoff of lower exit rate from unemployment
  9. 9.  #4: Automatically stabilises economy by ensuring unemployed have ability to spend on goods & services  May not be true for all economies  Not all of UI benefits are spent, some are saved and hence doesn’t go into economy  Tradeoffs between spending money on UI vs other economic stimuli (e.g. growing business opportunities)
  10. 10.  #1: Employers use this to justify retrenchments  #2: Hidden costs  #3: Workers abuse system  #4: Politicians wield this as a carrot to win votes  #5: Unemployment Insurance fails in bad times
  11. 11.  #1: Employers use this to justify retrenchments  Employers have less reservation to retrench workers  European countries which make it difficult for companies to retrench haved suffered:  labour rigidity  less investments  higher unemployment
  12. 12.  #2: Hidden costs  UI plans are usually financed by employers and employees with government topping up deficits  Hidden costs for workers  Employers may reduce wages to pass on wage savings to government for UI  Difficult to increase corporate tax as governments compete to attract MNCs  Government may tax general population more to maintain UI scheme
  13. 13.  #3: Workers abuse system  Canada:  some workers work for the minimum period (10 weeks) to qualify for UI (32 weeks)  US:  10% ↑ in UI caused 1.5 weeks ↑ in unemployment duration  NBER study:  ↑ in UI caused 7% ↑ in unemployment duration and 0.4% ↑ in unemployment rate  Concerns that unemployment insurance negatively impacts work ethic of workers Sources: Employment Insurance: Canadians who won't work shouldn't get EI, National Post 15 May 2012 Meyer, Bruce D “ Lessons from the US Unemployment Insurance Experiments” Journal of Economic Literature 33 (March 1995) Do Extended Unemployment Benefits Lengthen Unemployment Spells? (NBER, May 2013)
  14. 14.  #4: Politicians wield this as a carrot to win votes  Risk that politicians over-promise unemployment benefits to win elections  Good times:  Benefits grow, but rarely used as workers can find jobs  Bad times:  Governments dare not reduce unemployment benefits due to political costs  Governments may resort to debt financing which shifts the burden to future generations of workers  Governments which go bankrupt and cannot borrow will cause payouts to be affected
  15. 15.  #5: UI fails when in bad times when it is needed the most  South Korea:  During 1997 Asian Financial Crisis, employers were taxed more  Yet unemployment benefits caused increase in deficits from S$126m (2007) to S$724m (2011)  To cover more unemployed workers, each worker received less protection  Hungary, Slovakia and OECD countries  Rising and persistently high levels of unemployment  Caused tighter eligibility rules, shorter duration of benefits and lower beneficiary rates Sources: Long-term Projection of Social Expenditure in Korea by the Korea Institute for Health and Social Affairs. South Korea’s Economy, Kinnar Majithia, Emerson Network Power

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