Unemployment benefit
From Wikipedia, the free encyclopedia
Unemployment benefits are payments made by governments to unemployed people. It may be based on a compulsory para-governmental insurance system. Depending on the jurisdiction and the status of the person, those sums may be meager, covering only basic needs (thus a form of basic welfare), or may compensate the lost pay somewhat proportionally to the previous earned salary. They often are part of a larger social security scheme.
Unemployment benefits are generally given only to those registering as unemployed, and often on conditions ensuring that they seek work and do not currently have a job.
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[edit] Australia
In Australia, social security benefits, including unemployment benefits, are funded through the income tax system. There is no compulsory national unemployment insurance fund, rather, benefits are provided for in the annual Federal Budget by the National Treasury and are administrated and distributed throughout the nation by Centrelink. Benefit rates are indexed to the Consumer Price Index and are adjusted twice a year according to the amount of underlying inflation or deflation.
There are two types of payment available to those experiencing unemployment. The first, called Youth Allowance, is paid to young people aged 16-20 (or 15, if deemed independent by Centrelink). Youth Allowance is also paid to full-time students aged 16-24, and to full-time Australian Apprenticeship workers aged 16-24. People aged below 18 who have not completed their High School education, are usually required to be in full-time education, undertaking an apprenticeship or doing training to be eligible for Youth Allowance. For single under 18 year olds living at home the basic rate is AUD$91.60 per week. For over 18 to 20 years olds living at home this increases to AUD$110.15 per week. For those aged 18-20 not living at home the rate is AUD$167.35 per week. There are special rates for those with partners and/or children.
The second kind of payment is called Newstart Allowance and is paid to unemployed people over the age of 21 and under the pension eligibility age. To get Newstart you must be unemployed, be prepared to enter into an Activity Agreement (by which you agree to undertake certain activities to increase your opportunities for employment), are an Australian Resident and satisfy the income test (which limits weekly income to AUD$32 per week before benefits begin to reduce, until your income reaches AUD$397.42 per week at which point no unemployment benefits are paid) and the assets test (you can have assets of up to AUD$161,500 if you own a home before the allowance begins to reduce and $278,500 if you do not own a home). The rate of Newstart allowance for single people is AUD$210.45 per week. Different rates apply to people with partners and/or children.
There is technically no limit to the time you can receive unemployment benefits before. This lack of a time limit, which means that theoretically one can receive benefits for their whole working life if they wanted to without ever doing a day's work has been criticized by some commentators for generating a sub-culture of welfare dependence. In recent years the Coalition government, led by Prime Minister John Howard has increased the requirements of the Activity Agreement, providing for such schemes as Work for the Dole, which requires that people on benefits for 6 months or longer work voluntarily for a community organization to increase their skills and job prospects. There are other options available as alternatives to the Work for the Dole scheme, such as undertaking part-time work or study and training, the basic premise of the Activity Agreement being to keep the welfare recipient active and involved in seeking full-time work.
For people renting their accommodation, unemployment benefits are supplemented by Rent Assistance, which, for single people, begins to be paid when the weekly rent is more than AUD$45.90. Rent Assistance is paid as a proportion of total rent paid. The maximum amount of rent assistance payable is AUD$51.60 per week, and is paid when the total weekly rent exceeds AUD$114.70 per week. Different rates apply to people with partners and/or children, or who are sharing accommodation.
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[edit] Canada
In Canada the system is known as Employment Insurance, but until 1996 it was called Unemployment Insurance. Canadian workers pay into a central fund that contributors can draw on if later unable to work. The amount a person receives and how long they can stay on EI varies with their previous salary, how long they were working, and the unemployment rate in their area. The EI system is managed by Human Resources and Skills Development Canada (formerly Human Resources Development Canada), a federal government department.
EI is especially important in the Atlantic provinces, which have higher rates of unemployment. Many Atlantic workers are also employed in seasonal work such as fishing and go on EI over the winter when there is no work. There are special rules for fishers making it easier for them to collect EI. EI does not only cover unemployment, it also pays for maternity leave, compassionate leave, and illness coverage. The program also pays for retraining programs.
An unemployment insurance program was first attempted during the Great Depression by the government of R.B. Bennett. It was, however, ruled unconstitutional by the Supreme Court of Canada as unemployment was considered a provincial responsibility. After a constitutional amendment was passed adding "Unemployment Insurance" to matters falling under federal authority under the British North America Act, the first Canadian system was established in 1940. Because of these problems Canada was the last major Western country to bring in an employment insurance system. It was extended dramatically by Pierre Trudeau in 1971 making it much easier to get. After this act more than 80% of unemployed Canadians received benefits. The system was sometimes called the 10/42, because one had to work for 10 weeks to get benefits for the other 42 weeks of the year.
The EI system was dramatically cut by the Liberals in the mid-1990s. It was made harder to get EI by increasing the number of hours that needed to be worked before one could claim EI. Today, the ratio of claimants to unemployed stands around 40%, due to many people not being covered at all (e.g. the self-employed), having exhausted the benefits they were entitled to, or not having worked long enough to qualify. The length of time one could take EI was also cut. These changes contributed to a sharp fall in Liberal support in the Atlantic provinces in the 1997 election. Premiums were not cut and, from 1994 onwards, the EI program consistently ran a surplus of several billion dollars per year, which was added to general government revenue. A significant part of the federal fiscal surplus of the Chrétien and Martin years came from the EI system. This has drawn criticism from both business and labour groups, and is a central issue of the Bloc Québécois. In 2001, the government used the surplus to greatly increase parental leave from 10 to 35 weeks and to allow workers to take EI for compassionate leave while caring for a dying relative (though little use has been made of the latter provision).
External links
[edit] Sweden
In Sweden unemployment benefits are divided into a voluntary scheme with income related compensation up to a certain level and a comprehensive scheme that provides a lower level of basic support. The voluntary scheme requires a minimum of 12 months membership and a certain degree of employment during that time before any claims can be made. Employers pay a fee on top of the pre-tax income of their employees, which together with membership fees, fund the scheme.
The maximum unemployment benefit is SEK 730 per day (SEK 16,060 per month) the first 100 days of unemployment and after that SEK 680 per day (SEK 14,960 per month). In Sweden tax is paid on unemployment benefits, so the unemployed will get a maximum of about SEK 11,000 per month after tax. In other currencies this means a maximum of appoximately £800, $1,500, or €1,150, each month. Private insurance is also available, mainly through professional organizations, to provide income related compensation that otherwise exceeds the ceiling of the scheme. The comprehensive scheme is funded by tax.
[edit] United Kingdom
Main article: Jobseeker's Allowance
Jobseeker's Allowance (JSA), or The Dole, the primary form of unemployment benefit in the United Kingdom, exists in two forms: income-based and contributions-based. If a claimant has paid enough National Insurance contributions of the correct class in the two complete tax years previous to the claim year in which the claim is being made, and can prove that they are available for work and are actively seeking employment, then they are entitled to contribution-based benefit. If not, and they have a low or no income they receive income-based benefit, but they still have to prove that they are available for and actively seeking work. Benefit levels are lower for those under 25 years old. To keep receiving benefit, a claimant has to visit the Job Centre every two weeks, give details of how they have been looking for work (a "job seeker's diary" is provided), and sign a declaration that they are following their Job Seeker's Agreement (hence the expression signing on).
[edit] Jobseeker's Allowance Rates
JSA for a single person is £57.45 per week for people aged over 25, £45.50 per week for people aged 18-24 and £34.60 per week for people aged 16 and 17. JSA for couples (if both are unemployed) are £90.10 for people over 25 and up to £68.65 for couple up to 25. Income-based JSA is reduced for people with savings of over £6,000, by a reducation of £1 per week per £250 of savings, up to £16,000. People with savings of over £16,000 are not able to get IB-JSA at all. Note that the British system provides rent payments as part of a separate scheme called the Housing Allowance.
[edit] History
Unemployment benefits were first instituted in 1911. Over 2 million people were relying on the payments by 1921, as Britain was experiencing economic hardship after World War I. Those who disliked the handouts referred to the insurance as "the 'dole'."
[edit] United States
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In the United States there is Unemployment Insurance, a federal program, established by the Social Security Act of 1935, and administered by individual states and territories. A premise behind this system is that unemployed workers should be able to find an optimal job where their skills are put to use, both in the interest of the economy as well as their own. This is preferable to them simply taking the first job that comes along and filling their days with that work instead of putting that time into a productive job hunt. The unemployment insurance in effect makes it one's full-time job to find the most suitable job within a reasonable period of time.
The reason for leaving your last job must be "lack of work" or a determination of your eligibility for benefits will be issued. Payments to an eligible person are generally based on their earnings during each of the first four of the last five completed calendar quarters, not to exceed a state maximum. It generally takes two weeks for benefit payments to begin, the first being a "waiting week", which is not reimbursed, and the second being the time lag between eligibility for the program and the first benefit actually being paid.
Federal rules are drawn by the United States Department of Labor, Employment and Training Administration. In general, the maximum period for receiving benefits is 26 weeks, though the federal government may choose to extend the benefit period in difficult economic times. Most recently, this was through the TEUC program.
Because it is a joint federal/state program run by the states, taxing business for the benefit of labor, the politics of unemployment insurance are very complex.
The federal government loans money to the states for unemployment insurance when the states run short of funds. In general this can happen when the unemployment rate is high. The need for loans can be exacerbated when a state cuts taxes and increases benefits. All loans must be repaid, with interest.
Congressional actions to massively increase penalties for states incurring large debts for unemployment benefits led to state fiscal crises in the 1980's.
To calculate the unemployment insurance benefits you might receive in the United States (based on 2004 rates), see the useful page at the Economic Policy Institute.
To begin a claim, you must apply for benefits (there are a few exceptions where an employer will apply for you). Most states accept claims only by internet or through call centers. Once you apply, the state will notify you whether you have sufficient wages to qualify and what your weekly benefit rate will be. The state will also review the reason you were separated from employment.
To actually receive benefits, you must certify to your eligibility every one or two weeks (this varies by state). Generally, the certification includes your affirming that you are "able and available for work", the amount of any part-time earnings you may have had and whether you are "actively seeking work" These certifications are usually either by internet or via an IVR (interactive voice response) telephone call, but in a few states may be by mail.
Only after claiming benefits will you receive money. In most states this will be in the form of a check or in a minority of states, optionally, by direct deposit.
Each Thursday, the Department of Labor issues the Unemployment Insurance Weekly Claims Report. [2] Its headline number is the seasonally adjusted estimate for the initial claims for unemployment for the previous week in the United States. This statistic, because of its timeliness, is an important indicator of the health of the labor market, and more broadly, the vigor of the overall economy. Numbers below 300,000 tend to indicate a tightening labor market whereas numbers above 400,000 are associated with increasing unemployment.
External links
- Government site: Latest month's unemployment rate report
- Government site: One-Stop Career Centers - in each state
- State Employment Offices by State
- Text of the California Unemployment Insurance Code
[edit] Merge from Unemployment compensation 6/20/06
Unemployment Compensation is an amount received by a taxpayer, originating from the United States or a State.
Unemployment Compensation in the United States In the United States, this compensation is classified as a type of social welfare benefit. According to the Internal Revenue Code, these types of benefits are to be included in a taxpayer’s gross income. The argument for taxation of social welfare benefits is that they result in a realized gain for a taxpayer.
In the United States, this particular type of payment is unique in the fact that it arises from government resources. As a result, issues arrived over the taxability of such payment. With Revenue Ruling 71-425, the IRS deemed Unemployment Compensation amounts excludable based on certain conditions.
Conditions for exclusion:
- Source of payment is a governmental unit or welfare fund; and
- Reason for payment is in the interest of general welfare.
Essentially, nearly identical economic inflows were being taxed differently. In an attempt to provide uniformity and clarity to taxpayers, congress established Code Section 85. Section 85 superseded the previous Revenue Ruling making Unemployment Compensation includable in gross income.
The criteria for inclusion included:
- Recipient must be an individual; and
- Source of payment is unemployment compensation.
[edit] Technical analysis of unemployment benefits
- Starting without unemployment benefits, the budget line is FE and indifference curve U0, the person could consume 110 hours of leisure and not earn anything. However the person would choose optimum consumption point P, where the budget line and indifference curve intersect, and have 70 hours leisure and 40 hours work per week.
- If an unemployment benefits program is now introduced it shifts the endowment point vertically from E to G, as they now consume the same amount of leisure time but have an income as well. Potentially the person could consume 110 hours of leisure time, but still earn $500 from the unemployment benefits. Because the wages now earned will have a lower net value as unemployment benefits are reduced with income earned the slope of the budget line rotates to GH.
- The income effect moves the chosen work/leisure ratio to point Q and the substitution effect then moves the chosen work leisure ratio from Q to point R where the person is working for 10 hours and having 100 hours leisure. This is because the price of leisure has been reduced by the unemployment benefits system. The substitution effect dictates that the person will always switch to the relatively cheaper option. Thus, in theory, unemployment benefits encourage people to choose to have more leisure time and work less. Empirical evidence also finds that UI benefits increase the duration of unemployment spells, though the magnitude of this effect is less clear.
A premise behind the system is that unemployed workers will find an optimal job where their skills can be put to use in the interest of the economy as well as their own, rather than simply taking the first job that comes along and filling their days with that work. The unemployment insurance in effect makes it one's full-time job to find the most suitable job within a reasonable time.
While unemployment benefits are often initiated to assist those less fortunate in society, because you need to have been employed to receive any benefit, they mainly assist the middle class resulting in something called the Matthew effect.
[edit] See also
- Unemployment
- Social rights
- Hartz concept
- Parental leave
- Reserve army of labour
- Labour power
- Compensation of employees
- Lorentz Curve
[edit] References
- ↑ Source: Benefit & Tax Credit Rates 2006 — © Citizens Advice Bureau (United Kingdom) and the Child Poverty Action Group
- Bojas George J., Labor Economics, Second edition, 2002, McGraw-Hill.
