Unemployment Insurance-Richie Weker

The federal government mandates that each state government offer unemployment insurance.  Unemployment insurance utilizes payroll taxes to pay benefits to workers who have been laid off by their companies.  These employable persons must be unemployed through no fault of their own and are available to work and are actively seeking employment to qualify for the monthly sums of benefit. The unemployment insurance system is meant to be forward funding, meaning that the base is supposed to be grown during periods of healthy economic growth in order to be used more heavily during periods of poor economic growth such as during a recession or other moments that would bring about high unemployment.

During periods of recession the program stimulates economic activity and job creation.  Individuals who have their income disrupted and have not adequately self-insured are the ones that are most likely to spend any additional income they receive very quickly.  The unemployment insurance program gives this demographic the benefits to replace their income that they in turn spend in stores and businesses help decrease the output gap and create jobs in periods of slow growth.  The unemployment insurance program helps not only the individuals receiving the benefits but their community and local economy as well. 

There is a moral hazard that comes with the unemployment insurance program.  It concerns the duration of the unemployment benefits given.  The main argument against unemployment insurance programs is that it a disincentive for the unemployed to find work.   In order to avoid the moral hazard of having employed workers simply pay for the benefits for unemployed workers, while the unemployed workers do nothing but collect the benefits can be avoided by the states not providing too high unemployment insurance benefits.  It is necessary to give people the temporary aid while they are in the process of looking for new employment, but giving too much allows them to simply wait the twenty-six weeks before finding a new job.

I believe that the federal mandate that state governments should provide unemployment insurance to unemployed workers who qualify for the program is an economically productive mandate.  I believe that many of the states should adopt the forward funding policy as well, so they can build up their reserves during good economic times to be used when the economy takes a hit.  I believe that this policy is one that is very beneficial during harsh times and provides a good service.  Although I do believe that individuals should self-insure and save to help them during hard times, this paternalistic government intervention is necessary for the general welfare of the citizens and this program is an example of a program that is largely beneficial to individuals and their local economies and communities.

-Richie Weker