Unemployment insurance is one of the programs that has developed widely in the world. The main purpose of this form of insurance is to support unemployed personalities that are actively looking for jobs. The aim of this paper is to discuss unemployment insurance program in relation to economic concepts and theories.
The unemployment insurance program provides benefits as long as an individual has filed an unemployment insurance (UI) claim and meets all the eligibility requirements. Physical ability to work, being active in looking for work, being partially or totally employed, being available and willing to accept work, and being approved by a training facility are some of the eligibility requirements that approve provision of benefits from the program. In addition, one should have clear details payment information and proper UI debit cards. The benefits are available to all the workers who lose their jobs and file for the program after officially being declared as unemployed.
The program theoretically helps affected individuals by enabling them to smoothen consumption across the world and states. To be more specific, the program is vital as it gives people the ability to save for the spells of unemployment while at the same time pooling the risk of unemployment through insurance. Those working reduce the current consumption by saving for the future harsh unemployment or recess conditions. The program raises welfare by improving the ability to meet market constraints when one loses their job. In our program, we care about the problem of miserable quality of life that individuals face when they loose employment. Therfore, every insurance program should be weighed and justified in accordance with the magnitude of its benefits to the insured.
The economic justification for the UI provision by the government is based on the insurance-incentive concept which is a tradeoff that involves the design of all insurance programs. The outcome is enhanced economic recovery and sustenance either when on recess or when unemployed. The adverse selection problem that exists in the UI private sector is that the insurer always get a hard time when trying to differentiate between good and bad insurance behaviors. Quantifying the effort put in searching for work by the unemployed is hard to determine. Because of this, the insurance is offered at a very high price keeping many out of the pool of insurance. The result is bad since many individuals that are eligible lack access to the program.
The paternalistic argument for the government involvement in the unemployment insurance program market is that policies derived to run the program can have an impact on the behavior of the insurers as well as the people who file for the program. Taking an example, the requirements put in place can increase sanction after which one becomes eligible for the program benefits. The condition set in place should be strict so as to ensure that the benefits are realized only with great eligibility. In addition, the paternalistic argument should be able to offer detailed information on justification for limitations. This justification is a good way of enhancing self-restriction.
Government intervention in UI program crowd out the private behavior of using the program for bad intentions, which can include taking loans and accumulating wealth at the expense of the program. The program enhances the likelihood of voluntary sanction taking into consideration the fact that the needs of the individual are taken care of by the program. The result is increase in the likelihood of using the program exploitatively even when not fully eligible for the program. Monitoring for eligibility is not an easy task with the increasing recession. The crowd-out positively influences the program and helps it maximize on its goal of supporting those eligible for the program. The scope of the crowd-out is not big considering the fact that the intervention is not very effective (Hoque and Inder, 727).
The moral hazard of the program is that the insurance benefits are offered without clear information of behavior of individuals, since it is difficult to monitor if the insured have resumed on their search for employment. Therefore, as the government tries to help the unemployed, the program gives people the incentive of not looking for alternative jobs. The scope of moral hazard is a lot considering the increased number of the unemployed people that are supported by the program (Finkelstein, 18). The program reduces social efficiency by creating a large unproductive population in the economy.
In conclusion, insurance plays a good role in the society. Nonetheless, if not monitored, insurance programs such as unemployment insurance can have results that reduce social efficiency in the society rather than growing it. In light of this, insurance companies should actively participate in the monitoring of the behavior of the insured, to ensure that these individuals are making purposeful efforts to improve on their living standards.
Finkelstein, Amy. “Moral Hazard in Health Insurance.” Moral Hazard in Unemployment Insurance, 2014, pp. 13-44.
Hoque, Asraul, and Brett A. Inder. “Structural unemployment in Australia.” Applied Economics, vol. 23, no. 4, 1991, pp. 723-730.