Unemployment benefits

Unemployment benefits are payments made by the state or other authorized bodies to unemployed people. Benefits may be based on a compulsory para-governmental insurance system. Depending on the jurisdiction and the status of the person, those sums may be small, covering only basic needs (thus a form of basic welfare), or may compensate the lost time 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.

In some countries, a significant proportion of unemployment benefits are distributed by trade/labor unions, an arrangement known as the Ghent system.

Argentina

In Argentina, successive administrations have used a variety of passive and active labor market interventions to protect workers against the consequences of economic shocks and the government's key institutional response to combat the increase in poverty and unemployment created by the crisis was the launch of an active unemployment assistance program called Plan Jefas y Jefes de Hogar Desocupados (Program for Unemployed Heads of Households).

External links

• [1] Unemployment Assistance and Transition to Employment in Argentina

Australia

Main article: Social Security (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 A$91.60 per week. For over 18 to 20 years olds living at home this increases to A$110.15 per week. For those aged 18–20 not living at home the rate is A$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 Employment Pathway Plan (previously called 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 A$32 per week before benefits begin to reduce, until your income reaches A$397.42 per week at which point no unemployment benefits are paid) and the assets test (you can have assets of up to A$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 as at the 12th January 2010 for single people without children is A$228 per week, paid fortnightly. (This does not include supplemental payments such as Rent Assistance.) Different rates apply to people with partners and/or children.

The system in Australia is designed to support citizens no matter how long they have been unemployed. This has been criticized by some conservative commentators, who allege that welfare generates a 'culture of welfare dependence'. In recent years the former Coalition government under John Howard has increased the requirements of the Activity Agreement, providing for controversial schemes such 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. Since the Labor government under Kevin Rudd was elected in 2008, the length of unemployment before one is required to fulfil the requirements of the Activity Agreement (which has been renamed the Employment Pathway Plan) has increased from six to twelve months. 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 Employment Pathway Plan 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 as at the 12th January, 2010, begins to be paid when the weekly rent is more than A$49.70. Rent Assistance is paid as a proportion of total rent paid (to be precise, 75 cents in the dollar over $49.70 up to the maximum). The maximum amount of rent assistance payable is A$55.90 per week, and is paid when the total weekly rent exceeds A$124.24 per week. Different rates apply to people with partners and/or children, or who are sharing accommodation.

External links

• Centrelink web-site

Canada

In Canada the system now known as Employment Insurance was formerly called Unemployment Insurance until 1996 when it was changed due to perceived negative connotations. Canadian workers pay premiums of 1.73% of insured earnings in return for benefits if they lose their jobs. Employers contrie of employee premiums. Since 2011, there is no government contribution to this fund. 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 Service Canada, a service delivery network reporting to the Minister of Human Resources and Social Development Canada.

A bit over half of EI benefits are paid in Ontario and the Western provinces but 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, forestry or tourism and go on EI over the winter when there is no work. There are special rules for fishermen making it easier for them to collect EI. EI also pays for maternity and parental leave, compassionate care leave, and illness coverage. The program also pays for retraining programs (EI Part II) through labour market agreements with the Canadian provinces.

An unemployment insurance program was first attempted in 1935 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 judged to be an insurance matter falling under provincial responsibility. After a constitutional amendment was agreed to by the provinces, a reference to "Unemployment Insurance" was added to the matters falling under federal authority under the Constitution Act, 1867, and the first Canadian system was adopted 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. 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. It was also in 1971 that the UI program was first opened up to maternity and sickness benefits, for 15 weeks in each case.

The generosity of the Canadian UI program was progressively reduced after the adoption of the 1971 UI Act. At the same time, the federal government gradually reduced its financial contribution, eliminating it entirely by 1990. The EI system was again cut by the Progressive Conservatives in 1990 and 1993, then by the Liberals in 1994 and 1996. Amendments made it harder to qualify by increasing the time needed to be worked, although seasonal claimants (who work long hours over short periods) turned out to gain from the replacement, in 1996, of weeks by hours to qualify. The ratio of beneficiaries to unemployed, after having stood at around 40 percent for many years, has recently reached close to 50% (end of 2009). Many unemployed persons are not covered for benefits (e.g. the self-employed), while others may have exhausted their benefits or did not work long enough to qualify. However, it is noted that 80 percent of insured job-losers do initially receive EI benefits in Canada. The length of time one could take EI has also been cut repeatedly. The 1994 and 1996 changes contributed to a sharp fall in Liberal support in the Atlantic provinces in the 1997 election.

In 2001, the federal government increased parental leave from 10 to 35 weeks and allowed workers to take EI for compassionate care leave while caring for a dying relative. Total EI spending is projected at $22.7 billion for 2010 (figures in Canadian dollars).

A significant part of the federal fiscal surplus of the Jean Chrétien and Paul Martin years came from the EI system. Premiums were reduced much less than falling expenditures - producing, from 1994 onwards, EI surpluses of several billion dollars per year, which were added to general government revenue. The cumulative EI surplus stood at $57 billion at March 31, 2008, nearly four times the amount needed to cover the extra costs paid during a recession. This drew criticism from Opposition parties and from business and labour groups, and has remained a recurring issue of the public debate. The Conservative Party, after voicing much the same criticism while in opposition, chose not to recognize existing EI surpluses after being elected in 2006. Instead, the Conservative government adopted in 2008 and 2009 legislation freezing the EI surplus indefinitely and putting EI premiums on a pay-as-you-go basis, so that - starting in 2011 - they will fluctuate in line with changes in unemployment levels. On December 11, 2008, the Supreme Court of Canada rejected a court challenge launched against the federal government by two Quebec unions, who argued that EI funds had been misappropriated by the government.

A slang term often used for EI is "Pogey". An example of the use of this term would be "Just keep working until you get your pogey", or "my husband is on pogey".

External links

• [2] History of UI in Canada, since 1930s
• [3] Canadian Government Site for EI
• [4] Canadian Government Site for Maternity and Parental Benefits
• [5] Library of Parliament publication on EI premiums
• CBC Digital Archives - On The Dole: Employment Insurance in Canada

China

The level of benefit is set between the minimum wage and the minimum living allowance by individual provinces, autonomous regions and municipalities.

Greece

Unemployment benefits in Greece are administered through OAED (Labor Force Employment Organization) and are available only to laid-off salaried workers with full employment and social security payments during the previous two years. The self-employed do not qualify, and neither do those with other sources of income. The monthly benefit is fixed at the "55% of 25 minimum daily wages", and is currently 454 euros per month, with a 10% increase for each under-age child.

Ireland

People aged 18 and over and who are unemployed in Ireland can apply for either the Jobseeker's Allowance (Liúntas do Lucht Cuardaigh Fostaíochta) or the Jobseeker's Benefit (Sochar do Lucht Cuardaigh Fostaíochta). Both are paid by the Department of Social Protection and are nicknamed "the dole".

The standard payment is €196 (maximum rate 2010) per week. Payments can be increased if the unemployed has dependants. For each adult dependent, another €135.60 (maximum rate 2009) is added; and for each child dependent, another €26.00 (maximum rate 2009) is added.

There are more benefits available to unemployed people, usually on a special or specific basis. Benefits include the Rent Supplement, the Mortgage Interest Supplement, Fuel Allowance and the Smokeless Fuel Allowance, among others. People on a low income (which includes those on JA/JB) are entitled to a Medical Card (although this must be applied for separately from the Health Service Executive) which provides free health care, optical care, dental care, aural care, and prescription drugs (as opposed to subsidised services like non medical-card holders). Education (at all levels) is free to all, not just the unemployed.

To qualify for Jobseekers Allowance, claimants must satisfy the "Habitual Residence Condition": they must have been legally in the state (or the Common Travel Area) for two years or have another good reason (such as lived abroad and are returning to Ireland after become unemployed or deported). This condition does not apply to Jobseekers Benefit (which is based on Social Insurance payments).

The word "dole" is mentioned in The Script song, For the First Time : " She's in line at the dole with her head held high."

More information on each benefit can be found here:

• Jobseeker's Allowance
• Jobseeker's Benefit

Italy

Main article: Unemployment benefits in Italy

Unemployment benefits in Italy consists mainly in cash transfers based on contributions (indennità di disoccupazione), up to the 40 percent of the previous wages for up to seven months. Other measures are:

• Redundancy Fund (Cassa integrazione guadagni, CIG): cash benefits provided as shock absorbers to those workers who are suspended or who work only for reduced time due to temporary difficulties of their factories, aiming to help the factories in financial difficulties, by relieving them from the costs of unused workforce
• Solidarity Contracts (Contratti di solidarietà): in the same cases granting CIG benefits, companies can sign contracts with reduced work time, to avoid dismissing redundancy workers. The state will grant to those workers the 60 percent of the lost part of the wage.
• Mobility allowances (Indennità di mobilità),: if the Redundancy Fund does not allow the company to re-establish a good financial situation, the workers can be entitled to mobility allowances. Other companies are provided incentives for employing them.

In the Italian unemployment insurance system all the measures are income-related, and they have an average decommodification level. The basis for entitlement is always employment, with more specific conditions for each case, and the provider is quite always the state. An interesting feature worthy to be discussed is that the Italian system takes in consideration also the economic situation of the employers, and aims as well at relieving them from the costs of crisis.

Japan

Unemployment benefits in Japan are called "unemployment insurance" and are closer to the US or Canadian "user pays" system than the taxpayer funded systems in place in countries such as Britain, New Zealand, or Australia. It is paid for by contributions by both the employer and employee.

By law, workers ask their employer to enroll them. If they have been enrolled for at least 6 months and are fired or made redundant, leave the company at the end of their contract, or their contract is non-renewed, the now-unemployed worker will receive unemployment insurance. If a worker quit of their own accord they may have to wait between 1 to 3 months before receiving any payment.

The length of time that unemployed workers can receive benefits for depends on the age of the employee, and how long they were employed for.

New Zealand

Main article: Social welfare in New Zealand

In New Zealand, these benefits provide income support for people who are looking for work or training for work through Work and Income, a service of the Ministry of Social Development

To qualify, a person needs to be aged 18 or over, or aged 16–17 and living with a partner and children they support and:

• have continually lived in New Zealand for two years or more
• not working full-time, but actively looking for a full-time job and able to start work now.
• a person may still qualify if he/she is a full-time trainee on an approved work related course. The course must usually be less than 12 weeks long to qualify. People must still take steps to meet the job search requirements.

A person who applies for the benefit may be asked to develop a Job Seeker Agreement with Work and Income where he/she agrees to look for work or prepare for work

If the applicant has a partner they may be included in the benefit and may also be asked to develop a Job Seeker Agreement with Work and Income. They may also need to:

• look for full-time work (30 hours a week or more) if applicant has no children at home or applicant's youngest child is aged 14 or older or
• look for part-time work (15 hours a week or more) if applicant's youngest child is aged 6–13 or come to annual planning meetings and perhaps do things to help prepare for work if applicant's youngest child is less than six years old.

In New Zealand the benefit is $158.65 weekly after tax for single person who is 20–24 years. A married, de-facto or civil union couple with or without children receive $317.30 per week after tax ($158.65 each). Single persons 25 years or over get $190.39 per week after tax. The benefit payment can reduce due to any income the person or their partner earns.

External links

• Work and Income web-site

Sweden

Main article: Unemployment benefits in Sweden

Sweden uses the Ghent system, under which a significant proportion of unemployment benefits are distributed by unions. 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 (see Unemployment funds in Sweden).

The maximum unemployment benefit is (as of July 2007) SEK 1680 per day. During the first 200 days the unemployed will receive 80 percent of his or her normal income during the last 12 months. From day 201-300 this goes down to 70 percent and from day 301-450 the insurance covers 65 percent of the normal income (only available for parents to children under the age of 18). In Sweden tax is paid on unemployment benefits, so the unemployed will get a maximum of about SEK 10,000 per month during the first 100 days (depending on the municipality tax rate). In other currencies this means a maximum of approximately £730, $1,650, or €1,100, each month after tax. 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.

Saudi Arabia

Saudi Arabia is an economic welfare state with free medical care and unemployment benefits. However, the country relies not on taxation but mainly oil revenues to maintain the social and economic services to its populace.

External links

• Social Services of Saudi Arabia

United Kingdom

Main article: Jobseeker's Allowance

Jobseeker's Allowance rates

JSA for a single person is changed annually, and at June 29, 2009 the maximum payable was £65.45 per week for a person aged over 25, £51.85 per week for a person aged 18–24. The rules for couples where both are unemployed are more complex, but a maximum of £102.75 per week is payable, dependent on age and other factors. Income-based JSA is reduced for people with savings of over £6,000, by a reduction 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. The British system provides rent payments as part of a separate scheme called Local Housing Allowance. Unemployed persons are able to submit Enduring Power of Attorney/Lasting Power of Attorney submissions free of charge saving £120 each.

History and etymology

Unemployment benefits were first instituted in 1911. Over 2 million people were relying on the payments by 1921, as the United Kingdom was experiencing economic hardship after World War I.

To receive unemployment benefit is commonly referred to as "being on the dole", "dole" being an archaic expression meaning "one's allotted portion", from the synonymous Old English word dāl. or the actual word comes from not old English but ,from the Roman Empire The free grain policy as every citizen was allotted Dole. hence the correct spelling of Dole see ref: http://www.cato.org/pubs/journal/cjv14n2-7.html

United States

Unemployment compensation is money received from the United States and a state by a worker who has become unemployed through no fault of their own. 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.

Federal-State joint programs

Wisconsin originated the idea of unemployment insurance (UI) in the U.S. in 1932. In the United States, there are 50 state unemployment insurance programs plus one each in the District of Columbia and Puerto Rico. Through the Social Security Act of 1935, the Federal Government of the United States effectively encouraged the individual states to adopt unemployment insurance plans.

Unemployment insurance is a federal-state program jointly financed through federal and state employer payroll taxes (federal and state UI taxes). Generally, employers must pay both state and federal unemployment taxes if:

(1) they pay wages to employees totaling $1,500 or more in any quarter of a calendar year; or,

(2) they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether the weeks were consecutive. However, some state laws differ from the federal law.

To facilitate this program, the U.S. Congress passed the Federal Unemployment Tax Act (FUTA), which authorizes the Internal Revenue Service (IRS) to collect an annual federal employer tax used to fund state workforce agencies. FUTA covers the costs of administering the Unemployment Insurance and Job Service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits. As originally established, the states paid the federal government.

The FUTA tax rate was originally three percent of taxable wages collected from employers who employed at least four employees, and employers could deduct up to 90 percent of the amount due if they paid taxes to a state to support a system of unemployment insurance which met Federal standards, but the rules have changed as follows. The FUTA tax rate is now 6.2 percent of taxable wages of employees who meet both the above and following criteria, and the taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the state unemployment tax on a timely basis receive an offset credit of up to 5.4 percent regardless of the rate of tax they pay their state. Therefore, the net FUTA tax rate is generally 0.8 percent (6.2 percent - 5.4 percent), for a maximum FUTA tax of $56.00 per employee, per year (.008 X $7,000 = $56.00). State law determines individual state unemployment insurance tax rates. In the United States, unemployment insurance tax rates use experience rating.

Within the above constraints, the individual states and territories raise their own contributions and run their own programs. The federal government sets broad guidelines for coverage and eligibility, but states vary in how they determine benefits and eligibility.

Federal rules are drawn by the United States Department of Labor, Employment and Training Administration. For most states, the maximum period for receiving benefits is 26 weeks. There is an extended benefit program (authorized through the Social Security Acts) that may be triggered by state economic conditions. Congress has often passed temporary programs to extend benefits during economic recessions. This was done with the Temporary Extended Unemployment Compensation (TEUC) program in 2002-2003, which has since expired, and remained in force through June 2, 2010, with the Extended Unemployment Compensation 2008 legislation. In July, legislation that provides an extension of federal extended unemployment benefits through November was signed by the President. The extension restored unemployment benefits to the 2.3 million unemployed Americans who had run out of basic unemployment benefits. However, the current extensions in place expire on November 30 unless legislation is passed by Congress providing for an additional extension. Congress is considering extending the Temporary Extended Unemployment Compensation program again.

The federal government lends 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 1980s.

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.

Macroeconomic function

The Unemployment Insurance (UI) program acts as an automatic stabilizer. When employment grows, UI program revenue rises through increased tax revenues while UI program spending falls as fewer workers are unemployed. This creates a surplus of funds for the UI program to draw upon during a recession. In a recession, UI tax revenue falls and UI program spending rises as more workers lose their jobs and receive UI benefits. The increased amount of UI payments to unemployed workers puts additional funds into the economy.

Eligibility and amount

Americans out of work who do not qualify for unemployment insurance include part-time, temporary, and self-employed workers.

Generally, the worker must be unemployed through no fault of his/her own (generally through lay-offs). The unemployed must also meet state requirements for wages earned or time worked during an established period of time (referred to as a “base period”) to be eligible for benefits. (In most States, the base period is usually the first four out of the last five completed calendar quarters prior to the time that the claim is filed.) Unemployment benefits are based on reported covered quarterly earnings. The amount of earnings and the number of quarters worked are used to determine the length and value of the unemployment benefit. The average weekly payment is 36 percent of the individual's average weekly wage.

Application process

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.

To begin a claim, the unemployed worker must apply for benefits through a state unemployment agency. In certain instances, the employer initiates the process. Generally, the certification includes affected person affirming that they are "able and available for work", the amount of any part-time earnings they may have had, and whether they are actively seeking work. These certifications are usually accomplished either by internet or via an interactive voice response telephone call, but in a few states may be by mail. After receiving an application, the state will notify the individual if they qualify and the rate they will receive every week. The state will also review the reason for separation from employment. Many states require the individual to periodically certify that the conditions of the benefits are still met.

Disqualification

If your reason for separation from your last job is due to some reason other than a "lack of work,” a determination will be made about whether you are eligible for benefits. Generally, all determinations of eligibility for benefits are made by the appropriate State under its law or applicable federal laws. If you are disqualified or denied benefits, you have the right to file an appeal within an established timeframe. The State will advise you of your appeal rights. Your employer may also appeal a determination if he/she does not agree with the State's determination regarding your eligibility.

Public Economics Rationale for Program

The justification for government provision and not private market provision of an unemployment insurance program can be explained using public economics. The government provides insurance against the possibility of becoming unemployed because private markets will not provide such insurance because of adverse selection and moral hazard. “The workers who have the highest probability of becoming unemployed have the highest demand for unemployment insurance (adverse selection).” Adverse selection causes profit maximizing private insurance agencies to set high premiums for the insurance because there is a high likelihood they will have to make payments to the policyholder. High premiums work to exclude many individuals who otherwise might purchase the insurance. “At the same time, those workers who managed to obtain insurance might experience more unemployment otherwise would have been the case.” The insurance company then has to determine whether the employee is unemployed through no fault of their own, which is difficult to determine. Incorrect determinations could result in the payout of significant amounts for fraudulent claims. Because of moral hazard and adverse selection, it is very unlikely that a private insurance would provide unemployment insurance. This leads to the rationale that if government could solve either problem that government intervention would increase efficiency. “A compulsory government program avoids the adverse selection problem. Hence, government provision of UI has the potential to increase efficiency. However, government provision does not eliminate moral hazard.”

Current data

Each Thursday, the Department of Labor issues the Unemployment Insurance Weekly Claims Report. 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.

UI Outlook

Twice a year, the Office of Management and Budget delivers an economic assessment of the unemployment insurance program as it relates to budgetary issues. As it relates to the FY 2012 budget, the OMB reports that: the insured unemployment rate (IUR) is projected to average 3.6% in both FY 2011 and in FY 2012. State UI regular benefit outlays are estimated at $61 billion in FY 2011 and $64.3 billion in FY 2012, down somewhat from Midsession estimates. Outlays from state trust fund accounts are projected to exceed revenues and interest income by $16.0 billion in FY 2011 and $15.1 billion in FY 2012. State trust fund account balances, net of loans, are projected to continue to fall, from -$27.4 billion at the end of FY 2010 to -$62.7 billion at the end of FY 2013, before starting to grow again. Net balances are not projected to become positive again until well beyond FY 2016. Up to 40 states are projected to continue borrowing heavily from the Federal Unemployment Account (FUA) over the next few years. The aggregate loan balance is projected to increase from $40.2 billion at the end of FY 2010 to a peak end-of-year balance of $68.3 billion in FY 2013. Due to the high volume of state loans and increased EB payments, FUA and EUCA are projected to borrow $26.7 billion from the general fund in FY 2011 and an additional $19.4 billion in FY 2012, with neither account projected to return to a net positive balance before 2016. The general fund advances must be repaid with interest.

Effects on Unemployment & State Budgets

There have been concerns that unemployment insurance increases unemployment. One such concern is that the program is based on experience rating and this can sometimes be imperfect. That is, the cost to the employer in increased taxes is less than the benefits that would be paid to the employee upon layoff. The firm in this instance believes that it is more cost effective to layoff the employee, causing more unemployment than under perfect experience rating. Another issue with unemployment insurance relates to its effects on state budgets. During recessionary time periods, the number of unemployed rises and they begin to start drawing benefits from the program. The longer the recession lasts, depending on the state’s starting UI program balance, the quicker the state begins to run out of money in the coffer. The recession that began in December 2007 and ended in June 2009 has significantly impacted state budgets. According to The Council of State Governments, by March 18, 2011, 32 states plus the Virgin Islands had borrowed nearly $45.7 billion. The Labor Department estimates by the fourth quarter of 2013, as many as 40 states may need to borrow more than $90 billion to fund their unemployment programs and it will take a decade or more to pay off the debt.

Taxation

The argument for taxation of social welfare benefits is that they result in a realized gain for a taxpayer. The argument against taxation is that the benefits are generally less than the federal poverty level.

Unemployment compensation has been taxable by the federal government since 1987. Code Section 85 deemed unemployment compensation included in gross income. Federal taxes are not withheld from unemployment compensation at the time of payment unless requested by the recipient using Form W-4V.

In 2003, Rep. Philip English introduced legislation to repeal the taxation of unemployment compensation, but the legislation did not advance past committee. Most states with income tax consider unemployment compensation to be taxable.

Prior to 1987, unemployment compensation amounts were excluded from federal gross income.

For the US Federal tax year of 2009, as a result of the signing of the American Recovery and Reinvestment Act of 2009 signed by Barack Obama on February 17, 2009 the first $2,400 worth of unemployment income received during the 'tax year' of 2009 will be exempted from being considered as taxable income on the Federal level, when American taxpayers file their 2009 IRS tax return paperwork in early 2010.

Work sharing

Employers have the option of reducing work hours to part-time for many employees instead of laying off some of them and retaining only full-time workers. Employees in 18 states can then receive unemployment payments for the hours they are no longer working.

See also

• Job sharing
• 99ers
• Unemployment
• Unemployment extension
• Social rights
• Hartz concept
• HIRE Act
• Parental leave
• Reserve army of labour
• Labour power
• Compensation of employees
• Lorenz curve
• Social security
• J. S. Woodsworth
• Social insurance
• Kurzarbeit

References

• Bojas George J., Labor Economics, Second edition, 2002, McGraw-Hill.

External links

• Government site: Latest month's unemployment rate report
• Find it Fast, Find it Free - Direct links to your state's unemployment insurance benefits
• Government site: One-Stop Career Centers - in each state
• State Employment Offices by State
• Text of the California Unemployment Insurance Code
• Economic Policy Institute - To calculate the unemployment insurance benefits you might receive in the United States (based on ²⁰⁰⁴ rates)
• A guide to collecting unemployment Benefits in the United States of America
• Office of the Public Guardian
• First $2,400 of Unemployment Benefits Tax Free for 2009
• Guide to Unemployment Insurance Eligibility in the UK
• Comparing UK Unemployment Insurance the essential elements you need to know