Unemployment insurance

I have long thought that our unemployment insurance system has several bad flaws:

– it tries to make people more comfortable in their misery, but does nothing to help them get out of their misery.

– it gives people an incentive to stay unemployed and a disincentive to find employment.

– it is a tax on businesses who might create jobs if they didn’t have to pay so much in taxes. Even worse, it is a tax that sometimes is increased in a bad economy – the very time when we want them to create more jobs.

Ira Stoll has more comments along the same lines:

“Congress should stop extending unemployment benefits, and better yet, restructure the unemployment insurance program or block-grant it to the states to allow them to experiment with ways of doing so. The idea is to change the program so it creates an incentive for recipients to get a job, rather than an incentive for them to remain unemployed.

“This could involve altering the unemployment benefit formula so that the amount of the payment gradually decreases over time, reducing the propensity of beneficiaries to stay on unemployment until they frantically search for a job and find it just as the benefits run out.

“Or it could involve allowing states “the flexibility to convert their unemployment insurance payments from checks sent to the jobless into vouchers that can be used by companies to hire workers,” asBloomberg News columnist Jonathan Alter suggests, relaying an idea from a Democratic candidate for U.S. Senate from Massachusetts, Alan Khazei.

“Or it could involve changing the program so recipients get a hefty share of their benefits up front, as a lump sum. They can then use the money as capital to start small businesses. Or if they find a job quickly, they can save or invest or spend the money. (No repeat passes, though; the idea is to increase incentives for finding or creating a job, not rewards for people who get themselves fired.) Another approach might be to fold unemployment together with health, college, homeownership and retirement as expenses that people can save for in a tax-favored account.”

(From Reason Online: http://reason.com/archives/2011/08/12/what-would-you-do-to-impro/3)

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