Unemploymeny benefit : A necessary balm or a crippling disincentive?

In the current economic climate with government spending coming under increasing scrutiny the debate on this ever present issue has been rekindled. According to the OECD, member governments spent an average of 0.75 of GDP on unemployment benefit in 2006. The figure for the US was half of this average, the UK's a quarter, France's twice,and Germany's three times. What are the aims of unemployment benefit? Is it successful in achieving these aims?

Unemployment benefit exists because it is seen to be both economically and socially beneficial. Joeseph Stiglitz maintains that on the economic front it can serve as an “automatic stabiliser” by guaranteeing an income for those who lose their job, and thus preventing a downward spiral linked to decreasing consumption. Unemployment benefit also gives people who have recently lost their job a grace period in which to find a suitable job and to avoid the sub-optimal outcome which results from being over-qualified for a given job. On a social level, unemployment benefit is seen as the siganature mark of a “progressive” society, in which the many join together to support those less fortunate than themselves. It also fulfills the role of providing a legitimate form of income for people who may otherwise resort to crime.

However in attempting to achieve these entirely laudable goals it may well induce several undesirable effects. Principal among these is the accusation that unemployment benefit creates a disincentive to work. This argument claims that by providing people with a source of income with minimal effort expected in return you are in fact removing their motivation to work. This relationship is difficult to measure statistically as the validity of international or even historic comparisons is nullified by a raft of variables (current economic climate, employment legislation, social welfare system etc). However Raj Chetty, a young Berkeley economist, identified a link between an increase in unemployment benefits and a corrollary increase in the length of time between jobs.

This in itself is not a bad thing and in the long-run may even be beneficial to the economy, by allowing people to spend time looking for a job that matches their qualifications. However the question remains as to how best ensure that unemployment benefit serves as a crutch rather than an inhibitor. The contemporary approach is to link unemployment benefit to the status of active job seeking, such as the 1996 welfare reform act in the US which removed the governments obligation to provide unconditionnal indefinite assistance to those who are out of work. Emphasis has also been placed on upskilling and training in an effort to counter the fact that employability decreases in line with time spent out of work.

Many dismiss as outmoded and barbaric the idea advanced by the Elizabethan Poor Laws that the “poor must be put to work”. However, I don't think we should dismiss it entirely . Employment provides not only an economic benefit to wider society through fiscal contributions and increased consumption but also provides a sense of self worth. We have a responsibility to formulate a system of unemployment benefits which empowers those who are looking for work rather than disadvantages them. Unemployment benefits must be contingent on the applicant displaying one or several of the following tendencies: concrete attempts to find work as visible through realistic and determined job applications, a commitment to upskilling, or participation in community service or voluntary work which utilises their individual capabilities.

These measures put the onus back on the person who is looking for work. Yes, the government should protect its more vulnerable citizens. However it should feel no obligation to those who exclude themselves. Unemployment is an increasingly prevalent reality, and so we must remind ourselves that while necessary, it is not a one way street.