Welfare System for the Borough of Fanfare - Literature review Example

?Welfare System for the Borough of Fanfare By Introduction Rules: If conditions are ok in terms of jobseekers, national insurance contributions, education and age, then the extent of national insurance contributions will be calculated. Based on calculations, once the jobseeker is employed, his share of the contributions will be deducted from his/her salary and the employer pays the balance. An Employee’s entitlement to unemployment benefit in the event of illness or retirement will be calculated. If conditions are met for unemployment benefits employee receives benefits based on contributions and welfare entitlements. This is calculated based on severity of illness and contributions or in the event of retirement, contributions made over the years while employed. Critical Analysis Over the past ten or so years more than 300 million workers in Great Britain were unable to work due to illness or injury (Doherty, 1979). In the absence of a national insurance system in which unemployment benefits are calculated on the basis of contributions, the financial burden on the state would be far too onerous to bear. In addition, the provision of public health services would be entirely underfinanced and this would impact the quality of health services that the government can afford to provide for workers who are unable to work due to illness or injury. According to Woolhandler and Himmmelstein (2002), spending on health is among the highest for governments all over the world, particularly with respect to those employed in the public sector. A study conductd by Nishino, Kuwahara, Watanabe, et al., (1998) is demonstrative of the problem for the public. The study was conductd in Japan and examined the nature of national health insurance benefits accruing to a cohort of claimants between the ages of 40 and 79. There were approximately 54,996 claimants that were eligible for health benefits over a period of one month alone (Nishino, et al., 2002). The need for a contribution system in which citizens share some form of responsibility for their own welfare is required to safeguard against a depleted and overburdened, and at the same time, underfunded public health system. As Lewis (1992) argues, the ideal welfare system is one that incorporates a link between “unpaid” welfare and paid welfare (p. 591). Dependency status is also taken into account as this ensures that those who are independent can take some responsibility for themselves and this will not only help to fund public welfare services, but will also aid in the support of those who have dependence status and those who are unable to work at all (Lewis, 1992). Realistically, there is a disparity in terms of access to education and therefore access to paid employment. Some individuals will have the education, age, health and skills to obtain higher paying jobs than other individuals. In many cases, there will be individuals who will not have the health, education or skills to find employment at all. Therefore, it is necessary to investigate the employee’s specific personal attributes and health history to determine whether or not this individual qualifies for national insurance unemployment benefits. In other words, a particularly healthy individual with skills, youth and education would not be able to apply for unemployment benefits under the rules established in the first part of this exercise. Conversely, an individual who suffers from mental or physical disabilities and obviously does not have the skills to find employment will be able to claim unemployment national insurance benefits under these rules. An individual who has a history of contributing to national insurance and has suffered an injury or becomes ill and as a result is unable to work, his or her history of national insurance contribution will amplify the amount of benefits he or she is entitled to. According to Blundell, Duncan, McCrae and Meghir (March 2000) whenever a working individual obtains some sort of tax credit or benefit for being actively employed or is subject to a taxing system in which contributions are returned to the worker at some stage, either in part, or in whole, this is good for labour. Likewise, the national insurance welfare system promises higher increments and assistance to those who make more substantial contributions to the system. Therefore, the national insurance welfare system devised by the rules established in the first part of this paper can be looked at as a form of tax credit system for workers. Workers receive a tax credit of sorts in that they will receive some or all of their contributions back at some stage in their lives. They will either receives health assistance, unemployment benefits or they will receive a retirement fund once they reach the requisite age. As Blundell (1992) observes: …it was the perceived disincentives on work efforts induced by the tax and benefit system that provided much of the justification for the extensive tax and benefit reforms of the 1980s (15). During the 1980s in the UK, tax reforms were built around reducing employee taxes as a means of increasing the labour supply. However, taxing policies have changed to demonstrate that where employees pay higher taxes with a view to receiving higher benefits, the labour supply increases. This is particularly so when increases in tax contributions are balanced by a policy that does not automatically reward individuals who do not make tax contributions (Blundell, 1992). The underlying welfare system is constructed to encourage employment for the best interest of the public as a whole. A welfare system that merely places a burden on the public to contribute toward the welfare of those who are able to work, and do not work is detrimental to the public good and can negatively harm the labour supply. Individuals who work and make national insurance contributions will not be motivated to work if others who are able to work do not work and receive benefits. The national insurance welfare system devised in the first part of this paper, is consistent with the belief that automatic unemployment benefits is detrimental to the labour supply. For example, a study was conducted by Brewer, Duncan, Shephard, and Suarez (2006) on tax credits provided to mothers in the UK. The study examined data on employment trends before and after the introduction the Working Families Tax Credit which granted some form of tax credit to unemployed mothers. The results of the study demonstrated that in the absence of the tax credit, working mothers were employed in higher numbers. With the introduction of the tax credit, the number of employed mothers dropped (Brewer, et al., 2006). In other words, when welfare systems guarantee rewards of some sort for not working, the incentive to work is compromised. The growth and development of economies are measured by the number of individuals employed. This is because employment not only increasing spending power, but also signals the generation of revenue for the government. When the government collects revenues, it can fund infrastructure and provide quality health and education services from which the public as a whole benefits. Therefore the national insurance welfare system devised in the first part of this paper is designed to improve the incentive to work as opposed to encouraging unemployment. Individuals are more inclined to work if they are promised some form of reward. The national insurance welfare scheme is established as a reward system and not as a punitive system. Employees will not perceive contributions as a form of punishment for employment, but rather, as a reward system in that it is a savings plan for future health and retirement funding. The relevance of age is also important in the national insurance welfare system devised in the first part of this paper. Note that age is calculated as a condition for contribution and benefits. The idea is to ensure that individuals are not forced into early retirement and at the same time, individuals have an incentive to retire at a reasonable age. As competition for employment grows, the youth are looking for jobs, while individuals at the retirement age who are entitled to pensions and national insurance contributions will have an incentive to retire and thus make room for the younger individuals who have the skills and the health to work. This will keep the labour market fluid and ensure that the best talent and the more able-bodied individuals form a part of the country’s labour force. Blundell, Meghir, & Smith (2002) argue that both public and private pensions’ schemes in the UK, provide “a rate degree of variation in pension incentives for retirement” (p. 153). Blundell, et al., (2002) studied data on retirees and their pension schemes and noted that individuals with either a public or private retirement pension scheme had a pattern of retiring when they became entitled to their pensions. Although, there are others who will work regardless of the availability of a pension plan, there is a higher probability that individuals with a pension scheme will retire than those without a pension scheme. Moreover, Townley (1981) argues that the incentive to work is heightened when a pension plan is built around a “pay as you go system” (p. 712). This is because individuals are aware of the fact that they hold the keys to their financial welfare in their own hands. When a pension system is funded by public funds, everyone becomes entitled to retirement plans regardless of whether they actually worked. This is not only detrimental to the labour supply, but it is also detrimental to the public funds and therefore the public’s welfare as a whole. Under the national insurance welfare system devised in the first part of this system, the rules require that individuals who are working will make contributions with a view to receiving a retirement increment commensurate with their contributions. In this regard, age and human capital in general is calculated with a view to determining earnings and contributions. Education is included in the national insurance welfare system as an incentive for encouraging the acquisition of skills. This is important for developing the country’s human capital and human resources. While it is acknowledged that individuals who are uneducated as a result of learning or mental disabilities and those who are physically unable to engage in employment will receive some form of benefit and assistance, this national insurance welfare regime will not automatically grant aid to those who can contribute, but simply refuse to contribute. This system is designed to encourage the acquisition of skills and education with a view to working and contribution to the welfare of those who cannot take care of themselves. Clasen (2001) argues that the national insurance scheme in Great Britain is based on the “contributory principle” (p. 641). The national insurance contributory scheme has been in place since the Second World War and has since its introduction represented a significant increase in public funds and “continues to represent a substantial form of total social security revenue” (Clasen, 2001, p. 641). The system however is not perfect and as it is operated by human beings and benefits human beings, there is room for error. In particular there is room for individuals to abuse the system and to benefit from claims where they are no entitled to. The national insurance welfare system devised in the first part of this paper is designed to minimize errors and to provide a system for ensuring contributions are made by those who qualify for work and that only those who qualify for benefits will receive those benefits. More importantly, the rules systems devised is also designed to safeguard against the possibility that contributions are commensurate with ability to work and make contributions and that benefits are likewise commensurate with the individual’s contributions. This national insurance welfare system is important because there have been persistent reports that there is a gap between public welfare funding and welfare claims. These reports have followed from the global financial crisis of 2008 and onward. Governments have seen their budgets decrease as unemployment figures increased dramatically all over the world (Aaron, 2011). There is an urgent need to fund the public welfare system and this means providing individuals with an incentive to work and ensuring that those who are entitled to retirement benefits retire so that the underemployed youth may join the employment market. As Aaron (2011) argues, cutting back on entitlements would not help to close the gap between welfare funding and welfare needs. This would only serve to “disrupt the system” and would likely only create social and economic instability in an economy that is trying to rebuild (Aaron, 2011, p. 385). The solution, according to Aaron (2011) is reforms that encourage contributions and discourages undeserved benefits. The national insurance scheme and the welfare entitlement and contribution rules are structured to encourage contributions and to discourage the payment of underserved and unearned benefits. The system however, recognizes that individuals who are unable to acquire work skills because of disability and/or illness are entitled to some form of public assistance. The rules takes into account that those who are unable to acquire skills and who are unable to work are entitled to aid because it is in the public’s best interest to assume responsibility for fellow citizens who are in need and are dependant owing to no fault of their own. However, the rules’ system devised for national insurance welfare does not place a burden on public funds for individuals who can work and can acquire the necessary skills for working, but yet refuse to do so. The national insurance welfare systems is built around rules that investigate the individual’s efforts in terms of acquiring skills and work when they are able to do so. In the event the individual does not attempt to acquire skills and work when he is able to do so, he or she will not be entitled to national insurance benefits. Likewise, an individual who can demonstrate that he or she has looked for work and has attempted to acquire skills, his or her benefits will be looked at in terms of his or her history of previous contributions and calculated accordingly. In the final analysis, the national insurance welfare system is based on the contributory principle and as such is a fair and equitable system. Those who contribute can expect to receive benefits that are commensurate with their individual contributions. The longer an individual works and the greater the degree of contributions made, the higher his or her returns in the future. It is entirely up to the abled-bodied individual what this financial freedom will be like in the event he becomes ill or retires. As for individuals who have no control over their financial future or their current circumstances, the welfare system under the national insurance contributory principle will make concessions for those circumstances. The rules devised in the first part of this paper will ensure that investigations and calculations will be conducted to ensure that only benefits are distributed on the basis of contributions and need. In this regard, need is determined on the basis of ability. At the same time, benefits are determined on the basis of motivated contributions. Bibliography Aaron, H.J. (June 2011). Social Security Reconsidered. National Tax Journal, 64(2/1): 385-414. Blundell, R.; Duncan, A.; McCrae, J. and Meghir, C. (March 2000). The Labour Market Impact of the Working Families’ Tax Credit. Fiscal Studies, Vol. 21(1): 75-104. Blundell, R. (1992). 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