Does Unemployment Benefits Affect Unemployment Level - Essay Example

Does Unemployment Benefits Affect Unemployment Level? Introduction Unemployment benefits are compensation that an individual during a transition period from one company to another or from one employment party to another. It is usually mandated to people who were once in the job market and due to certain difficulties they rose or quitted the job. On the other hand unemployment is a situation where an individual is not able to secure a job or is not in the labor force. The program was a responsibility of the state to implement it and ensure it was efficient and effective. It was entitled only to registered unemployed individuals. Introduction of unemployment benefits policy may impact positively to the economy of many countries because it may reduce the level of unemployment in the sense that the citizens will have income to rely on while seeking another new job. The same may impact negatively to the economies too because on behavior influence by the policy. Unemployment income when entitled to an employee when he or she is off his or her work, it can be of great importance. Unemployment can be because of end of contract period, long time illness or closure of companies. In this situation an individual is able to pay for his expenses stress free and be able to survive like other working persons. Still this policy can impacted negatively in the sense that it may lead to raise rate of unemployment because it may lead to laziness seeking for job, moral hazard, decreased tax income and generally impacting on the budget. Given that arguments can be made on the both ways but it is not surprising that there is little agreement concerning this factor. The purpose of this research is to determine whether unemployment benefits it positively or negatively to the unemployment rise. Understanding the effect of unemployment income in relation to the recent claims on rise of unemployment is very important at least for some reasons. First it may lead to improved living standard of the citizens of a given country which is a good contributor in measuring states economy strength which involves GDP per capita. Secondly we will understand if the policy has contributed to the rise in unemployment through people preferring being jobless because still they will be earning some income to sustain them (Scott, 2005 p.35). This paper looks at the effect s of unemployment benefits to unemployment as it was evident and explained by several theorists in the past years. The main focus of the paper is to explain more on what was evident after extending the unemployment benefits in relation to the rate of unemployment. Meyer (1990) focused his efforts on investigating length of unemployment benefits on unemployment durations. He discovered that higher unemployment benefits have a negative impact on the expectations of leaving unemployment. Before the benefit’s period ended the possibility of leaving unemployment rises. This study was also related to an earlier case which summarized that 10% rise in unemployment income increased unemployment period by an approximate of 0.5 weeks and a week’s extension of the insurance income rose the duration of unemployment by 0.15 weeks. An Austrian study which was recently done states that an increase in unemployment benefits was associated with the rise of unemployment rate due to the increase in inflow from unemployment rather than the outflow. The weakness mentioned these studies is that are uncounted in the labor market during economic recessions is indigeneity where benefits are often extended in times of economic downturn when unemployment is high. In accordance to hypothesis test done by the above studies it is evident that they support the sense that the benefits policy positively impacts on the unemployment rate. 2. Data The information that i have used in my study was to assess the effects of extended insurance income policy and the emergency unemployment compensation program which was put in place by the government of U.S during the recession. The data is from 2005-2012 and they are examined at the end of March, June, September and December. The data focuses on different states as well and due to the fact that times of the year are usually from one state to another I have to base the data on the quarterly bases of the year. This idea also enables to include the changes that take place as the year goes around. The total number observations in the estimation sample are 1550 based on four periods per year (Robert, 2010 p.122). There are various variables which are involved in the investigation and they include the dependent variable which in my case is the unemployment rate. This variable is based on the states adjusted unemployment rate quarterly .This data is collected from Bureau of Labor Statistics (BLS). The data is view as the number of workers who are jobless divided by the total labor force in the market. The years included in this analyses the states joblessness rate range from 2.3% to 14.1% with an average of 6.7%. The Independent variable is made of weeks of unemployment benefits. These are the weeks which are within the quarters of the year. The number of weeks included in the analysis range from twenty-six weeks to ninety-nine weeks of during the time period. The average number of weeks for the unemployment insurance is an average of fifty three as show in the table1. There some controls which are available to overcome the challenge of unemployment. The control figures involved in this research are used because they were great affected by the recession period. This controls include the industries, political affiliation, states GDP and the medium income. In the industry sector the percentage of workers in all types of industries which include the financial, construction and manufacturing. They are included because they were great affected by the recession period. The total number of jobs in each industry from different state in each quarter is divided by the number of employment in the state. All this data is provided by BLS (Jesse, 2011 p.17). Table 1. Descriptive Statistics variable Observation(N) Mean Standard deviation Minimum Maximum Weeks 1550 52.7 28.1 26.6 99.0 Unemployment rate% 1550 6.4 2.4 2.3 14.1 Construction rate% 1364 4.8 1.4 2.8 12.0 Financial service rate% 1550 5.4 1.3 3.5 10.9 Manufacturing rate% 1511 9.0 3.5 2.1 19.0 Republican Governer% 1550 0.50 0.50 0.0 1.0 African America% 1400 10.2 9.5 0.3 37.5 White% 1400 78.5 12.6 24.6 96.6 State G.D.P% 1400 2.0 2.4 0.2 13.5 Median income 1400 25 477 1369 18479 35593 3. Method In this section the methodology that I have used is well explained to give a clear understanding on the variables which I have used in my data. The data was collected randomly from individuals in a given country. In many study I have used the regression discontinuity approach which measures which has identified the causal effect of extended unemployment benefits. The approach as clearly show that the when the benefits are extended the level of unemployment will increase respectively. It gives us a clear explanation on how the increases of benefits will impact on our variables after our stipulated time flame (Simon, 2011 p.35). In my research I used the standard labor search model is search model which involves empirical analyzes labor supply labor questions in a structural framework by using data on individual labor market transitions and durations, wages and individual characteristics The model helps explain how the questions on if unemployment benefits has led to an increase in unemployment .In my research I first collected data from different countries meaning that the data was from border to another. I estimated the macroeconomic effects of unemployment income on variables such as vacancies or unemployment. Using the standard labor search model, I first estimated the impact on the labor market which I defined it as the ratio of vacancies to unemployment and the firms’ job creation decision (Jesse, 2011 p. 17). From all the efforts that were employed in my research my moving from firms it was clear that unemployment was really brought about by the unemployment insurance. The policy on unemployment was based on improving the living standards of people and enables them to live well with no more challenges. This was in accordance to the government agencies and insurance companies who were involved in the responsibility of ensuring non-working individuals welfare was looked upon. The research has also involved interactive method with includes involvement of different states and non- governmental organization which gave some very important contribution to the achievement as a whole. According to the variables which were involved in the research works there was a positive response towards the effects which have been felt by the countries associated with the research as a whole. The economic techniques which include the above involved method of standard labor search method the results have been clearly been reflected. Different stakeholders will be involved in the framework which is focused to address the issues which has led to the factors under review (Simon, 2011 p.35). 4. Results From my results it is evident that the unemployment benefits have led to increased unemployment through various variables. The results show that the benefits have impacted negatively to the labor market. Employees are not willing to fill the job vacancies available because of want they cannot explain effectively. The rise of unemployment has increased in re relation to the benefits factor in the sense that this factor has led to unexpected drawbacks to development of the economy as a whole (Scott, 2005 p.33). The unemployment benefits have led to laziness of individuals to search for jobs and fill the existing job vacancies. From my data it evident that since the introduction of extension policy of the benefits to individual the number of vacancies which existed before were not fill hence reflecting laziness that the policy has embarked on many individual. The facts can be argued upon this factor because when individual have much income when they are not working and this encourages them to relax at home because at the end of the day income will eventually be awarded ( Zimmer, 1970 p.213). Unemployment income has led development of moral hazard which is a factor that was unexpected from the from the government effort to reinforce the insurance factor. Moral hazard factor is based on the situation where the responsible organization is faced with the challenge of determining how an individual is legible to be a warded the income in an occurrence of joblessness. This factor has contributed to some people being given this insurance income yet they do not deserve it. Due to this the government has being spending a lot of cash and capital in large to unexpected expenses. At the end this fraudulent claims will lead to failure of payments of legitimate claims of individual who are really suffering due to the fact that their rights have been violated (Robert, 2010 p.122). Another unexpected factor that rose due to unemployment benefits is adverse selection which can be argue in the sense that workers who have the highest probability of becoming unemployed have the highest demand for the insurance income. This factor has led to increased maximization of profit efforts by the private insurance agencies. This has led to increased premiums by these agencies which work in behalf of the national governments. Due to this factor many individual are suffering because they cannot be able to pay the expected premiums (Simon, 2011 p.35). The policy has also impacted negatively on the state’s budget in the sense that much funds will be allocated to the unemployment beneficially token. Due to this factor many people are so related to put more efforts to fill the existing vacancies. When citizens of a given country, are not willing to work for the better of the state, performance of any economy is usually based on the GDP per capita which has a great contribution in measuring the living standards of individuals. The taxation sector is largely affected by this policy because the total taxes expected from the whole economy as a whole. Due to this the development activities of the economies will not be able (Rothestein, 2011 p 17). The above few explain factors are the variables which have contributed to the argument that the unemployment policy has impacted negatively to the economic development as a whole through its contribution to rise of unemployment. The below table gives an overview of extended benefits period on unemployment. It gives an explanation on what percentage levels the unemployment benefits contributed to rise or increased levels of unemployment. Unemployment Benefits extension period in weeks 1 2 3 4 5 6 7 8 Level of unemployment estimates as per the curve (%) 10 20 30 40 50 60 70 80 The above table shows that as the number of weeks of benefits was increased to non- working individuals the number of unemployment increase and the trend continued. The factor which has been translated to the negative impacts of this factor has led to underdevelopment of economies. In many data analyses page have considered the interactive effects associates itself with the building up the main variable contributing to rise in joblessness in the world.in the data explanation I have related many states which have contributed positively in bringing up the data .There also certain factors which have been explained upon that have contributed to the all data and they include the contribution of the industrial sector and the impacts that were caused by the beneficially policy which include its negative impacts to the improvement of the taxes collection which leads to direct development of the economy and the world in large (Simon, 2011 p.35). Some drawbacks experienced include that the policy used did not cover all the variables which could have contributed to the rise in the unemployment level. The factors which I have reflected are just a few of which have contributed to the title under discussion. Another factor is that the data provided are just estimates and are not very real to be relied upon. Another drawback is that the positive contribution of the policy was not considered upon and this was very important (Scott, 2005 p.35) Finally it can be stated that the unemployment benefits have contributed a lot to the unemployment and this has affected the economic development of many states. Lack of jobs is considered as a worldwide disaster because the labor market has not been able to absorb all the individuals seeking for jobs. This policy has impacted negatively the job providers society in the sense that they are willing to provide jobs but there is no employee to be recruited even if they are recruited them will just serve for a short time the leave the job which will eventually affect the general performance of the job market. References The Folly of Subsidizing unemployment, Robert Barro Wall Street Journal August 30, 2010 Would Extending Unemployment Benefits Increase Unemployment? Simon van Zuylen-Wood. November 30, 2011 Unemployment Insurance and Job Search in the Great Recession Jesse Rothstein September 9, 2011 The Blind Spot in Romney’s Economic Paln Jonathan Cohn| tnr.com| April 29, 2012 Unemployment Insurance and Jobs Search In the Great Recession Jesse Rothstein, NBER Working Paper No. 17534, October 2011 Policies for Increasing Economic Growth and Employment cbo.gov November 15, 2011 Unemployment Benefits and Work Incentives: The U.S. Labor Market in the Great Recession (revised), Howell, David R.; Azizoglu, Bert M.; Political Economy Institute 3/21/2011 Feldstein, Martin (2005). "Rethinking Social Insurance".NBER Working Papers 11250 (National Bureau of Economic Research, Inc)."Unemployment Insurance Savings Accounts" NBER Working Paper Series (National Bureau of Economic Research, Inc) 6860 Unemployment Insurance Trust Funds Update ,Council of State Governments Scott, Christine (January 14, 2005). Taxation of Unemployment Benefits: Unemployment Benefits: Report for Congressional Research Services, The Library of Congress (PDF). Cornell Read More