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Dec 4, 2011

Workers Pay Unemployment Insurance

Max:  I'm going to take the summer off on unemployment.
Fred:  Have fun on my nickel.
Max:  Lighten up. The company will be paying through unemployment insurance.
Fred:  My wage is lower because of that cost, and I need to keep working.
Max:  Aren't you the busy bee.

About Unemployment Insurance
12/04/11 - The Money Illusion by Scott Sumner
  Via  Cafe Hayek

[edited]:  The statistical evidence on UI is overwhelming significant. When UI benefits maxed out at 26 weeks, there was a spike in the number re-employed right after the benefits ran out.

That might be efficient if due to the income effect. But, it is hard to dispute that UI insurance affects labor supply and employment. Studies show those effects even in areas with double digit unemployment.

Many Western European countries such as France saw their natural rates of unemployment rise from around 2% in the 1960s to about 10% in the 1980s. The most plausible explanations have to do with labor market policies.

I comment at Cafe Hayek.

The irony. Employers pay cash wages and incur employment costs which include healthcare, taxes, unemployment insurance, and employment related legal entanglements. The employer correctly sees these as part of the total cost of employing the worker.

Competition and productivity determine the total which can be spent on a worker, and employment costs determine the cash wage which can be offered. Greater expenses for unemployment insurance mean lowered wages. Companies are writing the checks for unemployment insurance, but workers are paying for that “insurance” through lower wages offered.

People with jobs are paying for the people who supposedly were fired without cause. If they realized that, there would not be much support for giving 99 weeks of compensation to the non-working. At 3-5% of payroll for unemployment insurance, many workers are giving up ten days of paid vacation each year to support the unemployed.

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