This post from Freakonomics blog reminds me to post something on unemployment insurance.
First off, the post on Freakonomics is about whether unemployment insurance encourages people to not work. The post - and the comments that follow - frame the question incorrectly. They ask it as if unemployment insurance causes laziness. When in reality, I think it's really more a question of selectiveness.
For example, if an out of work software engineer has an offer to work as a software engineer at his old salary and he declines because he's getting an unemployment check, that is laziness. This seems to be the way it is being framed in the post above as well as in most of the media coverage I've seen. I think the case of laziness is so ludicrous that it is surely almost non-existant.
But if the software engineer has an offer to work, e.g. at Walmart for much less money and he declines because he's getting an unemployment check, that is selectiveness. It's worth noting that either way - laziness or selectiveness - the amount of unemployment is higher than it would otherwise be.
I think the case of selectiveness is quite prevalent, and it can even be seen from reading the comments in the post above. People who respond and are unemployed are indignant at the accusation of laziness. And yet they describe their situation in exactly the way I've described selectiveness - applying only for jobs in their "old" field; not taking jobs making less money, etc.
The second thing about this is that I think there's a much better way to handle unemployment insurance that would render the whole question moot. The key is to give people ownership of their unemployment insurance.
For example, let's say the government takes 5% of your salary every month and puts it into a special (personal) account. Your contributions accrue - possibly with some interest, as if you had purchased gov't bonds with them - as long as you are employed. When you are unemployed, you are then allowed to take any amount out per month of the account up to 50% of your previous salary (which is similar to today's terms). When the account reaches 0, your unemployment checks stop. If you get a job before then, the accrual resumes.
The key thing is that any money left in at the time you retire is transferred to you. So that staying on unemployment is draining down potential future money. In contrast with today where staying on unemployment is only draining down gov't money that would otherwise not come to you anyway.
I think another key feature should be to allow you to continue to draw down the account even when you find a job. For example, you could allow people to draw from the account any amount (up to a max of 50% of their previous salary) as long as the sum of (unemployment check + new salary) does not exceed their previous salary. For example, if someone earned $50K before being laid off and finds a new job for $35k, they could continue to draw up to $15k from their account if they want. This way, finding a job at a substantially lower salary still allows you to take home more pay (which is the opposite of today's system where additional salary does not lead to more take home pay).
In addition, this doesn't preclude any progressiveness. For example, the gov't could "top-up" the accounts of people with very low incomes by, e.g. making their 5% contribution for them, or matching their 5% contribution, or anything in between.
It also does not preclude tinkering during very deep recessions. For example, if this was in place for this recession, the gov't could decide to take everyone who was unemployed during 2008-2011 and add some amount to their accounts. This would have the effect of extending their unemployment checks, but it would not provide any incentive to stay out of work. It would effectively penalize those who are working, but in a lot of ways that speaks to most people's sense of fairness.
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