Readers question: explain benefits of increasing rate of unemployment benefit – for the unemployed , society and any cost that may result from such policy.
Current Weekly Rates of Job Seekers Allowance in UK
|Age||JSA weekly amount|
|18 to 24||up to £57.90|
|25 or over||up to £73.10|
Contribution based JSA means you must have:
- worked for 26 weeks in one of these years earning at least the lower earnings limit for that tax year
- paid class 1 contributions or received National Insurance credits in both of those tax years that amount to 50 times the lower earnings limit
|Age||JSA weekly amount|
|18 to 24||£57.90|
|25 or over||£73.10|
|Couples (both aged over 18)||£114.85|
Source: Direct Gov
Note: Unemployed may be eligible for other benefits
In any economy there will be some frictional unemployment. It takes time for people to find a job suited to their skills. If you left university with a degree in mechanical engineering, it wouldn’t make sense to get the first job that came along. A good rate of unemployment benefit would enable you to take time in finding a job suited to your skills. A low rate may force you to get a job at McDonalds which would be an inefficient use of spending 4 years at university.
Another potential benefit of raising the job seekers allowance is that it would be an example of expansionary fiscal policy. An increase in unemployment benefit would lead to an increase in spending. (It would be more effective than say tax cuts for high earners. The mpc of the unemployed will be close to 100%. High earners may save tax cuts.)
One of the big mistakes of the Great Depression in the UK was that the government cut unemployment benefits (I think in 1931). The treasury were worried about rising levels of government borrowing so unemployment benefits were cut. Of course this reduced aggregate demand further and caused a deeper recession. (As well as increasing inequality)
Another benefit of raising job seekers allowance is that it would reduce income inequality. The poorest sections of society are generally on benefits such as job seekers allowance. Therefore, raising benefits would be effective in reducing poverty and inequality.
Disadvantage of raising unemployment benefits.
The main problem of raising unemployment benefits is that higher benefits can create disincentives to work. There is an increased incentive to remain on benefits rather than work. However, note that the weekly rate of £65 is hardly going to be much of a disincentive from getting a job which pays NMW of £5.65 an hour.
Also, it requires higher taxes or more borrowing.