Impact of increasing the rate unemployment benefits

Readers Question. Explain the benefits of increasing the rate of unemployment benefit for

1.the unemployed, 2. society. Identify and costs that may result from such a policy.

Benefits of increasing unemployment benefits

  1. Provides more income, reducing relative poverty and improving living standards.
  2. Gives them support in finding the best job. If benefits are low, then they will be forced to get the quickest job they can find. But, this may not be suitable for their skills. Higher benefits enable the unemployed to take more time and find a job which matches their skills. This is also a benefit for society. For example, if someone leaves university, with a degree in astrophysics, we don’t want them working in McDonalds because unemployment benefits are too low to support their job search on leaving university. Basically, frictional unemployment is not a bad thing; sometimes it takes time to find the right job.
  3. Low unemployment benefits could fuel social unrest and encourage the unemployed to resort to crime to supplement their income. Unemployment is often associated with a feeling of social alienation leading to riots such as Brixton 1981 and Paris in 2006.
  4. If unemployment benefits are low, society may have to spend on other benefits such as housing benefit and child benefit to keep the children of the unemployed out of poverty.
  5. Encourage higher wages. Higher unemployment benefits may encourage firms to offer higher wages to encourage people to accept a job.
  6. Reduction in other income support related benefits. If unemployment benefits are higher, it may enable lower income support / universal credit.

Problems of increasing unemployment benefits

  • Unemployment Trap. If benefits are increased too much then there may be little incentive to get a job rather than stay on benefits. This is said to be a problem in Germany, where generous unemployment benefits encourage many to stay on benefits (known as voluntary unemployment)
  • Cost to taxpayer of paying for the benefits. However, the level of unemployment benefits is currently quite low relative to other benefits.

Statistics

Cost of unemployment benefits

In the 2014 the public expenditure survey, the total cost of unemployment benefit payments fell from £5.5 bn to £4.9 bn – Claimant count method.

Unemployment benefit spending compared to social security spending.

UK - benefit-spending

UK benefit spending

Unemployment benefit is now dwarfed by housing benefit

Fraudulent Unemployment benefit claims

It is possible that the claimant count could overstate the level of unemployment because people could collect JSA whilst also having a job.

However, the levels of estimated benefit fraud is quite low.

overpayment-benefits

According to gov.uk, in 2012/13 , 4.6% of unemployment benefit was estimated to be overpaid or £230m out of total cost of £5bn

Source: DWP 2012/23 | Via blog at LSE

By on April 28th, 2008

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