Question

:Please write an essay about the public provision of employment insurance and pensions. Do you think employment insurance increases unemployment? Explain why or why not. List the research that has been done in this area. Please provide discussion on the labor market effects of EI (including direct effects and systemic effects). Please explain how the public pension system may cause inefficiency problems.

Answer 1

Employment insurance (EI)

It is a policy that is employed by the government to provide financial assistance to unemployed individuals. It is eligible for those individuals who were recently unemployed (which can constitute various reasons for becoming unemployed), looking after a sick family member, caring for a young child, or met with an illness.

To qualify for these benefits, the individual must have worked the required number of hours in the last year before applying for this policy. The working hour amount can vary according to the unemployment rate in an area.

( For the essay, you can provide the example of Canadian EI program and what benefits constitute in it, such as maternity benefits, medical benefits, pension also come under it, etc. )

Pension

It is the retirement benefit provided to the worker or employee after retiring from their employment. There are pension benefits available for both the public as well as private sector employees.

Now the question of whether pension affects employment insurance. So for this, it is important to understand what is earning. Earning is any compensation or monetary benefits received from the employment by the employee. It also includes self-employment earnings.

The pension is part of the earning as it is directly related to employment so it affects the EI benefits that an individual will receive. ( There are other conditions which apply to the pension and the EI benefits.)

The EI program can increase the unemployment rate in the nation. The EI benefit is a great incentive for the people to become unemployment after fulfilling the requirement to apply for it. Instead of looking for work, they will want to sit at home and get those benefits. Moreover, when an unemployment rate is extending in an economy, it will inevitably trigger on and supported more. So it can be said that EI benefits and the unemployment rate have a direct relationship with each other. (Provide example of the Great Recession and how it affected the unemployment rate and the EI benefits scheme.)

Researches in this context

• Gabriel Chodorow-Reich of Harvard University and Loukas Karabarbounis of the University of Chicago came out with a paper “The Limited Macroeconomic Effects of Unemployment Benefit Extensions.”
• "Unemployment Insurance and Job Search in the Great Recession" by Jesse Rothstein.
• "The General Equilibrium Impacts of Unemployment Insurance: Evidence from a Large Online Job Board" by Ioana Marinescu, University of Chicago.

These are some of the researches in this field.

Labor market and EI benefits.

When labor becomes unemployed, they suffer from unemployment which then results in the emergence of the EI benefits ( the example of the Great Recession of different countries can be given here.)

Economic growth and Fed rates are also related to the unemployment rate in the labor market. The labor market also considers the labor participation rate.

All these factors in the labor market directly or indirectly affect the EI benefits.

Few of the inefficiencies that might exist in the Public Pension System

• The deeply fragmented and complex structure
• Uncertainties about the entitlement right
• Difficulty in taking appropriate consumption-saving decisions
• Inequalities in rules and mismanagement can be there

Every nation has its own pension system and it differentiates in structure and other regulations. Thus the inefficiencies can vary accordingly. A developing country and the developed country will also differ in their pension system.