Question

Why does better employment insurance leads to more structural unemployment?

Answer 1

Many governments provide unemployment benefits in order to both relieve the short-term burden faced by the unemployed and allow more time for employees to pursue a job. In general, these benefits take the form of compensation to the inadvertently unemployed for a defined period of time following job loss. Governments usually allow recipients to actively look for a work when collecting compensation to accomplish the aim of minimizing frictional unemployment, and may not give unemployment insurance to those who are terminated or leaving their work by default.

Structural unemployment is due to the fact that more people want work than jobs are available. The unemployed may lack the skills required for the work, or they may not live in the part of the country or world where the jobs are available.

Public policy should respond to systemic unemployment by offering services such as career training and education to provide employees with demand from the skills firms. A worker who has been trained in an obsolete field, such as a typesetter who lost his job when digitizing printing, can benefit from free retraining in another field with strong labor demands.

Public policies designed to help people who lose their jobs will contribute as an unintended side-effect to systemic unemployment. For other countries, particularly in Europe, there are more generous benefits and they last longer. The downside to that kindness is that it reduces the desire of a worker to find a new job quickly.

With unemployment rising sharply and then staying elevated, it is vital for workers seeking a job and for labor demand in general to be able to earn benefits if finding a job is hard. Yet there has been some fear that extending unemployment benefits itself, by raising the desire to find jobs, would potentially raise the unemployment rate.UI could lead to further unemployment either by causing further frequent unemployment spells for workers, or by making each spell longer. At first glance, it might seem that the most straightforward way to measure the effect of UI on unemployment is to compare the unemployment experiences of those unemployed people who receive UI benefits with those of non-recipients