Question

"Unemployment compensation to the unemployed is a “moral hazard problem” in the US”

What is meant by the “moral hazard problem”? Why does the “moral hazard problem” exist? what are two (2) costs and two (2) benefits of unemployment insurance in the US. What are two (2) arguments to support the costs of unemployment insurance or two (2) arguments to defend its benefits

Answer 1

Moral hazard is not providing full and complete information before entering a contract. Moreover, moral hazard is the problem of taking unusual risks in case if he/she is provided with an insurance coverage.

The problem of moral hazard exists when the person whi has entered into the contract can take unusual risks without suffering the consequences.

The costs of unemployment benefits are:

1. The incentive to search for a job decreases if the benefits Rae too high.

2. Unemployment benefits are run by those being employed and thus it drains the reserves if the too many people are unemployed at the same time.

Benefits of unemployment benefits are:

1. The person who he lost his/her job will have money to bear the cost of living of the economy.

2. The unemployed persons will still have money in his pocket. Thus the flow of money will still be there in the economy.