Critically evaluate the economic and social costs and benefits associated with an increase in unemployment insurance

Expert Solution

Earnings losses for the unemployed. One of the main causes of poverty is unemployment. Prolonged stretches of unemployment will send families into debt and raise relative poverty rates. Economic cuts will leave families without enough economic to cover the cost of living. The levels of homelessness are also compounded by increases in unemployment. (BBC)Poor hopes for the future. In the future, those who are unemployed will find it harder to get jobs (this is known as the hysteresis effect)

Human Capital Lost They miss out on 'working preparation' while workers are out of jobs. This is a critical component of human resources and workforce skills; high unemployment rates will decrease labour productivity. They miss out on the new working practises and developments if anyone is out of work for two years. Being unemployed will also influence the confidence of the unemployed and, in the future, they may become less employable.

Higher unemployment insurance benefits tend to increase unemployment because they reduce the opportunity cost of job search and, hence, increase the search time.

Rahul Sunny answered 1 year ago

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