Question

Analyze 1 of the following government intervention programs:

• Countercyclical fiscal policies (countering economic disruptions such as the housing bubble and the Great Recession)
• US agriculture support programs
• Assistance for Low Income Families (choose 1)
• Housing vouchers
• Earned Income Tax Credit (including Child Tax Credit)
• Supplemental Nutrition Assistance Program (SNAP)
• Low income healthcare (choose 1)
• Medicaid (including Children's Health Insurance Program).
• Affordable Care Act expansion
• Social insurance programs (choose 1)
• Old Age, Survivors, and Disability Insurance (OASDI)
• Medicare
• Unemployment insurance

Write a summary of your analysis. Identify the intervention and the market failure leading up to the intervention. Complete the following in your summary:

• Analyze the arguments for government intervention as opposed to arguments for market-based solutions.Hint:See the information about market failures.
• Examine who has been helped and who has been hurt by the selected government intervention.
• Examine externalities and unintended consequences of such intervention. For example, consider whether the SNAP program and health coverage for low-income families result in higher future tax revenues because low-income children grow up healthier and produce higher incomes over their lifetimes.
• Analyze whether cost of the intervention you selected as a share of GDP or the number of participants is increasing,decreasing, or varies with the state of the economy, based on the cost trend(or number of participants) since its inception or since 2000.
• Analyze credible economists’ opinions on the success or failure of the intervention that you chose in achieving its objectives.
• Recommend whether the program should be continued as is, discontinued, or modified based on your conclusions. Defend your recommendation.

Answer 1

UNEMPLOYEMNT : Unemployment is a term referring to individuals who are employable and seeking a job but are unable to find a job.

INSURANCE : We can define Insurance as any means to protect from financial loss.

UNEMPLOYMENT INSURANCE

It is the financial support given by government of any country to its citizen when a person is unemployed and unable to meet certain basic requirements while seeking new employment opportunities. The process of Unemployment insurance is regulated by the government of that country. There are several benefits examined of this as below :

1. It helps in maintaining the consumption level in the economy.

2. It allows unemployed people to look for the better job.

3. It ensures to benefit the economy as a whole.

4.It ensures flow of government money in the right direction.

5. It Provide longer durations of benefit recipients.

Though we have many benefits of Unemployment insurance, But the same can lead towards Market Failure in case resources are not used efficiently. This can be seen in any case ie in public sector provided benefit or Private sector provided benefit .Market failure usually occurs when markets operating without government intervention, fail to deliver an efficient or optimal allocation of resources. This means economic and social welfare will not be maximised, leading to a loss of production efficiency. It can also be defined as the inability of an unregulated market to achieve efficiency in all circumstances.

There are three types of situation in which market failures arises:

1.Provision of goods and services that we consume in common with everyone else. ( Unemployment insurance is a public good and can be claimed by any unemployed person).

2. Production of goods where external costs or external benefits are present.

3. Restriction of output by monopolies and cartels.

Government interferes with the economy to redistribute wealth and income. This redistribution is justified as a basis of some notion of equity or distributive justice. The public interest theory states that the government predicts that action will take place to eliminate waste and achieve efficient allocation of resources. Here government intervention will ensure to redistribute unemployment insurance in a most efficient way.

Unemployment Insurance is a public good which the government pays subsidies on for its provision. A public good is a good or service each unit of which is consumed by everyone and from which no-one is excluded. It is non-rival this means one person’s consumption doesn’t reduce the amount available for the next. It’s non-excludable which means there is no sort of discriminatory actor involved. Everyone is entitled to it when needed. Unemployment is an increasing factor in our society, with a 14. 2% unemployment rate recorded by the CSO in 2012. This means there is a large number of people availing of cash benefits which they do not pay for. These people are called free riders ,a free rider is someone who consumes a good without paying for it. A person receiving unemployment benefit is a free rider as due to the fact that they are unemployed they are unable to pay taxes which provide these benefits.

A free rider problem will arise as certain people are not willing to pay. This means tax payers who provide revenue for the provision of these services( Unemployment Insurance) will have a huge burden than those who don’t. Tax payers bear the cost of aggregate risk which results in inefficient allocation. Economist Paul Krugman described moral hazard as “any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly”. [Moral hazard is the tendency to take unnecessary risks as the penalties of those risks are not borne by you).

Since the inception of provision of Unemployment Insurance , The government has increased its expenditure and cost on providing Unemployment benefit .The cost incurred in this has been increased at higher pace. Though Cost and Expenditure has increased but still Receipients of this benefit is less than the Demanders of the said benefit. This due to the inefficiency of the government to distribute benefit of Unemployment insurance in even manner and in a most efficient way.

When market failure occurs government intervention is utmost important to handle the situation and redistrubute inccome and wealth in an efficient way to curb the inefficiencies in the market. Since Unemployment coverage is a wider phenomenon, it is not possible for a private sector to handle the provision. Hence Government intervention is always required in this provision.

The programme of Unemployment Insurance should be continued as it helps many unemployed people who are able to get bread and butter on the basis of Unemployment insurance and to fulfill their basic requirements. But since Government is often not able to transfer the benefits efficiently so some modifications are also required to achieve the maximum efficiency level.

1.There is need evidence based unemployment insurance reforms.

2. Fix outdated system of data collection to enable evidence-based policies.

3.Institute functioning system of job sharing to prevent costly layoffs.

4.Experiment with wage insurance to aid workers returning to employment.

5. To fix oudated system of data collection to enable evidence based policies.