Theimpact of unemployment payments on the economy has been an issue ofcontention in both political and public spectrum. Unemploymentbenefits policies vary from one state to the other, but a big part ofthe benefits are funded by the taxes collected by the federalgovernment. According to the research by the Census Bureau, thegovernment unemployment payments helped to prevent 3.2 millionAmericans from living below poverty lines (Leepar 3).
Thisessay examines the positive and normative analysis of unemploymentfund in the United States.
Part1: Use positive economics to analyze the current situation
Hagedorn(1) defines unemployment payments as the benefits awarded by thestates to the unemployed people in the State. Depending on thejurisdiction of the state, the unemployment compensation amount isbased on various factors such as the number of unemployed and theprevious wage. The benefits paid are generally eligible up to amaximum of $450 per week. The rising burden of unemployment paymentsin the country is caused by the increase in the level of unemploymentin the country. Unemployment benefits were introduced in the U.S as apart of the Social Security Act in 1935 through collaboration betweenthe federal and state government. Only people who involuntarilybecome unemployed are eligible to benefit from the unemploymentinsurance for a given period. Although the program is managed by thestate government, the federal government sets the rules that shouldstructure the program. According to Lee, the government expenditurehas helped to ensure that families stay afloat even after they losetheir jobs and reducing the families living in poverty in differentstates (Leepar. 2).
Part2: Use normative economics analysis on unemployment payments
Theincrease in unemployment in a country comes with a wide of challengesto the families, communities and the country at large. It isimportant to understand that insufficient income leads to inabilityto access basic needs such as food and shelter and social serviceslike medical. Unemployment also leads to increase in socioeconomicchallenges such as the increase in crime, poverty, diseases and othersocial challenges. At the macroeconomic level, growth in unemploymentleads to falling in the income tax thus affecting the tax revenuecollected by the government. Because of the challenges that come withthe unemployment, the government intervenes by providing unemploymentinsurance to promote equity in the country (Leepar 5).Providing unemployment benefits helps to reduce poverty in thecountry in addition to motivating people to seek for jobs.
Unemploymentinsurance helps families to stay afloat during hard economic times.With the funding from the government, the families are able to meettheir basic needs in addition to accessing social services. Theargument provided by some economists against the unemploymentpayments is that it does not motivate beneficiaries to look for jobs.However, according to Hagedorn(13),helping unemployed to stay afloat during high unemployment periodgives them the motivation to continue searching for a job.Unemployment insurance benefits play the role of promoting equity inthe country. Governments have the responsibility to ensure itpromotes a given level of equity by preventing members of the societyfrom being worse off. Therefore, the unemployment insurance paymentshelp to prevent unemployed from living below poverty line.
Part3: Come up with a plan for how you believe the situation could beimproved.
Thereare various strategies that the government can use to improve thesituation of unemployment in the country by streamlining the policiesin place. The federal government should structure the fiscal policyin order to reduce the unemployment in the country. The fiscal policyis based on structuring taxes and government spending in order toinfluence economic performance. High taxes lead to low level ofinvestment and increase the cost of production leading to losses. Toreduce the cost of production, organization retaliated by downsizingand reducing the level of production thus leading to high employment.In a bid to increase jobs creation, Maggioand Amir (par 5), argues that the government should reduce taxes andsubsidize business operations. When taxes are reduced, businessesenjoy a low cost of production thus expanding their area ofoperations which leads to the demand labor supply. In addition, thegovernment should increase its funding for the unemployment insuranceprogram in order to ensure that more unemployed people arebenefiting.
Theunemployment payments have helped to promote equity and protectcitizens from living below poverty line. The program is important forhelping unemployed to have maintained their previous lifestyle inaddition to supporting their families. However, with the increase inunemployed people in the country, the government is facing achallenge on maintaining the unemployment program. In order toimprove the situation in the country, the government should align thefiscal policy to promoting investments. Reducing business taxes andputting government spending on subduing businesses can help toincrease the level of investments.
Hagedorn,Marcus, et al. Unemployment benefits and unemployment in the greatrecession: the role of macro effects. No. w19499. NationalBureau of Economic Research,2013.
Lee,Cheryl H., et al. "StateGovernment Finances Summary:2013." (2012). 2010. Web. 22 Mar. 2017.
Maggio,Marco Di, and Amir Kermani. Theimportance of unemployment insurance as an automatic stabilizer.No. w22625. National Bureau of Economic Research, 2016.