Unemployment and the Structure of Unemployment Benefits

By Norris, Keith | The Economic and Labour Relations Review : ELRR, June 1994 | Go to article overview

Unemployment and the Structure of Unemployment Benefits


Norris, Keith, The Economic and Labour Relations Review : ELRR


1. Introduction

In order to investigate the relationship between the level of unemployment benefit relative to some measure of average earnings and the level of unemployment it is useful to set out a simple relationship. This is that the level of unemployment is determined by both the magnitude of the flows of people into unemployment, and out of unemployment and by the average period of time which elapses between the two flows. In a static labour force the unemployment rate, U, is given by

U = I/L x D,

where

I: inflows to unemployment

L: labour force

D: average duration of unemployment and where I and D are measured in the same units of time.

From the above identity it is evident that the level or structure of unemployment benefits, or the way in which the benefit system is administered, may influence the level of unemployment by affecting the inflows to unemployment and/or the average duration of unemployment.

The purpose of this note is to briefly survey the empirical evidence on this issue. (A very comprehensive survey of the literature is provided by Atkinson and Micklewright, 1991.) While some relevant empirical work has been undertaken in Australia it is necessary to make reference to overseas studies. Fortunately the main conclusions to be drawn seem to be fairly clear and the recommendations made by the Committee on Employment Opportunities are consistent with these conclusions. I start by briefly looking at the effect of benefits on the inflows into unemployment and then in section three at the effect on the duration of unemployment. The concluding section draws out the policy recommendations.

2. Unemployment Benefits and Inflows to Unemployment

The unemployment benefit system may increase the number of voluntary quits and hence the inflows into unemployment. These will comprise those who prefer a spell of unemployment to work and those who choose to search for new work while unemployed rather than while in employment. In either case the higher the ratio of unemployment benefits to after tax earnings while employed, termed the entry replacement ratio, the greater would the inflows be expected to be. It is also likely that the level of, and administration of, unemployment benefits may influence inflows to unemployment from outside of the labour force. For example, a generous benefit system may lead to young people entering unemployment rather than staying on at school.

The structure of the system might also influence inflows in that if there is an extended waiting period before benefit is paid, the incentive to quit voluntarily would be correspondingly reduced. Further, in many countries those who leave employment voluntarily are either disqualified from benefit or receive benefit after an extended waiting period. Formal research has, however, concentrated on the relation between entry replacement ratios and inflows to unemployment (from either of the two other labour market states) rather than on the effect of the administration of benefit procedures. This concentration has come about because in most instances it is very hard to derive summary measures of how generous, or otherwise, are the administrative rules.

Trivedi and Kapuscinski (1985) have estimated equations explaining inflows into unemployment in Australia for the period 1970-80. While this evidence is now a little dated the results are of interest as it was in this period that substantial increases in replacement ratios occurred in Australia. It shows that changes in the replacement ratio had only a weak effect on inflows, their effect being most noticeable in the case of adult males where the elasticity of inflows with respect to the replacement rate was of the order of 0.6. This is to be interpreted in the following way. If the replacement ratio was raised by ten per cent then this is estimated to lead to a six per cent increase in the rate at which people flow into unemployment. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Unemployment and the Structure of Unemployment Benefits
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.