Why is Government Unemployment 'Insurance' Sometimes a Bad Thing?

Unemployment has the desired intent of acting as a safety net for people who lose their jobs suddenly and unexpectedly. So how can this be bad? It can be bad for several reasons. First it is biased against those who make decent money. How? Consider this scenario:

A worker makes a net of say 2500/month for a family of four. Not rich in America, and likely not middle class. What do you think that family’s disposable monthly income is? On average they’d be lucky to be able to be responsible and still squeeze it down to 2000/month.

Unemployment won’t cover it. It will not get close. Now some may say that will encourage them to go get a job, and it likely would. However, I would posit, as someone who has dealt with it, that the extreme tightness of the resulting budget will be enough motivation.

The rise and fall, the ebb and flow of the business, is carried over into our personal economic lives. When it swells it serves to give us a taste of better prosperity, of where we can go.  When it slows it reminds us of where we’ve been. That, I submit, is enough to encourage that worker to get a new job.

But what will happen if he is jobless for say, 6 months? His credit is likely shot and it will take years to recover.

Unemployment is touted as safety net, and it isn’t. What we should have is private unemployment insurance options. Ones that can scale with income. Granted, a savings account, as I mention in Why Savings Matter, can help with that. But as I also mention there, states that consider the “resources” you’ve saved up as determinants in getting unemployment will lower what you get from the safety net - sometimes to zero.

However, that scaling with income bit is important. Our states won’t scale it because liberals will cry out that it amounts to welfare for the rich. Because for some reason earning more means that losing your job has less impact - you don’t need a safety net. But the presence of the government mandated “insurance” precludes and excludes private options to a nasty degree.

I put insurance in quotes because it isn’t insurance. Think about it. If your car gets hit, does the insurance company ask you how much savings you have before deciding how much to pay out on your claim? I hope not. If so you need a new agency and policy because you’re being taken.

So we have two major problems with it. The depression of private insurance as a remedy, and the fact it isn’t an insurance policy. There is no political will, and plenty of opposition to, fixing the scaling and not-insurance policy. Whether you think the government should be in the insurance business to the detriment of private companies or not, these problems exist.

The real question is: How can we fix it?

Bill Anderson avatar
About Bill Anderson
Just your frendly neighborhood curmudgeon!