A case for government intervention: unemployment

[shanek]

I didn't miss it -- I am researching it now. I do find it curious that it seems to be unique to UK, and I am trying to figure out why. My suspicion (as yet un-confirmed) is that in UK, the government underwrites unemployment insurance.

Well, our government also subsidizes private retirement savings and medical insurance, so this would blow your other argument out of the water.

 

[Jaggy Bunnet]

I suspect the reason it exists in the UK is related to the unusually high percentage of earnings that goes on mortgage payments due to very high house prices and high levels of home ownership. Government benefits provide a flat rate amount which is currently £53.95 per week. As this is barely subsistence level, people insure to avoid losing their homes in the event of becoming unemployed.

Why do you assume that its existence in the UK is due to government intervention rather than specific economic circumstances or benefit rules? Do you have any evidence to support this? These are commercial companies taking on risk and earning a return. No government underwriting.

Edited to add: The only government "sponsorship" I can see is that the benefits can be tax free if the policy is correctly structured. However this would only impact on pricing and does not change the underlying economic analysis.

 

[Victor Danilchenko]

Jaggy Bunnet

Why do you assume that its existence in the UK is due to government intervention rather than specific economic circumstances or benefit rules?

Well, for one, because theory is against the possibility of private UI; and for two, because of the peculiar fact of such private UI being available in UK only, and for UK residents only. Had the lack of foreign market penetration been due to lack of demand in the face of foreign governments' UI programs, there would have been no reason to a-priori deny insurance to foreigners or non-permanent-residents of UK. As it is, the participation requirements are suspiciously similar to the old UK government UI program before privatisation.

Do you have any evidence to support this?

No -- and I said as much; stop fishing for compromat. However, the available facts form a highly peculiar patterns. I am looking for evidence now.

 

[shanek]

I suspect the reason it exists in the UK is related to the unusually high percentage of earnings that goes on mortgage payments due to very high house prices and high levels of home ownership. Government benefits provide a flat rate amount which is currently £53.95 per week. As this is barely subsistence level, people insure to avoid losing their homes in the event of becoming unemployed.

That would make sense. Mortgage payments are usually lower here and the government benefits much higher. According to Yahoo!, that amount is currently equivalent to $88.35, whereas most US state unemployment benefits max out at $300 or more, depending on how much you made in 4 of the last 5 quarters.

Why do you assume that its existence in the UK is due to government intervention rather than specific economic circumstances or benefit rules?

Because otherwise he'd have to admit that he's wrong about something.

 

[Jaggy Bunnet]

Jaggy Bunnet

Well, for one, because theory is against the possibility of private UI; and for two, because of the peculiar fact of such private UI being available in UK only, and for UK residents only. Had the lack of foreign market penetration been due to lack of demand in the face of foreign governments' UI programs, there would have been no reason to a-priori deny insurance to foreigners or non-permanent-residents of UK. As it is, the participation requirements are suspiciously similar to the old UK government UI program before privatisation.

For the avoidance of doubt, this has not arisen as a result of privatisation (in the sense of the government program being transferred to the private sector) but rather exists alongside that scheme.

Perhaps the reason they restrict availability to UK permanent residents only is to reduce their exposure to fluctuations in economies other than the UK?

In addition most other European countries benefits appear to be based on previous earnings and therefore the drop in income will be much less severe than in the UK.

http://europa.eu.int/comm/employment_social/missoc/2002/missoc_235_en.htm

Not sure what compromat is and can't find it in various online dictionaries - could you expand?

 

[Victor Danilchenko]

Jaggy Bunnet

I have located some sources that may be useful in understanding the current UK situation, but I will need to take a library trip for them. Give me a couple of days.

For the avoidance of doubt, this has not arisen as a result of privatisation (in the sense of the government program being transferred to the private sector) but rather exists alongside that scheme.

the state unemployment benefits in UK were cut sharply around 1996, as I understand, as an explicit move to privatisation (or "privatisation", as remains to be seen).

Perhaps the reason they restrict availability to UK permanent residents only is to reduce their exposure to fluctuations in economies other than the UK?

then why deny insurance to non-permanent residents? This smells of regulatory limit rather than a market one.

Not sure what compromat is and can't find it in various online dictionaries - could you expand?

"Compromat'' is russian political slang for a dossier of compromizing material, effectively "weaponized" documents, records, quotes, etc. Compromat was usually collected in order to discredit the opponent, or harm them in other ways, by causing them to be fired, arrested, and other such jovial outcomes. The "poisoning the well" logical fallacy is a form of compromat application.

your hasty allegation of me ignoring your post because your evidence disagreed with my position, was textbook attempt at collecting compromat.

 

[Jaggy Bunnet]

Victor - thanks for the clarification. It was not intended in such a way, I simply read the last post on the thread at the time where you claimed that the assertion was undisputed and assumed (obviously wrongly) that you had read the preceeding posts disputing it and ignored them rather than not yet read them. I apologise.

As to denying benefits to non permanent residents, I have given my best guess. I also think they might have difficulty in making such a term stick as it may well be illegal under European law if it comprises discrimination based on residence.

Might be interesting to know if there is anything similar in Ireland as it appears to be the only other European country with a fixed rate of benefit as opposed to being earnings related.

 

[heath]

I assumed that unemployment insurance was only for mortgage repayments. Seems that it does cover income per se as well.

The impetus for it being offered in the UK seems to be legal changes to the welfare system in 1995.

source

edit: oops. had the link twice

 

[Jaggy Bunnet]

Heath - thanks for the interesting bit of history.

I also thought it was only available for mortgage payments but some of the policies don't require a mortgage at all and others will pay amounts in excess of the premium. I suppose there is no reason for it to only apply to mortgages (after all if you don't pay the rent you will be out of the house a lot quicker than if you don't pay the mortgage) so it makes sense to have pure income replacement.

Had a google for anything similar in Ireland (appears to have fixed not income dependent level of government benefit) and NZ (unemployment income low as a %age of employed income) but could find nothing. Is it really just the UK that has private unemployment insurance? If so, why?

 

[Victor Danilchenko]

Jaggy Bunnet

Had a google for anything similar in Ireland (appears to have fixed not income dependent level of government benefit) and NZ (unemployment income low as a %age of employed income) but could find nothing. Is it really just the UK that has private unemployment insurance?

AFAIK, germany has been making noises about privatising unemployment insurance; but i don't know where they are now in that regard.

If so, why?

I think a better question to ask would be, why does UK have private UI, when nobody else in the world does? if private UI is financially viable, there's no reason why the much mor capitalistic US wouldn't have had it for decades.

 

[heath]

My guess is the non-mortgage insurance grew from the mortgage insurance system triggered by the law change.

Insurance companies probably realised that the risk of real redundancy is pretty low compared to the premiums, so a good earner. Quiting or being sacked isn't covered (for pretty obvious reasons).

The massive class divide here might encourage those that can afford to insure themselves to do it. That may be the difference between the UK and other 1st world countries. (I was [and still am] quite shocked by how classist the UK is)

 

[Jaggy Bunnet]

According to this report:

http://216.239.39.100/search?q=cache:sAKNgNXpWukJ:www.issa.int/pdf/helsinki2000/topic2/2cebulla.pdf

about six per cent of the German population claim to have private unemployment insurance. The report itself notes that this is higher than the market penetration claimed by the insurers and that the difference may be due to individuals not understanding what insurance they actually have.

 

[Valmorian]

I didn't say every single person would wait.

I'm not so sure that even a majority of them would wait. Perhaps they would, but I wouldn't assume so.

It has to do with the additional work vs. the benefit you receive. When you're getting paid for essentially doing nothing, it would have to be quite a bit more money to get you back in the workforce. And people with higher paying jobs experience less unemployment.

It depends upon how much you're getting paid for doing essentially nothing. If you're getting enough money to just live at subsistence level, then any job that pays better than that would be incentive to go out and work, I would think.

When did I say "never"?

"Never" or "wait a while", either way the point is unaffected. There are pressures to be employed, through improving one's quality of life.

"If people will do the least amount of work required to simply survive,"

When did I say that they would?

This quote of yours suggests it: When you're getting paid for essentially doing nothing, it would have to be quite a bit more money to get you back in the workforce.

Provided that UI is enough to help you get by while looking for a new job, I don't see the problem.

 

[shanek]

Provided that UI is enough to help you get by while looking for a new job, I don't see the problem.

This whole post of yours revolves around one concept that I can use to answer it: Incentive. Someone who's getting money for sitting around and doing nothing does not have the same incentive to go out and get a new job as someone who's not making money at all.

And I don't understand why that concept really needs to be explained.