- Published: September 7, 2022
- Updated: September 7, 2022
- University / College: University of Illinois at Urbana-Champaign
- Language: English
- Downloads: 50
Welfare systems are blamed that by giving unemployment benefits they get the beneficiaries into a ‘ welfare trap’, which is that welfare system contributes in keeping people on social insurance. This view though very popular and supported can’t be supported by evidence and high benefits do not create a disincentive to work. Believers of classical view like Ljungqvist and Sargent argue that unemployment insurance is reason of the unemployment rates. Benefits should be reduced so that incentives to work are created and those actually needy are protected (O’Neill 1987). But these studies have been criticized to be based on old data (Howell & Azizgolu 2011: 14). These are based on assumptions rather data (Blundell 1994). In his noble lecture Friedman said that unemployment benefits makes entrance in labour force more attractive. A small portion of those unemployed receive benefits like in America only 30% out of unemployed are receiving benefits and that in UK is only 26% (Howell & Azizgolu 2011: 9). In many countries benefits are received by half of the employed and those who do get it for a limited period and below what they used to earn (Howell & Rehm 2009: 63). Benefits are denied to those who quits their job voluntarily or refuses to work in presence of suitable job offers (Howell & Azizgolu 2011: 9). There’s also a false argument that families with children get benefits on each child more than should be given which is not solid like for example 80% children on live register in Ireland don’t have children while of them 56% are single (NESC 2011: 1. 19). Some argue that having children is a great incentive for working this has been proven wrong by surveys which show that the unemployed when have children are the strongest motivated to work. (Jackson 1994: 112) It is also said that poor women give birth to children because that will bring them financial incentives. But studies have repeatedly proven that there is no relation between them for example in America the Urban Institute Policy and Research Report, Fall/93. Thus high benefits don’t lead to high birth rates. If a mother has another child she only receives 90 dollars more in her AFCD benefits which is very low. A family which receives AFCD has 1. 9 children which is equal to national average. Similarly rent supplement is considered as a large disincentive but it was seen that 11% of those unemployed were receiving that (NESC 2011: 123). In America many recipients also work side by side getting benefits (Harper’s, 4/94). As low wage and low benefit jobs are not enough to lift them outside poverty cycle. A large number of people in welfare states don’t work because of recession not because they opt to quit working. The US Federal Reserve has an official policy to raise interest every time unemployment falls below a certain point. If unemployed people of America are given jobs then to avoid economy from overheating the employed people would have to be thrown out of work place. Conventionals also allege high benefits for longer duration spells. The average unemployment duration was only reduced to one week with 10% rise in replacement rate (Atkinson & Micklewright 1991: 1711). However the maximum duration a claimant can draw benefits creates more disincentive to work then the level of benefits. Cuts in duration is twice effective as cut in benefit levels. According to Howell & Azizgolu the Outflows from unemployment are higher than inflows. There is also a stigma attached to the welfare recipients which acts as a positive thing to encourage people to work. Employed hold biases against the unemployed. This stigma prevents poverty and unemployment. (Contini & Richiardi 2009)The notion that people get more income as benefits as compared to when they were employed is false. ). In 2007 replacement rates in Ireland were 60%. If we look at it in more detail then three fourth of job seekers receive 60% of replacement, half just get 50% whereas only 100% is received by 3% (Callan 2011) so only 3% will increase their income by losing a job so why could they choose to live on benefits then to work. The general accounting office USA issued a report in 1987 that examined 100 welfare studies since 1975 (GAO 1987) the conclusion of the report supported that welfares don’t create a disincentive to work. O’Neill, Bassis and Wolf supported that welfare does not creates a state of dependency. They negated the idea that Americans and Europeans stop working just to receive welfare benefits and those who do it are a very narrow minority. Part that replacement rates play in employment probabilities is very small hence it can be concluded that unemployment benefits don’t contribute into unwillingness of people to work (Atkinson & Micklewright 1991). In many countries unemployed are excluded from welfare benefits and in many replacement levels are way less than the previous earnings (Howell & Rehm 2009). Another very strong argument in favour of employment benefits given by Howell and Azizgolu is that in absence of unemployment insurance people accept low paid work and jobs that are not in accordance to their capabilities and talents. A decrease in labour productivity is caused by people not taking long to find a job that suites them (NESC 2011). Unemployment benefits thus provide an opportunity for people to a job that is suitable to them and is stable.(Layte & Callan 2001). Welfare states have great work ethics. A working culture has been created where people like to contribute to their system as they have a strong sense of ownership to it. A higher rate of psychological damage has been seen in unemployed. When re employed they seen more inclined to better mental conditions. Many people work because job brings with it an opportunity to socialize whereas unemployed lack socializing and their lives are unframed. Work brings with it positive wellbeing whereas unemployment brings negative effects (NESC 2011). According to Jackson Being workless also voids one of his identity as people are known by the work they do. Job provides a meaningful activity. Many surveys conducted show that jobs are not merely a source of money but people will be willing to work even if there were no financial incentives. Evidence shows that in today’s world it is highly valued to hold a job keeping aside its financial benefits thus changes in unemployment insurance would not affect people’s willingness to work (Howell and Azizgolu 2011: 9). Classical theorists believe that as employment brings more free time and less work stress it results in high level of life satisfaction. However a large number of studies have proved that unemployment brings feelings of helplessness (Carroll 2007). To bring life satisfaction of a man he has to be paid 42, 100 Australian dollars or 333, 500 euros as for a female that would be 86, 300 Australian dollars (68, 500 euro). (Carroll 2007: 298) Same results were found in other countries like UK where unemployed had 69% less life satisfaction as compared to employed. (Carroll 2007: 300). Studies have found out that it is not lack of motivation or work ethic that hinders citizens from getting a job. (Jackson 1994: 114). After discussing different viewpoints of various experts and looking at the data and evidence it can be concluded that welfare systems don’t make people dependent or less inclined to work. Orthodox ideas are not supported by facts. Generous welfare benefits in no way cause disincentive to work. Welfare trap is something that can be called a myth. Welfare systems don’t support voluntary unemployed for good but for a limited time period and the replacement rates are quite low that cant compensate for the for the actual income . Thus people to enjoy a better life have to work. Having children, rent supplements, free health and education in no act as disincentives to work. The argument that long durations and high levels of benefits hinder in peoples willingness to work. Welfare countries have a cultural system were to work a must it enhances your mental health.
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