A Creative Approach to Unemployment Problems

We recently came across a very interesting idea for an unemployment insurance scheme advocated for by the Mercatus Center at George Mason. The conclusion below (directly from the article) provides a much more concise explanation of both the problems and the solution than we could hope to. Meanwhile the full piece can be found here.

The current recession reveals the inadequacy of the Unemployment Insurance program. In addition to the negative incentives public unemployment benefits create for productivity, job search, and individual saving, unemployment benefits create an economic hazard for states that must replenish trust funds during economic downturns via increased payroll taxes on businesses—which in turn discourages hiring. A better way to provide income security for workers is to establish private Unemployment Insurance Savings Accounts, whereby workers and their employers contribute to the workers’ savings accounts, which they can draw upon during periods of unemployment. By financing their own unemployment funds, workers have an increased incentive to avoid job loss and increase job search efforts. Reducing the payroll tax on employers would increase wages and encourage hiring. The individual employee contribution not only promote individual saving, but also provides greater certainty and fairness, ensuring that all workers receive their portion of the tax currently levied to provide public unemployment benefits.