Effect of Unemployment Benefits on Unemployment - Essay Example

A study on the effect of Unemployment benefits on unemployment By School Location Outline A study on theeffect of unemployment benefits on unemployment I. Introduction: II. Background of the study III. Data for the study a. Table on the data for the study b. Chart on the analysis for the study IV. Method of the study V. Results of the study. a. Effect of inflation and Unemployment benefits on unemployment b. Limitations of the analysis VI. Conclusion VII. Recommendations a. Provision of unemployment benefits in a short term period b. Vary the remission of unemployment benefits based on economic conditions Introduction Unemployment benefits have been relied upon by most governments to provide remedies to the unemployed individuals in a given labour market based on the ability of the benefits to sustain unemployed individuals. However, regardless of the ability of the benefits to sustain the unemployment benefits have been perceived to contribute to an increase in the levels of unemployment (Lalive, Vanours & Zweimüller, 2011). This is because the unemployment benefits prompt unemployed individuals to refrain from looking for unemployment due to the ability to sustain themselves with the unemployment benefits. Moreover, most employed individuals may opt do drop out of employment in the event they perceive employment benefits to be more viable than their income (Lalive, Vanours & Zweimüller, 2011). As a result, it is essential to verify the validity of these perceptions based on evidence from empirical data. Background of the study The United Kingdom has over the years between 2004 and 2014 been experiencing a consistent rate of unemployment (Statista, 2014). As a result, it is evident that there are significant factors that have contributed to the level of the unemployment during the period. On the other hand, one of the consistent trends that have been witnessed in the United Kingdom labour market during the period is the allocation of unemployment benefits by the United Kingdom government (Office for National statistics, 2014). As a result, there are major possibilities that there is a correlation between the allocations of unemployment benefits in the United Kingdom and the rate of unemployment. The study is based on empirical data gathered from the United Kingdom’s labour market. In order to verify the effect of unemployment benefits on unemployment information regarding unemployment and unemployment data was gathered for a ten year period ranging between 2004 and 2014. Thus, in order to evaluate the reliability unemployment and unemployment another set of data that correlates with unemployment will be used. Hence, the relevant alternative set of data for the study will be based on inflation data for the relevant period of the study. This is due to the fact that most of the major unemployment levels in any labour market are caused by requirement of market forces to sustain optimum levels of inflation (Arnold, 2010 pp. 382). Whereas the rate of inflation will be necessary for this study it will be essential in outlining any other potential indicators of increase in the levels of employment in United Kingdom. Therefore, the study will be aimed at establishing whether the level of unemployment benefits in an economy contributes towards the increase in the level of unemployment. Data for the study The data collected for this study will be based on data for the period between the year 2004 and the year 2014 from Statista.com Year Unemployment rate Employment benefits rates Inflation rate 2004 4.75% 2.25% 1.3% 2005 4.88% 2.2% 2% 2006 5.45% 2.48% 2.3% 2007 5.35% 2.2% 2.3% 2008 5.73% 2.2% 3.6% 2009 7.65% 3.7% 2.2% 2010 7.85% 3.7% 3.3% 2011 8.1% 3.8% 4.5% 2012 7.95% 3.9% 2.8% 2013 7.6% 3.6% 2.5% 2014 6.35% 2.6% Blue line – rate of unemployment Maroon line – the employment benefit rates Green line – the rate of inflation Based on the data displayed on the chart above it is evident that the rate of unemployment in the United Kingdom is higher than the rate of Unemployment benefit payment by the government. Consequently, the rate of inflation seems to fluctuate between levels higher or lower than the unemployment benefit payments. With regard to the nature of the study the data collected with regard to establishing factors that may affect unemployment are the employment benefit rates and the rate of inflation in the United Kingdom. The data regarding the unemployment benefits was collected from the National office of Statistics in the United Kingdom. Unemployment benefits are government expenses that are meant to compensate individuals in the United Kingdom who do not work. Nevertheless, the benefits are paid to individuals who can work and are willing to work. Based on the fact that the Unemployment benefits are paid to individuals who have no employment, the data will be relevant for this case study. In this case, the data regarding unemployment benefits and Unemployment has a direct correlation since for the benefit unemployment benefits to exist, there has to be unemployment. Therefore, the unemployment benefit percentage rate data is measured through comparing the number of people in the United Kingdom who receive the benefits against the total population of United Kingdom. The inflation data was collected on the basis of a general increase in prices of commodities and services consumed in United Kingdom (BBC, 2014). Hence, the services and goods consumed by the people of United Kingdom depend on the income earned from their employment. As a result, the data collected is aimed at establishing the relation between the increase in prices of goods and services and the inability of people to pay for goods and services based on the rate of unemployment. Method The study is aimed at using the collected data to establish the response of based on rate of inflation and rate of unemployment benefits in a given country. The analysis on the effect of inflation on unemployment will be based on the economic assumptions that form the premises of the Philips curve. The Philips curve relies on the assumption that during a given economic period there High levels of inflation and high levels of unemployment cannot coexist. Therefore, for any increase in inflation there can never be a corresponding increase in unemployment and for every decrease in inflation there can never be any corresponding decrease in unemployment (Arnold, 2010 pp. 336). On the other hand, the study will also analyze the correlation between unemployment benefits and the rate of unemployment. Unemployment benefits have been presumed to have a direct effect on the rate of unemployment. The rate of unemployment in a given country is identified as the lack of employment opportunities for qualified workers willing to work at the existing wage rate. As a result, the payments of unemployment benefits have a corresponding effect of reducing the will of unemployed people to work at existing wage rates based on the facts that unemployment benefits may be similar to the wage rates unemployed individuals may be willing to take (R.A, 2010). Therefore, the objective of the study will be based on using the relevant corresponding data for a period of ten years between 2004 and 2014 in order to deduce the appropriate economic trend. The results of the data analysis will be applied to verify the validity of the economic theories regarding the inverse effect of inflation on unemployment and the direct effect of unemployment benefits on rate of unemployment. Results The data collected shows that for the past ten years the level of unemployment has been rising. Therefore, in order to establish the relation between the two sets of data in comparison with unemployment. There are several of factors that could have led to the increase in the rate of unemployment in the United Kingdom during the year. Therefore, the behavior of the unemployment rate and inflation data in this study, which have established correlation with unemployment, provided ample results for the study. With reference to the data within the ten year period, the rate of unemployment benefits increase as the rate of unemployment increase. Whereas the rate of unemployment was higher than the level of unemployment benefits, the two sets of data experienced a similar growth trends as outlined through their shapes in their graphs. The analysis of the graph can only provide a comparison on the trends among the sets of data portrayed. Despite the evident effect of unemployment benefits on unemployment, the level of unemployment initially causes the emergence of the unemployment benefits. This is due to the fact that the unemployed individuals in the United Kingdom cannot be in a position to enter into the already saturated labour market. Therefore, the unemployed individuals end up accepting the conditions of the labour market in anticipation of the emergence of job opportunities regardless of the wage price. Consequently, because the labour market is saturated the unemployment benefits act as a short term solution for the unemployed individuals. However, as the unemployment benefits act as a short term solution to the unemployment solution, the beneficiaries of the benefits end up relying on the benefits as a long term solution. Thus as unemployment benefits seem to be a long term solutions to the unemployed people, the unemployed people end up perceiving unemployment to be a non issue since unemployment benefits can act as income to the unemployed individuals (Baranek & Kamerschen, 2012 pp. 800). Therefore whereas unemployment benefits are aimed at providing a short term solution to unemployment they end up having a corresponding effect on unemployment in the long term. As displayed by the data in table 1 and graph 1 the unemployment benefits in the United Kingdom increased between 2004 and 2012 the unemployment benefits displayed an incrementing trend. Therefore, as the level of unemployment benefits increased the level of unemployment between 2004 and 2012 increased. Consequently, the as the level of unemployment benefits decreases between the year 2012 and the year 2014, the rate of unemployment decreases. Therefore, it can be perceive that as the unemployment benefits in the United Kingdom were increased the level of unemployment increased. It is noteworthy that, the eligibility of unemployment benefits in the United Kingdom is not guaranteed to the unemployed people but it only applies to the people age 16 years and above and they are eligible to work (Office for National statistics, 2014). Moreover, the unemployment benefits in the United Kingdom are submitted to the respective unemployed individuals based on the number of applications submitted to the office of labour (Office for National statistics, 2014). Therefore, it is evident that between the years 2004 and 2014, the unemployed individuals in the United Kingdom increased the rate of applications for the unemployment benefits. Consequently, the rate of employment seemed to increase and decrease correspondingly with the rate of increase or decrease of the unemployment benefits remitted by the government of the United Kingdom. On the other hand, the possibility of other underlying factors with regard to the rate of change of unemployment in the United Kingdom was high. Therefore, the essence of relying on another set of data was essential with regard to this study. Thus the set of data based on the rate of inflation between the year 2004 and 2014 was used to analyze the possibility of other factors influencing the rate of change of inflation in the United Kingdom. The economic effects of inflation on employment are based on the premises that the higher the rate of inflation the lower the rate of unemployment and vice versa. Therefore, in order to establish the effect of inflation on unemployment in The United Kingdom the corresponding data values for inflation and unemployment for the years between 2004 and 2014 were used. Concerning establishing the effects of inflation on unemployment in the United Kingdom rate of unemployment was required to be high while the rate of inflation was low. Based on the data portrayed in graph 1 and table 1 there was no consistent trend with regard to the effect of inflation on unemployment. During the ten year period between 2004 and 2014 the highest level of inflation in the United Kingdom was in the year 2011. Likewise, the highest level of unemployment corresponded with the highest rate of unemployment in United Kingdom. Additionally, the lowest level of inflation was in 2004 which corresponded with the lowest level of unemployment in the United Kingdom. The rate of inflation is expected to be high while rate of unemployment remains low in the short term. However, as the economic conditions return to normalcy in the long term the rate of inflation should have a corresponding increase in the rate of unemployment. Nevertheless, between the year 2004 and 2007 there was no direct correlation between inflation and unemployment since the rate of inflation increased and then remained constant for two years. This was despite the fact that the rate of unemployment was increasing through the period. The rate of inflation change through the period was inconsistent while the rate of unemployment exhibited a consistent trend. Therefore, based on the sets of data collected with regard to the effect on unemployment, it is evident that the level of unemployment benefits had a direct correlation with the rate of unemployment in the United Kingdom. These results coincides with previous studies that assert that provision of unemployment benefits lengthens the period of unemployment hence leading to increased unemployment (Spiezia, 2000). Limitation of the analysis The analysis was conducted through the evaluation of data from inflation and unemployment benefit rates in United Kingdom. This eventually restricted the presumption of the report unemployment is only affected by Unemployment benefits and inflation. Therefore, the reliability of the study is restricted to inflation and Unemployment benefit levels in the United Kingdom. Conclusion In regard to the study conducted, the effect of unemployment benefits was established as opposed to the effect of inflation on unemployment. The aim of integrating the rate of inflation in the study was to establish the effect of alternative factors on unemployment in reference to unemployment benefits. As a result, it was evident that unemployment benefits lead to increase in unemployment in independence to other factors such as inflation. The findings of the study also reflect the findings of precious researches which maintain that unemployment benefits eventually contribute to an increase in the rate of unemployment and also contribute to lengthy cycles of unemployment. Therefore, in order to minimize the negative implications of unemployment benefits on the rate of unemployment it is essential to integrate other economic remedies with regard to compensating the unemployed people. The following recommendations are based on the possible solutions towards addressing unemployment based on the findings on the effect of unemployment benefits. Recommendations Provision of unemployment benefits in a short term period: The prolonged allocation of unemployment funds has been established to contribute to unemployment. Therefore, it would be essential for the government to use unemployment benefits within a restricted period in order to avoid the implications of the unemployment benefits. Vary the remission of unemployment benefits based on economic conditions: Based on the study conducted by Spiezia (2000), the effect of unemployment benefits varies on the type of unemployment benefit policies. For instance, unemployment benefits also refer to periodic contributions paid by employed individuals in anticipation of harsh economic conditions that would lead to unemployment. Therefore, the requirement for unemployment benefits is not restricted to unemployed people only. Hence, the government should allocate these benefits on a priority basis in order to reduce expenses on these benefits. The money saved in the process could be used for boosting employment chances. Reference list Arnold, R., 2010. Macroeconomics. Cengage learning, Boston, MA. BBC. 2014. Economy tracker: inflation. Available from < http://www.bbc.com/news/10612209> [9th December 2014]. BERANEK, W. and KAMERSCHEN, D.R., 2011. Unemployment Benefits and Unemployment. Modern Economy, 2(5), pp. 800-803. LALIVE, R., VAN OURS, J.,C. and ZWEIMÜLLER, J., 2011. Equilibrium unemployment and the duration of unemployment benefits. Journal of Population Economics, 24(4), pp. 1385-1409. Office of National statistics. 2014. JSA claimants by age and duration. Available from [9th December 2014]. R.A. 2010. Jobless benefits and the unemployment rate. Available from [9th December 2014]. SPIEZIA, V., 2000. The effects of benefits on unemployment and wages: A comparison of unemployment compensation systems. International Labour Review, 139(1), pp. 73-90. Statista. 2014. Unemployment rate in the United Kingdom (UK) from 2004 to 2014. Available from < http://www.statista.com/statistics/263709/unemployment-rate-in-the-united-kingdom/> [9th December 2014]. Read More