Another option is to have people formally declare unemployment and collect EITC checks whenever they want. They get taxed on the money they take out and their after-the-fact income for that year. People with high incomes won't bother to get a check, those with low incomes will.
In this discussion I allways miss an elephant in the room: macro economic insurance. Perhaps when un employment lévels are low, moral hazard is important. But un-employment is to a large extent a macro phenomenon.
Moral hazard is less relevant in a recession, and insurance helps to sustain output.
I think you woud want to make the duration (if not the level) of benefits depend on the macroeconomic situation. I makes sense that it is harder to find another job in a recession than at "full employment."
Slightly off topic, but health insurance (ACA) should be automatic and NOT time bound.
Unemployment insurance is tough because it is economically optimal to introduce aid to the unemployed, especially during a recession, but we don't want to trigger a moral hazard either. Typically, they address this by replacing a fraction of your income to encourage you to return to the workforce.
I have seen other approaches that seem viable, such as tying the amount/duration of UI to labor conditions. If, for example, the overall unemployment rate is low, the benefit duration is shorter than if it is relatively high. FL and GA now do this and it seems to work rather well, at least as far as returning people to work.
Actually this might be false because in some states non-lump-sum severance payments may be counted as wages and thus affect UI. So firms have a different incentive to stucture severance as a lump-sum.
Another option is to have people formally declare unemployment and collect EITC checks whenever they want. They get taxed on the money they take out and their after-the-fact income for that year. People with high incomes won't bother to get a check, those with low incomes will.
https://splittinginfinity.substack.com/p/instead-of-targeting-welfare-charge
Then the problem of people scamming the government via informal employment falls to the IRS.
In this discussion I allways miss an elephant in the room: macro economic insurance. Perhaps when un employment lévels are low, moral hazard is important. But un-employment is to a large extent a macro phenomenon.
Moral hazard is less relevant in a recession, and insurance helps to sustain output.
I think you woud want to make the duration (if not the level) of benefits depend on the macroeconomic situation. I makes sense that it is harder to find another job in a recession than at "full employment."
Slightly off topic, but health insurance (ACA) should be automatic and NOT time bound.
Interesting notes here Nicholas.
Unemployment insurance is tough because it is economically optimal to introduce aid to the unemployed, especially during a recession, but we don't want to trigger a moral hazard either. Typically, they address this by replacing a fraction of your income to encourage you to return to the workforce.
I have seen other approaches that seem viable, such as tying the amount/duration of UI to labor conditions. If, for example, the overall unemployment rate is low, the benefit duration is shorter than if it is relatively high. FL and GA now do this and it seems to work rather well, at least as far as returning people to work.
The existence and lump-sum structure of severance packages are themselves evidence that the optimal UI is a lump-sum payment.
Actually this might be false because in some states non-lump-sum severance payments may be counted as wages and thus affect UI. So firms have a different incentive to stucture severance as a lump-sum.