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The Economic Effects of Enhanced Unemployment Benefits

Jiwoon Kim 2017/04/05
FacrBook
□ The simulations reveal that the macroeconomic effects of an enhancement in unemployment benefits vary according to the profile of the affected recipients and degree of their job seeking efforts (lower employment rate).

○ With the current unemployment benefit system and distribution profile of recipients, extending the maximum benefit duration is better suited than increasing the wage replacement rate in terms of social welfare.

- Similar conclusions were reached in policy simulations additionally increasing the wage replacement rate and maximum benefit duration.

- Policy goals to increase the employment rate requires a cautious approach as enhanced benefits could ease the cost of unemployment and hence, weaken the motivation to engage in job seeking activities.

○ These findings imply that when enhancing benefits, a weakening of the incentive to seek employment must be prevented while increasing the amount of benefits for vulnerable groups with relatively low liquidity.

□ Thus, a method must be considered that enhances benefits by gradually expanding the benefits for relatively, more vulnerable recipients, taking into account a rise in premiums.

○ Enhancing unemployment benefits will place a heavy burden on those (employers and employees) who do not receive them. Thus, the benefits should be enhanced gradually through a social consensus.

○ In addition, any side effects should be minimized by actively monitoring job seeking activities and substantializing the reemployment support function.

Enquiries: Jiwoon Kim (Fellow at KDI), (+82-44-550-4017, jwkim@kdi.re.kr)
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