Newstart Allowance

Unemployment benefits

Unemployment benefits are payments made by governments to unemployed people. It may be based on a compulsory para-governmental insurance system. Depending on the jurisdiction and the status of the person, those sums may be meager, covering only basic needs (thus a form of basic welfare), or may compensate the lost pay somewhat proportionally to the previous earned salary. They often are part of a larger social security scheme.

Unemployment benefits are generally given only to those registering as unemployed, and often on conditions ensuring that they seek work and do not currently have a job.

Australia

In Australia, social security benefits, including unemployment benefits, are funded through the income tax system. There is no compulsory national unemployment insurance fund, rather, benefits are provided for in the annual Federal Budget by the National Treasury and are administrated and distributed throughout the nation by Centrelink. Benefit rates are indexed to the Consumer Price Index and are adjusted twice a year according to the amount of underlying inflation or deflation.

There are two types of payment available to those experiencing unemployment. The first, called Youth Allowance, is paid to young people aged 16-20 (or 15, if deemed independent by Centrelink). Youth Allowance is also paid to full-time students aged 16-24, and to full-time Australian Apprenticeship workers aged 16-24. People aged below 18 who have not completed their High School education, are usually required to be in full-time education, undertaking an apprenticeship or doing training to be eligible for Youth Allowance. For single under 18 year olds living at home the basic rate is AUD$91.60 per week. For over 18 to 20 years olds living at home this increases to AUD$110.15 per week. For those aged 18-20 not living at home the rate is AUD$167.35 per week. There are special rates for those with partners and/or children.

The second kind of payment is called Newstart Allowance and is paid to unemployed people over the age of 21 and under the pension eligibility age. To get Newstart you must be unemployed, be prepared to enter into an Activity Agreement (by which you agree to undertake certain activities to increase your opportunities for employment), are an Australian Resident and satisfy the income test (which limits weekly income to AUD$32 per week before benefits begin to reduce, until your income reaches AUD$397.42 per week at which point no unemployment benefits are paid) and the assets test (you can have assets of up to AUD$161,500 if you own a home before the allowance begins to reduce and $278,500 if you do not own a home). The rate of Newstart allowance for single people is AUD$210.45 per week, paid fortnightly. Different rates apply to people with partners and/or children.

The system in Australia is designed to support citizens no matter how long they have been unemployed for. This has been criticized by some conservative commentators, who allege that welfare generates a 'culture of welfare dependence'. In recent years the former Coalition government under John Howard has increased the requirements of the Activity Agreement, providing for controversial schemes such as Work for the Dole, which requires that people on benefits for 6 months or longer work voluntarily for a community organization to increase their skills and job prospects. There are other options available as alternatives to the Work for the Dole scheme, such as undertaking part-time work or study and training, the basic premise of the Activity Agreement being to keep the welfare recipient active and involved in seeking full-time work.

For people renting their accommodation, unemployment benefits are supplemented by Rent Assistance, which, for single people, begins to be paid when the weekly rent is more than AUD$45.90. Rent Assistance is paid as a proportion of total rent paid. The maximum amount of rent assistance payable is AUD$51.60 per week, and is paid when the total weekly rent exceeds AUD$114.70 per week. Different rates apply to people with partners and/or children, or who are sharing accommodation.

External links

Canada

In Canada the system is now known as Employment Insurance, but until 1996 it was called Unemployment Insurance. Canadian workers pay into a central fund that contributors can draw on if later unable to work. Since 1990, there is no government contribution to this fund. The amount a person receives and how long they can stay on EI varies with their previous salary, how long they were working, and the unemployment rate in their area. The EI system is managed by Service Canada, a service delivery network reporting to the Minister of Human Resources and Social Development Canada.

A bit over half of EI benefits are paid in Ontario and the Western provinces but EI is especially important in the Atlantic provinces, which have higher rates of unemployment. Many Atlantic workers are also employed in seasonal work such as fishing, forestry or tourism and go on EI over the winter when there is no work. There are special rules for fishermen making it easier for them to collect EI. EI also pays for maternity and parental leave, compassionate care leave, and illness coverage. The program also pays for retraining programs (EI Part II) through labour market agreements with the Canadian provinces.

An unemployment insurance program was first attempted in 1935 during the Great Depression by the government of R.B. Bennett. It was, however, ruled unconstitutional by the Supreme Court of Canada as unemployment was considered a provincial responsibility. After a constitutional amendment was agreed to by the provinces, a reference to "Unemployment Insurance" was added to the matters falling under federal authority under the British North America Act, and the first Canadian system was adopted in 1940. Because of these problems Canada was the last major Western country to bring in an employment insurance system. It was extended dramatically by Pierre Trudeau in 1971 making it much easier to get. After this act more than 80 percent of unemployed Canadians received benefits. The system was sometimes called the 10/42, because one had to work for 10 weeks to get benefits for the other 42 weeks of the year. It was also in 1971 that the UI program was first opened up to maternity and sickness benefits, for 15 weeks in each case.

The generosity of the Canadian UI program was progressively toned during the 10 years or so that followed the 1971 UI Act, and the federal government continuously reduced its financial contribution, eliminating it entirely by 1990. The EI system was again cut by the Progressive Conservatives in 1990 and 1993, then by the Liberals in 1994 and 1996. Amendments made it harder to qualify by increasing the time needed to be worked - although those seasonal claimants who work long hours over short periods turned out to gain from the replacement, in 1996, of weeks by hours to qualify. Today, the ratio of beneficiaries to unemployed stands around 40 percent, due to many unemployed persons not being covered at all (e.g. the self-employed), having exhausted the benefits they were entitled to, or not having worked long enough to qualify. However, it is noted that 80 percent of insured job-losers do initially receive EI benefits in Canada. The length of time one could take EI has also been cut repeatedly. The 1994 and 1996 changes contributed to a sharp fall in Liberal support in the Atlantic provinces in the 1997 election.

In 2001, the federal government increased parental leave from 10 to 35 weeks and allowed workers to take EI for compassionate care leave while caring for a dying relative. Total EI spending is projected at $16.4 billion for 2007 (figures in Canadian dollars).

A significant part of the federal fiscal surplus of the Jean Chrétien and Paul Martin years came from the EI system. Premiums were reduced much less than falling expenditures - producing, from 1994 onwards, EI surpluses of several billion dollars per year, which were added to general government revenue. The cumulative EI surplus stood at $54.4 billion at March 31, 2007, about three times as high as necessary. This drew criticism from Opposition parties and from business and labour groups, and has remained a central issue of the Bloc Québécois. The Conservative Party, after espousing such criticism while in opposition, chose not to take any action after being elected in 2006. On May 24, 2007, the Supreme Court of Canada agreed to examine a court challenge launched against the federal government by two Quebec unions, who argue that EI funds have been misappropriated by the government.

External links

  • History of UI in Canada, from 1930s to early 1994
  • Canadian Government Site for EI
  • Canadian Government Site for Parental and Compassionate Care Benefits
  • Canadian Employment Insurance Calculator
  • Library of Parliament publication on EI premiums

Ireland

People aged 18 and over and who are unemployed in Ireland can apply for either the Jobseeker's Allowance (Liúntas do Lucht Cuardaigh Fostaíochta) or the Jobseeker's Benefit (Sochar do Lucht Cuardaigh Fostaíochta). Both are paid by the Department of Social and Family Affairs and are nicknamed "the dole".

The standard payment is €197.80 (maximum rate 2008) per week. Payments can be increased if the unemployed has dependants. For each adult dependent, another €131.30 (maximum rate 2008) is added; and for each child dependent, another €24.00 (maximum rate 2008) is added.

There are more benefits available to unemployed people, usually on a special or specific basis. Benefits include the Rent Supplement, the Mortgage Interest Supplement, Fuel Allowance and the Smokeless Fuel Allowance, among others. People on a low income (which includes those on JA/JB) are entitled to a Medical Card (although this must be applied for separately from the Health Service Executive) which provides free health care, optical care, dental care, aural care, and prescription drugs (as opposed to subsidised services like non medical-card holders). Education (at all levels) is free to all, not just the unemployed, already.

To qualify for Jobseekers Allowance, a claimant must satisfy the "Habitual Residence Condition", ie they must have been legally in the state (or the Common Travel Area) for two years or have another good reason (eg have lived abroad and are returning to Ireland after become unemployed or deported). This condition does not apply to Jobseekers Benefit (which is based on Social Insurance payments).

More information on each benefit can be found here:

Italy

Unemployment benefits in Italy consists mainly in cash transfers based on contributions (indennità di disoccupazione), up to the 40 percent of the previous wages for up to seven months. Other measures are:

  • Redundancy Fund (Cassa integrazione guadagni, CIG): cash benefits provided as shock absorbers to those workers who are suspended or who work only for reduced time due to temporary difficulties of their factories, aiming to help the factories in financial difficulties, by relieving them from the costs of unused workforce
  • Solidarity Contracts (Contratti di solidarietà): in the same cases granting CIG benefits, companies can sign contracts with reduced work time, in order to avoid dismissing redundancy workers. The state will grant to those workers the 60 percent of the lost part of the wage.
  • Mobility allowances (Indennità di mobilità),: if the Redundancy Fund doesn’t allow the company to re-establish a good financial situation, the workers can be entitled to mobility allowances. Other companies are provided incentives for employing them.

In the Italian unemployment insurance system all the measures are income-related, and they have an average decommodification level. The basis for entitlement is always employment, with more specific conditions for each case, and the provider is quite always the state. An interesting feature worthy to be discussed is that the Italian system takes in consideration also the economic situation of the employers, and aims as well at relieving them from the costs of crisis.

New Zealand

In New Zealand, these benefits provide income support for people who are looking for work or training for work through Work and Income, a service of the Ministry of Social Development

To qualify people need to be aged 18 or over, or aged 16-17 and living with a partner and children you support and:

  • have continually lived in New Zealand for two years or more
  • not working full-time, but actively looking for a full-time job and able to start work now.
  • people may still qualify if he/she is a full-time trainee on an approved work related course. The course must usually be less than 12 weeks long to qualify. People must still take steps to meet the job search requirements.

People who apply for the benefit may be asked to develop a Job Seeker Agreement with Work and Income where he/she agrees to look for work or prepare for work

If applicant has a partner they may be included in the benefit and may also be asked to develop a Job Seeker Agreement with Work and Income. They may also need to:

  • look for full-time work (30 hours a week or more) if applicant has no children at home or applicant's youngest child is aged 14 or older or
  • look for part-time work (15 hours a week or more) if applicant's youngest child is aged 6-13 or come to annual planning meetings and perhaps do things to help prepare for work if applicant's youngest child is less than six years old.

In New Zealand the benefit is $148.73 weekly after tax for single person who is 20-24 years and Married, de-facto or civil union couple with or without children each. Single 25 years or over gets $178.49 per week after tax. The benefit payment can reduce due to any income the person or their partner earns.

External links

Sweden

In Sweden unemployment benefits are divided into a voluntary scheme with income related compensation up to a certain level and a comprehensive scheme that provides a lower level of basic support. The voluntary scheme requires a minimum of 12 months membership and a certain degree of employment during that time before any claims can be made. Employers pay a fee on top of the pre-tax income of their employees, which together with membership fees, fund the scheme (see Unemployment funds in Sweden).

The maximum unemployment benefit is (as of July 2007) SEK 680 per day (SEK 14,960 per month). During the first 200 days the unemployed will receive 80 percent of his or her normal income during the last 12 months. From day 201-300 this goes down to 70 percent and from day 301-450 the insurance covers 65 percent of the normal income (only available for parents to children under the age of 18). In Sweden tax is paid on unemployment benefits, so the unemployed will get a maximum of about SEK 10,000 per month during the first 100 days (depending on the municipality tax rate). In other currencies this means a maximum of approximately £730, $1,650, or €1,100, each month after tax. Private insurance is also available, mainly through professional organizations, to provide income related compensation that otherwise exceeds the ceiling of the scheme. The comprehensive scheme is funded by tax.

Saudi Arabia

Saudi Arabia is an economic welfare state with free medical care and unemployment benefits. However, the country relies not on taxation but mainly oil revenues to maintain the social and economic services to its populace.

External links

United Kingdom

Main article: Jobseeker's Allowance

Jobseeker's Allowance rates

JSA for a single person is changed annually, and at 9 April 2007 the maximum payable was £59.15 per week for a person aged over 25, £46.85 per week for a person aged 18-24 and £36.65 per week for a person aged between 16 and 17. The rules for couples where both are unemployed are more complex, but a maximum of £92.80 per week is payable, dependent on age and other factors. Income-based JSA is reduced for people with savings of over £6,000, by a reduction of £1 per week per £250 of savings, up to £16,000. People with savings of over £16,000 are not able to get IB-JSA at all. The British system provides rent payments as part of a separate scheme called Housing Benefit. Unemployed persons are able to submit Enduring Power of Attorney/Lasting Power of Attorney submissions free of charge saving £120 each. (United Kingdom).

History and etymology

Unemployment benefits were first instituted in 1911. Over 2 million people were relying on the payments by 1921, as Britain was experiencing economic hardship after World War I.

To receive unemployment benefit is commonly referred to as "being on the dole", "dole" being an archaic expression meaning "one's allotted portion", from the synonymous Old English word dāl.

United States

Unemployment Compensation is an amount received by an unemployed worker, originating from the United States or a State. In the United States, this compensation is classified as a type of social welfare benefit. According to the Internal Revenue Code, these types of benefits are to be included in a taxpayer’s gross income.

Federal-State joint programs

Wisconsin originated the idea of unemployment insurance (UI) in the U.S. in 1932. In the United States, there are 50 state unemployment insurance programs plus one each in the District of Columbia and Puerto Rico. Through the Social Security Act of 1935, the Federal Government of the United States effectively coerced the individual states into adopting unemployment insurance plans.

Unemployment insurance is a federal-state program jointly financed through federal and state employer payroll taxes (federal and state UI taxes). Generally, employers must pay both state and federal unemployment taxes if:

(1) they pay wages to employees totaling $1500 or more in any quarter of a calendar year; or,
(2) they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether the weeks were consecutive. However, some state laws differ from the federal law.

To facilitate this program, the U.S. Congress passed the Federal Unemployment Tax Act (FUTA), which authorizes the Internal Revenue Service (IRS) to collect an annual federal employer tax used to fund state workforce agencies. FUTA covers the costs of administering the Unemployment Insurance and Job Service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits. As originally established, the states paid the federal government.

The FUTA tax rate was originally three percent of taxable wages collected from employers who employed at least four employees, and employers could deduct up to 90 percent of the amount due if they paid taxes to a state to support a system of unemployment insurance which met Federal standards, but the rules have changed as follows. The FUTA tax rate is now 6.2 percent of taxable wages of employees who meet both the above and following criteria, and the taxable wage base is the first $7,000 paid in wages to each employee during a calendar year. Employers who pay the state unemployment tax on a timely basis receive an offset credit of up to 5.4 percent regardless of the rate of tax they pay their state. Therefore, the net FUTA tax rate is generally 0.8 percent (6.2 percent - 5.4 percent), for a maximum FUTA tax of $56.00 per employee, per year (.008 X $7,000 = $56.00). State law determines individual state unemployment insurance tax rates.

Within the above constraints, the individual states and territories raise their own contributions and run their own programs. The federal government sets broad guidelines for coverage and eligibility, but states vary in how they determine benefits and eligibility.

Federal rules are drawn by the United States Department of Labor, Employment and Training Administration. For most states, the maximum period for receiving benefits is 26 weeks. There is an extended benefit program (authorized through the Social Security Acts) that may be triggered by state economic conditions. Congress has often passed temporary programs to extend benefits during economic recessions. Most recently, this was through the Temporary Extended Unemployment Compensation (TEUC) program. The TEUC program has now expired. The program is not established to provide more than adequate support for unemployed persons for a strictly defined period, and unemployed persons cannot make a profit on Unemployment Benefits.

The federal government lends money to the states for unemployment insurance when the states run short of funds. In general, this can happen when the unemployment rate is high. The need for loans can be exacerbated when a state cuts taxes and increases benefits. All loans must be repaid with interest.

Congressional actions to massively increase penalties for states incurring large debts for unemployment benefits led to state fiscal crises in the 1980s.

Because it is a joint federal/state program run by the states, taxing business for the benefit of labor, the politics of unemployment insurance are very complex.

Economic functioning

The Unemployment Insurance (UI) program helps counter economic fluctuations. When the economy grows, UI program revenue rises through increased tax revenues while UI program spending falls as fewer workers are unemployed. The effect of collecting more taxes than are spent dampens demand in the economy. This also creates a surplus of funds or a "cushion" of available funds for the UI program to draw upon during a recession. In a recession, UI tax revenue falls and UI program spending rises as more workers lose their jobs and receive UC benefits. The increased amount of UI payments to unemployed workers puts additional funds into the economy and dampens the effect of earnings losses.

Application process

Generally, the worker must be unemployed through no fault of his/her own (generally through lay-offs). Unemployment benefits are based on reported covered quarterly earnings. The amount of earnings and the number of quarters worked are used to determine the length and value of the unemployment benefit. It generally takes two weeks for benefit payments to begin, the first being a "waiting week", which is not reimbursed, and the second being the time lag between eligibility for the program and the first benefit actually being paid.

To begin a claim, you must apply for benefits (there are a few exceptions where an employer will apply for you). Generally, the certification includes your affirming that you are "able and available for work", the amount of any part-time earnings you may have had and whether you are "actively seeking work" These certifications are usually either by internet or via an IVR (interactive voice response) telephone call, but in a few states may be by mail.Once you apply, the state will notify you whether you have sufficient wages to qualify and what your weekly benefit rate will be. The state will also review the reason you were separated from employment.

To actually receive benefits, you must certify to your eligibility every one or two weeks (this varies by state).

Only after claiming benefits will you receive money. In most states this will be in the form of a check or in a minority of states, optionally, by direct deposit.

Current data

Each Thursday, the Department of Labor issues the Unemployment Insurance Weekly Claims Report. Its headline number is the seasonally adjusted estimate for the initial claims for unemployment for the previous week in the United States. This statistic, because of its timeliness, is an important indicator of the health of the labor market, and more broadly, the vigor of the overall economy. Numbers below 300,000 tend to indicate a tightening labor market whereas numbers above 400,000 are associated with increasing unemployment.

Taxation issue

The argument for taxation of social welfare benefits is that they result in a realized gain for a taxpayer. The argument against taxation is that the benefits are generally less than the federal poverty level.

In the United States, this particular type of payment is unique in the fact that it arises from government resources. As a result, issues arrived over the taxability of such payment. With Revenue Ruling 71-425, the IRS deemed Unemployment Compensation amounts excludable based on certain conditions.

Conditions for exclusion:

  • Source of payment is a governmental unit or welfare fund; and
  • Reason for payment is in the interest of general welfare.

Essentially, nearly identical economic inflows were being taxed differently. In an attempt to provide uniformity and clarity to taxpayers, congress established Code Section 85. Section 85 superseded the previous Revenue Ruling making Unemployment Compensation includable in gross income.

The criteria for inclusion included:

  • Recipient must be an individual; and
  • Source of payment is unemployment compensation.

Work sharing

Employers have the option of reducing work hours to part-time for many employees instead of laying off some of them and retaining only full-time workers. Employees in 18 states can then receive unemployment payments for the hours they are no longer working.

See also

References

  • Bojas George J., Labor Economics, Second edition, 2002, McGraw-Hill.

External links

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