What is the purpose of unemployment?
Robert Reich published an otherwise straightforward op-ed in NYT discussing the rise in entrepreneurship in the wake of the recession.
For starters, they could use what might be called “earnings insurance” that would pay for up to two years part of the difference between what they earned on the old job and what they earn now on their own. Employed workers would contribute to the insurance fund through their payroll taxes, as they do with unemployment insurance, but the total bill for benefits would be unlikely to rise because earnings insurance would get them back to work quicker and thereby reduce the number of weeks they relied on unemployment benefits.
I assume that Reich intends earnings insurance to only be available for those who started businesses involuntarily (i.e. got laid off).
The central question here revolves around why we value welfare-like programs in the first place. If the purpose is to provide basic livelihood so people who lose their jobs don’t immediately become destitute, then earnings insurance would likely meet that goal. But Reich’s point is different in arguing that earnings insurance would help seed a new generation of small businesses — the benefit is designed to be economic, not humanitarian.
Welfare programs distort the labor market to at least some extent by decreasing the marginal value of work. I definitely know people who, due to their previous professional salaries, would make more on unemployment than working an hourly job. Reich’s program seems to risk distorting the market even more by creating thousands of small businesses that can only exist on the basis of two years of government subsidy.
If entrepreneurship is to be America’s strength, it seems like distorting market forces around start-ups would be the worst idea. (But, as Reich says earlier, it would be great to see increased access to start-up capital).
-John
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