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It’s to protect the state: think about towns and cities with only a few major employers (factory-towns, industrial cities, etc): if the plant business goes bust

It’s to protect the state: think about towns and cities with only a few major employers (factory-towns, industrial cities, etc): if the plant business goes bust then they’ve got 10,000+ people suddenly out of work and scrambling for jobs - or worse - suddenly overnight. By having employers pay into an insurance scheme that’s betting against them going out of business the idea is if the plant does go bust then the workers have at least a few months to figure stuff out (better than nothing!) and whatever social support systems the town has won’t be overwhelmed. And as the insurance is (ostensibly) a hedge against mass-unemployment it means that businesses with riskier business models or with greater-societal-collapse-potential will pay more to make up for it (though in reality I understand that employers’ unemployment insurance contributions are now at a fixed %, I might be wrong, please correct me)

eru 5y ago
Your comparison seems a bit lopsided: You mention some social support system, but seem to be assuming that it has to be organised at town level? You also mention unemployment insurance, which you seem to be implying is organised at some wider geographic level? If you change your comparison to systems with the same geographic support area, the difference you point out would vanish, or not? To be clear: geographic diversification is good! That's why eg the long standing US bans on branch banking were so bad for their financial system. (And why Canada whose banks had branches in all corners of the nation had a much more stable system.) But that's besides the point. The point was that paying people to be unemployed is, on the margin, giving them on incentive to stay unemployed. As one alternative, if you pay people a universal basic income, you have less of these bad incentives. But you also have a much higher cost to the overall system. Designing a good system is hard and full of trade-offs. The question about how much employers contribute to some unemployment insurance vs how much employees contribute, and how much each of them _should_ contribute is also an interesting one. But independent of our main discussion. From an economic point of view, who contributes doesn't make too much of a difference in the long run: employers care about total cost of employment, employees care about total benefits of employment. There's however one benefit to having an employer contribution to things like social security (or equivalents). And the government of Singapore often employs this tool: In a recession, one reason unemployment goes up is because the market clearing wage drops faster than actual wages paid. That's called 'stick wages'. See https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity In Singapore, when unemployment threatens to go up, our government cuts the employer contributions to our version of social security. Effectively giving everyone a wage cut. When times get better, they raise the employer contributions back up. (That's similar in effect to how a temporary burst of inflation can help employment numbers: because wages are relatively slow to adjust, an unexpected bout of inflation drop real wages in the short run.)
- DaiPlusPlus 5y ago
  > but seem to be assuming that it has to be organised at town level? No. I wasn't assuming that. I'm just using a small town with a few large employers as a good rhetorical example. > You also mention unemployment insurance, which you seem to be implying is organised at some wider geographic level? It doesn't have to be, but the bigger the pool that's spread-out to diversify risk, the better. That's a given. > If you change your comparison to systems with the same geographic support area, the difference you point out would vanish, or not? I don't see any difference between a (hypothetical) city-wide unemployment insurance scheme vs. nationwide unemployment insurance scheme, except that in the city-wide case the risk pool is much smaller so the overall risk of the insurance fund being depleted sooner by a simple large mass-unemployment event is much higher.

eru 5y ago

Your comparison seems a bit lopsided: You mention some social support system, but seem to be assuming that it has to be organised at town level? You also mention unemployment insurance, which you seem to be implying is organised at some wider geographic level? If you change your comparison to systems with the same geographic support area, the difference you point out would vanish, or not? To be clear: geographic diversification is good! That's why eg the long standing US bans on branch banking were so bad for their financial system. (And why Canada whose banks had branches in all corners of the nation had a much more stable system.) But that's besides the point. The point was that paying people to be unemployed is, on the margin, giving them on incentive to stay unemployed. As one alternative, if you pay people a universal basic income, you have less of these bad incentives. But you also have a much higher cost to the overall system. Designing a good system is hard and full of trade-offs. The question about how much employers contribute to some unemployment insurance vs how much employees contribute, and how much each of them _should_ contribute is also an interesting one. But independent of our main discussion. From an economic point of view, who contributes doesn't make too much of a difference in the long run: employers care about total cost of employment, employees care about total benefits of employment. There's however one benefit to having an employer contribution to things like social security (or equivalents). And the government of Singapore often employs this tool: In a recession, one reason unemployment goes up is because the market clearing wage drops faster than actual wages paid. That's called 'stick wages'. See https://en.wikipedia.org/wiki/Nominal_rigidity https://en.wikipedia.org/wiki/Nominal_rigidity In Singapore, when unemployment threatens to go up, our government cuts the employer contributions to our version of social security. Effectively giving everyone a wage cut. When times get better, they raise the employer contributions back up. (That's similar in effect to how a temporary burst of inflation can help employment numbers: because wages are relatively slow to adjust, an unexpected bout of inflation drop real wages in the short run.)

DaiPlusPlus 5y ago
> but seem to be assuming that it has to be organised at town level? No. I wasn't assuming that. I'm just using a small town with a few large employers as a good rhetorical example. > You also mention unemployment insurance, which you seem to be implying is organised at some wider geographic level? It doesn't have to be, but the bigger the pool that's spread-out to diversify risk, the better. That's a given. > If you change your comparison to systems with the same geographic support area, the difference you point out would vanish, or not? I don't see any difference between a (hypothetical) city-wide unemployment insurance scheme vs. nationwide unemployment insurance scheme, except that in the city-wide case the risk pool is much smaller so the overall risk of the insurance fund being depleted sooner by a simple large mass-unemployment event is much higher.