Topic 14 Social Insurance and Social Security wi14 - Topic 14 Social Insurance and Social Security Social Insurance transfers are not means tested

Topic 14 Social Insurance and Social Security wi14 - Topic...

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Topic 14: Social Insurance and Social Security Social Insurance transfers are not means tested. Eligibility for these transfers is determined by a criterion other than need, such as age, disability, unemployment status, and contribution history. Also, social insurance transfers are not funded from general revenues but through a dedicated tax or required “contribution”, for example the Federal Insurance Contributions Act (FICA) tax. Such programs, often described as “entitlements”, are usually “off budget” in the budget determination process, although they are included in the reported “unified budget”. Social insurance transfers are structured somewhat like a compulsory insurance purchase from the government. As explained earlier, one economic justification for such transfer programs is insurance market failure resulting from adverse selection and moral hazard. The Main Social Insurance Programs Unemployment Insurance provides temporary benefits to workers who become unemployed through no fault of their own. UI is mainly a state-run program financed with a tax on employer payrolls, although the Federal government provides supplementary funding. In order to be eligible, a worker must have worked sufficient hours in covered employment during a base year. In WA, workers must have worked at least 680 hours in their base year to be eligible. Unemployment compensation benefits to workers in WA range from a minimum of $129 a week to $512 a week, depending on the workers earnings and length of employment. Benefits are typically available for 27 weeks. During the current recession, unemployment benefits have been extended with Federal funding. Although recipients of UI benefits are not subject to a means test, they must actively engage in job search and accept suitable employment if it is available. The main economic question regarding the effect of UI is whether it prolongs unemployment by reducing the need by the worker to more actively seek employment. There is evidence that this has happened when labor markets are normal and jobs are available. It is not clear that this is relevant when labor markets are depressed. 1
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