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Main functions of Unemployment Insurance

The Role of Unemployment Insurance in Modern Labour Markets - Unemployment Insurance and Flexicurity Tallinn, February 2007 Thomas Mølsted Jørgensen National Directorate of Labour Denmark. Main functions of Unemployment Insurance. Income security for unemployed

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Main functions of Unemployment Insurance

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  1. The Role of Unemployment Insurance in Modern Labour Markets - Unemployment Insurance and Flexicurity Tallinn, February 2007 Thomas Mølsted Jørgensen National Directorate of Labour Denmark

  2. Main functions of Unemployment Insurance • Income security for unemployed • Flexibility on labour Market • Macro economic stability

  3. UI-benefits in various situations: • Cyclical or seasonal unemployed • Modern expansions of classical UI: • Short period between two jobs • Temporarily laid off • Newly graduated • UI-benefit at holidays (after unempl.)

  4. Unemployed with benefits - and then ? Goals of Modern Labour Market Policy Return to previous / same type of job OR Achieve competence to new job ?

  5. Ways of Financing UI-benefits: • Members fee (flat rate or other) • employers contributions or • general tax Affects: Income distribution Wage increase (?) Macro economic situation

  6. Acceptance of Flexibility depends on: • Easy access to UI-benefit • High replacement rate • Low fee / employees contribution to Unemployment Insurance • Long duration possible

  7. But easy access to high benefits could result in: • Less incentives to work • Wage-inflation • Abuse of benefit-system • Black economy • High expenditures

  8. Some solutions: • Strict rules on availability • Active Labour Market Policy: • Right and duty to accept offers • Job offers and activation as test of availability • Monitoring job seeking

  9. More contribution to solutions: • Realistic sanctions • Threat of loosing membership • High replacement rate only with low wage • Often adjustments of schemes to avoid unintended use

  10. The Danish Flexicurity Triangle • Low employment protection Flexible labour market Unem-ployment benefits Active LMP 3. Employment security 2. Income security

  11. The components of The Triangle • The Labour Market • Easy hire-and-fire – low/no job protection • High flexibility and many job openings • High job and worker-mobility • Rapid structural changes • Unemployment Insurance • High replacement-rate (but with max.) • Long duration • Individual benefit – no means test • Active Labour Market Policy • Emphasis on upgrading skills • Strict rules on availability • Right and duty to accept offers • Activation as test of availability

  12. Labour Market Situation

  13. Unemployment trap 2003(Total Marginal effective tax rate on labour income)

  14. Active/passive LMP expenditure as % of GDP

  15. Summing up UI in Modern Labour Market - Flexicurity • Unemployment Insurance must work together with ALMP • Employability enhancement is the overall goal, achieved by both flexibility and education/training for unemployed and employed • Flexibility and security for the employees are not necessarily contradictions. Requires enforced availability for work • Flexicurity arrangements can strengthen overall institutional competitiveness by promoting structural change • Regular review and revision of schemes etc. is necessary • Flexicurity is not a simple recipe – nor a universal medicine • It works in Denmark – but it requires many resources.

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