Answer to Question #32408 in Macroeconomics for jennifer
compensation) are payments made by the state or other authorized bodies to
unemployed people. Benefits may be based on a compulsory para-governmental
insurance system. Depending on the jurisdiction and the status of the person,
those sums may be small, covering only basic needs, or may compensate the lost
time proportionally to the previous earned salary.
To Keynesian economists unemployment insurance programs act as an automatic
stabilizer. When employment grows, program revenue rises through increased tax
revenues while program spending falls as fewer workers are unemployed. This
creates a surplus of funds for the unemployment program to draw upon during a
recession. In a recession, unemployment benefits tax revenues fall and program
spending rises as more workers lose their jobs and receive benefits. The
increased payments to unemployed workers puts additional funds into the
economy; however, others argue that the taxation necessary to support this
system serve to decrease employment.
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