Unemployment Policies in the US and Europe

Policy Question

The US social context has been long associated with the issue of mass unemployment. Currently, the national unemployment rates continue to decrease; 3.6% of the population had no steady income in March 2022, with a projected annual rate of 3.8% (US Bureau of Labor Statistics; Statista). However, the COVID-19 outbreak of 2020 showed that the public policies for unemployment in the US are not tailored to react promptly to an emergency, as an unprecedently high unemployment rate of 14.8% in April 2020 created a major threat to the national economy (Gezici and Ozay 271). Such a challenge was caused by a forced employee layoff nationwide and their eligibility for unemployment benefits (Gavrilović and Vučeković 56). Hence, the primary goal of this paper is to analyze the existing public policy of unemployment insurance compared to its European short-time compensation counterpart on the matter of its impact on the unemployment rates in the country.

Unemployment Insurance and CARES

The aftermath of the COVID-19 outbreak led to a significant increase in the number of eligible workers unemployed without their fault. As a result, millions of Americans became eligible for the public policy of unemployment insurance, which stands for “a joint state-federal program that provides cash benefits to eligible workers” (US Department of Labor para.1). The cash benefits depend on the previous earnings of the applicant and the state benefit policies (Ungersboeck). One of the evident benefits of such a solution is the financial support of the population in times of insecurity (Ganong et al.). Moreover, during the pandemic, the government introduced the CARES Act of generosity, which implied a weekly payment of $600 in addition to the benefits (US Department of Treasury). As a result, this public policy helped people retain social integration after losing their source of income.

Short-Time Compensation

Meanwhile, in European countries, STC became a tangible alternative to unemployment benefits. This public policy implies that instead of a layoff, workers experience a change in the number of working hours (Krolikowski). According to Cahuc, “because the employers do not lay off these staff, the schemes help to maintain permanent employment levels during recessions” (1). While this public policy has been introduced in the US, it is not as widespread as the benefits system (Ouimet). The benefits of this system include equal distribution of labor among the population and higher economic stability in the business sector (Kato and Kodama; Tracey and Polachek).

Policy Evaluation

The public policy on unemployment affects both the national and individual economy, the overall attitude toward work, and the national burden to secure timely payments for the population (Altonji et al.). Thus, when it comes to unemployment insurance and the CARES program, the public initiative is costly for the government and private enterprises, taking a toll on the national economy as a whole (Falcettoni and Nygaard). Moreover, when assessing the efficiency of a policy, it is necessary to dwell on such notions as “output, firm profits, and household welfare” (Lu 108). Thus, an efficient policy should have a beneficial impact on every aforementioned aspect.

Policy Choice

Based on the policy overview, the choice of STC policy can be regarded as more favorable to the government and the US community. First, this public policy helps businesses remain integrated into the state economy (“An Alternative to Mass Unemployment”). Second, it prevents mass dismissals from jobs and long-term unemployment (Kopp and Siegenthaler). Third, it allocates the economic burden equally between the private and the public sector (von Wachter 4). Finally, STC programs are easy to implement because of the already existing initiatives in the states (National Governors Association). Hence, STC provides an opportunity for equal access to employment and financial support without the need to lay the workers off without the opportunities for prompt reintegration.

Works Cited

Altonji, Joseph, et al. “Employment Effects of Unemployment Insurance Generosity during the Pandemic.” Yale University Manuscript, 2020.

“An Alternative to Mass Unemployment: Short-time Programs.” ILR School Cornell, 2020, Web.

Cahuc, Pierre. “Short-Time Work Compensation Schemes and Employment,” IZA World of Labor, vol. 11, 2019, pp. 1-11.

Falcettoni, Elena, and Vegard M. Nygaard. “A Literature Review on the Impact of Increased Unemployment Insurance Benefits and Stimulus Checks in the United States.” Covid Economics, vol. 64, 2021, pp. 186-201.

Ganong, Peter, Pascal Noel, and Joseph Vavra. “US Unemployment Insurance Replacement Rates during the Pandemic.” Journal of Public Economics, vol. 191, 2020.

Gavrilović, Kristina, and Miloš Vučeković. “Impact and Consequences of the COVID-19 Virus on the Economy of the United States.” International Review, vol. 3-4, 2020, pp. 56-64.

Gezici, Armagan, and Ozge Ozay. “An Intersectional Analysis of COVID-19 Unemployment.” Journal of Economics, Race, and Policy, vol. 3, no. 4, 2020, pp. 270-281.

Kato, Takao, and Naomi Kodama. “The Long-Run Effects of Short-Time Compensation.” Columbia Business School Working Paper, no. 380, 2021.

Kopp, Daniel, and Michael Siegenthaler. “Short-Time Work and Unemployment In and After the Great Recession.” Journal of the European Economic Association, vol. 19, no. 4, 2021, pp. 2283-2321.

Krolikowski, Pawel. “Short-Time Compensation: An Alternative to Layoffs during COVID-19.” Federal Reserve Bank of Cleveland, 22 Oct. 2020, Web.

Lu, Chia-Hui. “Optimal Government Policies Related to Unemployment.” Public Finance Review, vol. 47, no. 1, 2019, pp. 87-111.

National Governors Association. “Short-Time Compensation Programs as A COVID-19 Response And Recovery Strategy.” NGA, Web.

Ouimet, Paige. “The Long-term Benefits of Short-time Compensation.” Kenan Institute of Private Enterprise, Web.

Statista. “Forecast of the Unemployment Rate in the United States for Fiscal Years 2020 to 2031.” Web.

Tracey, Marlon R., and Solomon W. Polachek. “Heterogeneous Layoff Effects of the US Short‐Time Compensation Program.” Labour, vol. 34, no. 4, 2020, pp. 399-426.

Ungersboeck, Pascal. “Unemployment Insurance and Short-Time Compensation in the US and Abroad.” Yale School of Management, Web.

US Bureau of Labor Statistics. “The Employment Situation – March 2022.” BLS, Web.

US Department of Labor. “How Do I File for Unemployment Insurance?” DOL, n.d., Web.

US Department of Treasury. “About the CARES Act and the Consolidated Appropriations Act.” DOT, n.d., Web.

von Wachter, Till. “A Proposal for Scaling Enrollments in Work Sharing (Short-Time Compensation) Programs During the Covid-19 Crisis: The Case of California.” Unpublished manuscript, UCLA, 2020, pp. 1-19.