Do unemployment benefits provide a critical safety net or incentivize unemployment?

The World Bank views unemployment as a condition that deprives workers of their income,
current consumption and welfare (Tzannatos & Roddis, 1998, pg. 4). Unemployment benefit is
defined as payment (as by a union or an employer or according to the provisions of a
governmental social security program) to an unemployed worker of a sum of money by the
Merriam-Webster Dictionary (2014). Tzannatos & Roddis also stated that unemployment
benefits exist to protect one nations labor against the loss of their income following the loss of
employment, to assist the unemployed in maintaining their income whilst they were searching
for new jobs, as well as for political considerations to ensure that a current regime remains in
power (pg. 5). However, there also exists arguments against providing unemployment benefits
(pg. 4): unemployment in and of itself poses no harm, it is preventable and that it would crowd
out private savings.

Figure 1: Paying People Not to Work
The argument that unemployment benefits incentivizes unemployment rises from the
observation that the payments that come in the form of unemployment benefits have become
more lucrative than actually seeking employment, which then creates even more
unemployment (Laffer, 2010). As can be seen from Figure 1 above, the average payment per
week in unemployment benefits in the United States has increased over the years, reaching the
highest point at around $6300 per week in 2010. Nakajima (2012, pg. 686) stated that before
the Great Recession, unemployment benefits were paid throughout a duration of 26 weeks. This
means that in 2010, an unemployed person would receive $ 163800 worth if he or she remains
unemployed for all these 26 weeks. The GDP per capita of the United States is worth $ 48358 in
the same year (World Bank, 2014), which means that if a person is unemployed for half a year in
2010, the employment benefits he or she receives is 3.38 times more than what an average
person earns a year. Clearly, this will become a disincentive for an unemployed person to seek
work because they might earn less than what they will receive in unemployment benefits.
In this manner, unemployment benefits not only provide disincentives to work, it also
proves to be a negative turn towards the notion of being a safety net. To put this in plainer
words, having too much unemployment benefits will consume too much of a nations resources.
In the United States, unemployment benefits is being paid by employers in the form of
unemployment insurance tax (Anderson & Meyer, 2000, pg. 82). When there is an increase of
those who are unemployed, the burden of the unemployment tax would definitely be increased.
According to Cardenas (2014), the provision of unemployment benefits in the United States
have cost the government an added $ 200 billion over the years since the occurrence of the
Great Recession in 2010. This will add to the governments deficit, because the financing of the
unemployment benefits will need to be borrowed from China.
If it is the intention of a government to create a safety net, then perhaps it would be a
better measure to solve the problem of unemployment than to support too many who are
unemployment. To do this, policy-makers must determine what kinds of unemployment exist in
their economy. If the unemployment span is long and structural, then the government should
select measures that would improve the match between the jobs available with the job-seekers,
including several forms of training to keep the job-seekers skills to be suited for the job market
(Katz, 2010, pg. 6).