Building on the analysis in this report as well as current reform efforts and experiences in other OECD countries, this chapter presents four reform options for stronger and more inclusive income support in the United States: extending Unemployment Insurance to self-employed workers, softening the requirement of involuntary unemployment, harmonising benefit amounts and durations across states, and considering the introduction of an unemployment assistance benefit for jobseekers without a recent history of employment.
Benefit Reforms for Inclusive Societies in the United States
Income Security During Joblessness
3. Policy options
Abstract
Since the Great Recession, many US states have contracted their Unemployment Insurance benefits in terms of duration and benefit levels because of increasing funding pressure. As a result, the percentage of jobseekers receiving UI has fallen, raising concerns about the ability of the UI system to cope with future recessions (Wandner, 2018[1]). During the COVID‑19 crisis, the UI system provided unprecedented levels of support, both in terms of recipient numbers and aggregate payments, supporting labour market groups it had not served before. But the crisis also highlighted weaknesses of the system that had to be adjusted quickly to the surge in recipient numbers, leading to backlogs and irregularities in the processing of payments in some states (Dube, 2021[2]). Building on the analysis in chapters and current reform efforts and experiences in other OECD countries, this chapter presents four reform proposals: an extension to the changing and potentially growing group of self-employed workers, particularly independent contractors, a softening of the involuntary unemployment requirement as a condition of UI receipt, the harmonisation of benefit entitlements upwards across states, both in terms of payment levels and durations, and the introduction of an unemployment assistance benefit for job-ready jobseekers without a recent history of employment.
3.1. Consider extending unemployment support to self-employed workers
In the United States, jobseekers with a history of self-employment account for only 2% of all unemployment in a non-pandemic labour market (see section 2.4). Indeed, the incidence of self-employment is comparatively low in the United States (7% of total employment in 2021, compared to 16% across the OECD on average). Self-employment in the United States has also been on a slow decline since the 1990s according to data from household surveys (OECD, 2023[3]).
There are nonetheless concerns that the number of independent contractors or freelancers, including those whose work is mediated by online platforms (so-called platform or gig-workers), is rising (e.g. (Abraham et al., 2021[4])). According to administrative data, the number of independent contractors hired by firms as a share of all paid employment indeed increased from about 10 to 11% between 2014 and 2018. Most of this rise is attributable to online platforms (Garin, Jackson and Koustas, 2022[5]).
Many countries had been exploring how to shore up access to out‑of‑work benefits for self-employed and other non-standard workers already before the COVID‑19 crisis. The pandemic made the need for equal access to out-of-work support for all labour market groups even more apparent. In 2021, 23 of 36 OECD countries with available information provided some access to unemployment benefits for self-employed workers, although support was often voluntary, or not as generous as for wage or salaried employees (see Figure 1.4).1
One argument against unemployment protection for the self-employed is that running a business does – and should – imply risk, because self-employed workers control the success of their businesses in ways that employees do not. Providing them with unemployment insurance can therefore be prone to significant moral hazard (see section 1.3 for a discussion of the complications arising when providing contributory benefits to self-employed workers).
However, not all self-employed activity is equally entrepreneurial. Independent contractors often operate without significant business capital and rely on one or very few clients. This can generate a relationship of dependence akin to an employment relationship, but without protections such as minimum wages, the right to collective bargaining, employer-provided benefits, or social protection. Moreover, moral hazard can also be a challenge for dependent employees. Careful policy design and complementary measures can mitigate moral hazard, e.g. making benefit receipt conditional on active job search and other activation measures, including training (OECD, 2019[6]). In practice, countries are using two key strategies to limit moral hazard (see Table 3.1):
Establishing that unemployment is genuine: With no employer to confirm layoff, it is difficult to establish whether a loss of income is caused by a (prior) lack of effort, or external circumstances leading to business failure. In 19 of 23 countries with some unemployment benefit provision for self-employed workers, termination of the self-employment activity was a condition for benefit receipt. In five countries, bankruptcy of the business is a precondition for access to unemployment benefits, precluding benefit receipt in the event of a slow-down. Sweden furthermore limits unemployment benefit receipt to one claim period every five years, to prevent recurring claims. The new unemployment benefit for independent contractors in Italy does not require complete cessation of activities, but benefits can be claimed only once every three years, and recipients must participate in professional training courses related to their industry (see Box 3.1)
Monitoring active job search and related employment efforts: efforts to re‑establish a business are more difficult to monitor than the search for wage or salaried employment. Therefore, almost all countries with available information require self-employed workers to seek and accept wage or salaried employment. Indeed, Denmark recently introduced a “job-search period” of six months, during which previously self-employed benefit recipients may not start or join a business.2 By contrast, in the Netherlands, municipalities assess the viability of the business and advise on any improvement or closure. There are currently no job-search requirements at all for previously self-employed workers in Greece.
One pragmatic way to circumvent moral hazard problems would be to insure self-employed workers only for income losses following larger economic shocks (in their sector, or in the economy as a whole), as opposed to idiosyncratic ones (Franzini and Raitano, 2020[7]). This would limit moral hazard (although seasonality needs careful consideration), and provide protection in future crises, along with links to activation, training and employment support services. Such a partial insurance also lowers contribution burdens relative to wage or salaried workers. This can be an advantage since self-employed workers typically cannot share contribution burdens with employers (section 1.3), although Korea has recently introduced contribution mandates for clients of some independent contractors, and for platforms placing “gig” workers. (OECD, 2023[8]).
3.2. Consider softening the “involuntary unemployment” requirement
Just under one in six US jobseekers is not entitled to UI because they are considered to have quit voluntarily. Among workers under the age of 30, one in five jobseekers is not covered for this reason (section 2.4.3). While other countries also restrict access in the case of voluntary quits, only 11 out of 33 OECD countries with available information disqualify jobseekers outright. Others reduce or delay payments.3
All US states have “good cause” exceptions to voluntary quits, although regulations vary, and many limit exceptions to those connected to the employer or workplace, e.g. sexual or other harassment or illness caused by or related to work. Common “good personal cause” exceptions that confer UI entitlement include domestic violence (42 states in 2021) and obligations to care for sick family members (32 states), as well as relocation to follow a spouse, or leaving a job for another offer of employment, but then having this offer fall through (US Department of Labor, 2021[9]). During the great recession, many states expanded their good-cause provisions, particularly to allow quits to care for ill family members, domestic violence, and relocation with a spouse (Cogdon and Vroman, 2022[10]). Using SIPP data from 1996 to 2013, (Callan and Linder, 2015[11]) estimate that introducing these good causes in all states would expand UI eligibility by about 3 percentage points and would particularly benefit women. They also note that jobseekers who quit their job because of one of these reasons were both comparatively well-attached to the labour market before leaving their job and have low re‑employment probabilities after four months of unemployment, making them good candidates for job-search assistance and other activation measures.
3.3. Harmonise benefit amounts and maximum durations across states, with a view to increasing them in the most restrictive states
Entitlement rules and benefit durations are decided at the state level. The generosity of UI payments varies widely, with southern states in particular offering comparatively modest benefits. The average worker in the “most generous” US states (such as Pennsylvania, Wyoming, or Minnesota) is entitled to benefits amounting to about 45% of the average wage, similar to the average across OECD countries. In some southern states, including Arizona and Louisiana, average‑wage workers becoming unemployed receive less than 30% of their previous earnings (section 2.3.4). Very low benefit payments cannot offer meaningful income smoothing for recipients, can limit their ability to devote the time necessary for finding suitable employment, and can put jobseekers and their families at risk of poverty. They may also not suffice to stabilise aggregate consumption during downturns – targeting transfers to UI recipients is particularly effective as they channel a higher share of additional funds back into the economy through spending (see (Ganong et al., 2022[12]) on evidence on the marginal propensity to consume from pandemic UI top-ups vs. stimulus checks).
Because African Americans are more likely than other ethnic groups to live in southern states with less generous UI systems, their income security and ability to make ends meet following job loss is particularly impacted by cross-state disparities in UI generosity. This is compounded by the fact that on average, African Americans own less in liquid assets than Latino or non-Latino white households: 55% of black households say that they do not have sufficient savings to cushion negative income shocks, compared to 38% of white households, a consequence of the well-documented wealth gap between African American and non-Latino white households (Ganong et al., 2020[13]). Thus, African American households have a lower capacity to smooth income shocks with private savings, implying a higher value of income insurance through UI benefits (Kolsrud et al., 2018[14]).
Higher benefit levels can also increase the take‑up of transfer programmes (section 2.4.1). In the United States, take‑up seems to be a significant driver of racial differences in UI receipt rates (Kuka and Stuart (2020[15]; 2021[16])). Hence, raising benefit entitlements in the South to levels comparable to the rest of the country would not only increase benefit payments for existing recipients, but could also strengthen coverage. More accessible benefits, in turn, would connect more jobseekers to employment services such as job-search assistance, training and other activation measures that are tied to benefit receipt, and which tend to be especially effective in facilitating re‑employment when labour demand is strong and unemployment low (OECD, 2023[17]).
Benefit durations also vary across states, and in the past, cuts in state‑level maximum receipt duration below 25 weeks have been associated with a fall in UI coverage (Wentworth, 2017[18]). In 2021, maximum durations for workers with “long” employment records were shorter than seven months across the United States, and shorter than six months in six states and the District of Columbia, although there is a federal Extended Benefits programme that prolongs maximum receipt durations in periods of high unemployment (US Department of Labor, 2021[9]). These durations are short relative to other parts of the OECD: across 33 countries operating contribution-based unemployment benefits, the maximum benefit duration for workers with “long” employment histories is 17 months on average (section 2.3.5) and only one country (Hungary) has shorter duration limits than the United States.
Longer maximum durations can enable jobseekers to spend more time looking for suitable employment, and thus increase the quality of the employer-employee match. But they can also decrease the incentive to search for a job, thus prolonging the duration of unemployment. Overly long unemployment durations can, in turn, lower the chances of finding a new job, as employers may interpret long jobless periods as a signal for low skills or motivation (Kroft, Lange and Notowidigdo, 2013[19]). See Box 3.2 on recent empirical evidence on the effects of UI durations.
Increasing the maximum receipt duration to 26 weeks in states that currently provide shorter durations is unlikely to significantly delay re‑employment, given that job-search does take time. Any negative employment effects of increasing the duration is likely to be balanced by the insurance value to jobseekers, especially given the modest value and/or limited reach of other income safety nets for low-income households (see section 1.2).
3.4. Consider introducing an unemployment assistance benefit to complement the insurance programme
A large share of US jobseekers either have been out of work for long periods, or they enter unemployment not after losing a job, but after leaving education, caring for a household member or recovering from illness (section 2.4.3). These jobseekers are difficult to reach for contribution-based unemployment insurance programmes that are primarily designed to provide consumption smoothing after sudden job separations.
Means-tested benefits, including SNAP, TANF and state‑level General Assistance programmes are currently not well equipped to support the incomes of these jobseekers: the nutritional support programme SNAP, the main income support programme for able‑bodied adults, is not sufficient to alleviate poverty risks among low-income job seekers, and the main family benefit TANF is time‑limited, and coverage is low (see section 1.2 and Box 1.1). As a result, fewer than half of low-income working-age adults who have been out-of-work for at least six months receive any income support benefits at all, compared to 80% and more in Belgium, France, or Hungary, and about 70% in Australia and the United Kingdom (see section 1.4). With the limited reach of UI and the lack of robust and accessible safety-net supports, almost half of all jobseekers in the United States live in relative poverty. This share reaches over 60% among African American jobseekers, who are more likely to be long-term jobless (section 2.4).
Several OECD countries including Germany, Finland, Ireland and the United Kingdom operate means-tested unemployment assistance programmes that are open to low-income jobseekers without a (recent) employment history (see Box 3.3 and Box 3.4 on the unemployment assistance programmes in the United Kingdom and in Germany).
An unemployment assistance programme for fit-for-work jobseekers could provide targeted income support while ensuring that job-ready recipients are available and actively looking for work. Both SNAP and TANF are subject to strict activation requirements, but they are last-resort benefits for a very diverse group of poor households, including those that are not job ready. If requirements are too demanding, and insufficiently adjusted to claimant circumstances, they may depress take‑up as vulnerable recipients find it difficult to comply. For instance, (Gray et al., 2023[20]) look at the effect of the re‑introduction of work requirements (80 hours of work, job training or approved community service per month) for able‑bodied SNAP recipients without dependents in Virginia. They show that, for those subject to work requirements, SNAP receipt declined by over half, but that there was no significant increase in paid employment. Homeless recipients were particularly likely to exit the programme. An income targeted programme for ready-to-work jobseekers could be well placed to tailor activation measures to the circumstances of jobseekers, while reducing burdens on other safety-net transfers.
For jobseekers who are job-ready, active labour market measures such as job-search monitoring and support as well as training can directly increase the chance of re‑employment. They are particularly effective in tight labour markets. For instance, (Chan et al., 2023[21]) show that introducing job-search requirements (a minimum number of job applications per week, typically ten a fortnight) for female partners of unemployment assistance recipients in Australia decreased their benefit receipt rate by about half. Most of the programme exits were into employment.
Monetary work incentives as measured by the Participation Tax Rate (PTR) – the share of earnings that are “taxed away” by the combined effects of benefit withdrawals, income taxes and social security contributions – are comparatively strong in the United States, particularly for jobseekers not entitled to unemployment benefits (see Figure 3.1, the companion paper to this report, (Pearsall, Pacifico and Magalini, forthcoming[22]) gives a comprehensive assessment of work incentives in the United States in a comparative, international perspective). Across the OECD on average, jobseekers living alone have about 45% of their earnings “taxed away” when taking up a low-paid job, and for jobseekers with children this rate reaches 60%. In the United States, PTRs are much lower, at 10 to 30% in California, Michigan and Texas. This is partly because benefit entitlements for low-income jobseekers are more modest than in other OECD countries, in particular for families with children (see section 1.2). In addition, federal and state income tax credits are effective at enhancing work incentives in the United States, notably for families with children. Given the robust in-work tax credits in the United States, there appears to be space for introducing an unemployment assistance benefit without muting work incentives for beneficiaries.
Table 3.1. Self-employed workers: Conditions for unemployment benefit entitlement
Excluding contribution requirements, November 2021
Note: If there are several legal forms of self-employment in a country, the graph refers to the most prevalent form of self-employment, excluding farming and liberal professions. For Italy, the table refers to craftspeople, shopkeepers/traders and farmers, and not to para-subordinate workers, who are covered by a separate scheme, for Portugal, it refers to dependent self-employed workers, for Belgium, it refers to the droit passerelle, a separate non-contribution-based programme for self-employed workers, for Germany, it refers to the unemployment insurance benefit Arbeitslosengeld I, not to the needs-based unemployment assistance benefit Arbeitslosengeld II that self-employed workers may also claim. In the Czech Republic, self-employed workers are statutorily insured at half of their taxable income but may choose a higher contribution base.
(.) No information provided by the country.
Source: OECD Questionnaire on Policy Responses to the COVID‑19 Crisis supplemented with information from the OECD Tax-Benefit Policies Database (http://oe.cd/TaxBEN), MISSOC (2023[23]), Spasova et al. (2017[24]) and (Baptista et al., 2021[25]) for European countries, Government of Canada (2022[26]) on Canada.
Box 3.1. Italy’s new UI benefit for freelancers
Expanding Social Protection to independent contractors decreased their number in Italy
Italy has a high share of self-employed workers – 22% of all workers in 2021, compared to 13% in France, 9% in Germany or under 7% in the United States (OECD, 2023[3]). At 75%, the share of solo self-employed workers (without employees) is also higher than in other countries (e.g. 63% in France or 56% in Germany), indicating a large vulnerable segment of the labour market (Franzini and Raitano, 2020[7]). An institutional anomaly of the Italian Social Protection system is that it distinguishes different forms of self-employed workers without employees: licenced professionals (such as lawyers or architects) are covered by schemes run by their professional associations, whereas craftspeople, shopkeepers and farmers do not have access to unemployment benefits. “Para-subordinate” workers, who are legally self-employed but economically dependent on one or very few clients, are enrolled in a separate social insurance fund. There are two types of para-subordinate workers – “collaborators” (low-wage workers hired under short-term arrangements, but also company accountants or postdoctoral researchers) and unlicensed professionals or freelancers (e.g. graphic designers or archaeologists).
Para-subordinate workers used to pay lower pension contributions than wage or salaried workers and were not covered for unemployment or cash sickness benefits, resulting in significantly lower non-wage labour costs and a rising share of para-subordinate workers. In response, Italy gradually increased their social security contribution rates (and thus benefit entitlements), leading to a falling number of para-subordinate workers. In 2015, an unemployment scheme for para-subordinate collaborators was introduced (named DIS-COLL), which provides the same payments as the unemployment benefit for wage and salaried workers, but has a lower maximum duration. Para-subordinate professionals (freelancers) however were exempt from this scheme (OECD, 2018[27]).
The COVID‑19 crisis was an impetus for extending UI to freelancers
In the wake of the COVID‑19 crisis, Italy introduced a new unemployment benefit for para-subordinate professionals on an experimental basis from 2021 to 2023. Freelancers whose income drops by more than 50% compared to their average income over the last three years, and whose annual income is below EUR 8 145, are entitled to 25% of their average income over the last three years, with monthly payments between EUR 250 and EUR 800 for up to six months. This benefit can only be claimed once every three years, and is financed by social security contributions. About 290 000 freelancers are covered by this benefit (Jessoula et al., 2021[28]). Recipients have to participate in training courses offered by the PES related to their professional field. Professional associations contribute to the design and choice of the courses.
Replacing part of a significant income loss (25% of average past income for at least a 50% loss), the programme is well-tailored to the income risks faced by freelance workers, whose livelihoods may be threatened by the loss of one major client. Moral hazard is limited by (i) only allowing claims every three years and (ii) activation measures through participation in training courses. Calculating average income over three years attenuates the problem of fluctuating earnings, and conditioning on past income might be an incentive to declare income (although the contributions levied would add to the incentive to under-declare).
1. ISCRO – Indennità straordinaria di continuità reddituale e operative.
Source: (Franzini and Raitano, 2020[7]), Quando svanisce il reddito da lavoro. Ipotesi di riforma degli ammortizzatori sociali, (Jessoula et al., 2021[28]), “Social protection and inclusion policy responses to the COVID‑19 crisis – Italy”, (OECD, 2018[27]), The Future of Social Protection: What Works for Non-standard Workers?, https://doi.org/10.1787/9789264306943-en, https://inps.it (accessed 10 February 2023).
Box 3.2. Maximum Unemployment benefit receipt durations
Recent empirical evidence on their effect on re‑employment and match quality
Estimates on the impact of unemployment benefit levels and (maximum) receipt durations on re‑employment are highly dependent on the country and the time period as well as on the type of jobseeker. The average elasticity of unemployment duration to benefit generosity in the international literature is about 0.3, but the range of estimates is wide, from 0.02 to 1.3 weeks for each additional week of potential duration (see (Lopes, 2021[29])). For the United States, (Johnston and Mas, 2018[30]), exploiting cuts to benefit durations in some US states following the great recession, find that a one‑month reduction in the maximum receipt duration reduced UI receipt by 1.8 weeks on average, although it did not affect the re‑employment probabilities of the long-term unemployed. In contrast, (Boone et al., 2021[31]), find no significant effects of extensions to benefit durations during the Great Recession. In weak labour markets, increased job-search may not result in overall higher employment because jobseekers crowd each other out (“job rationing”).
Evidence on the effect of maximum receipt durations on job quality is similarly mixed. While some work has found more generous benefit provision can allow individuals to find better jobs, increasing the quality of the employer-employee match (Nekoei and Weber, 2017[32]), several studies find little or no impact of generosity on job quality (see Card, Chetty and Weber (2007[33]), Cahuc, Carcillo and Zyleberberg (2014[34]), and Le Barbanchon (2016[35])). Where the duration of unemployment insurance prolongs joblessness, any gains in the quality of the job match may well be undermined by the harmful effects of time spent without work (OECD, 2023[17]).
Figure 3.1. There is space for improving income security without muting work incentives
Participation Tax Rates for jobseekers not entitled to unemployment benefits and taking up a low-paid job, by household type, 2020
Note: The Participation Tax Rate measures the proportion of earnings that are lost to higher taxes and lower benefits when a jobseeker takes up work. It is defined as (one minus) the difference between the net incomes in and out of work expressed as a percentage of the earnings in the new job. A higher PTR means that the financial gain from work is lower, which in turn may reduce the incentive to actively seek and take up employment. See (Pearsall, Pacifico and Magalini, forthcoming[22]) for details on this indicator, and a comprehensive assessment of work incentives in selected US states in the international context. Results for a jobseeker taking up work at the 20th percentile of the national full-time earnings distribution (equal to USD 26 077 per year in the United States). Children are aged 4 and 6.
Source: (Pearsall, Pacifico and Magalini, forthcoming[22]), “Unemployment benefit reforms to support employment and inclusiveness in the United States”, using OECD tax-benefit model version 2.5.1.
Box 3.3. Universal Credit in the United Kingdom
Single Benefit for working-age jobseekers and low-income workers
In 2013, the United Kingdom started a comprehensive reform of its working-age benefits system, combining six out-of-work and poverty prevention benefits – a means-tested job-seeker benefit, the housing benefit, a social assistance benefit, a benefit for working, low-income parents, and a means-tested disability benefit – into one single working-age benefit, the Universal Credit (UC). Roll-out was gradual, starting in 2013 in some regions and for some claimant groups. This regional roll-out facilitated empirical evaluations of the scheme. All new claimants are directed to Universal Credit since 2019, and rollout is expected to be completed in 2024.
The main motivation for the reform was to make work pay. When moving into work/increasing working hours/progressing in pay, the benefit is withdrawn against income at a single taper rate of 55%. This avoids different withdrawal rates at different thresholds for the various “legacy” benefits, making the incentive to work transparent to claimants, and also means that they do not have to deregister when taking up work. Low-wage workers can receive Universal Credit even if they work full-time, in practice if there are dependent children in the household, or they live in rented accommodation (home‑owners do not receive help with housing costs). Working parents with young children can receive up to 85% of their childcare costs. UC is subject to an asset test (claimants may have up to GBP 16 000 in savings, but assets over GBP 6 000 negatively affect their payments).
About four Million British households receive the benefit each year.1 Evaluations from the Department of Work and Pensions, exploiting the regional roll-out of UC, suggest that UC increased the employment rate of claimants within six months of making a claim by around four percentage points (from 59% for legacy benefits to 63% for UC).
Focussing on work from the outset: the claimant commitment
A “claimant commitment” is at the start of each universal credit claim. It is tailored to the personal and work situation of each individual claimant:
A claimant without children under the age of 13 and no health problems is expected to work at least 35 hours a week at the national living wage (in 2023 the same as the national minimum wage). If they do, they are placed in the “no work-related requirements” group and are not expected to participate in any activation measures. They may still be sanctioned if they quit their job without a sufficient reason.
Those earning more than the “administrative earnings threshold” – equivalent to about nine hours of work at the minimum wage in 2023 – are placed in the “light-touch” group. They are required to attend interviews with their work-coach and to participate in activities to prepare for additional work.
Claimants earning below this threshold are placed in the “intensive work search” group. This group have weekly or fortnightly interviews with their work-coach, have to actively search for work, and participate in activities to build their skills/their readiness for work, for 35 hours a week.
Those caring for children under the age of one2 are not expected to work or prepare for work. Carers of children aged two, as well as those who currently have a limited capacity for work, must prepare for work through regular appointments with their work-coach, preparing a CV, etc. Carers for children between the age of three and 12 are expected to work (or search for/prepare for work) part-time.
Non-compliance with these obligations (e.g. not attending interviews, failing to search for work etc.) can lead to sanctions (temporary benefit withdrawals).
In- and out-of-work benefit for own-account workers
Self-employed workers who are otherwise eligible can receive UC if their work-coach assesses their self-employment activity as gainful (the claimants spends an adequate number of hours working in the business, and the business is profitable). For self-employed claimants, a minimum income floor applies when calculating their benefit entitlement: their self-employment income is assumed to be at least as high as if they were earning at the minimum wage. This prevents the benefit from propping-up unviable businesses and is designed to be an incentive for low-income self-employed workers to take up wage or salaried employment.3 The minimum income floor was one of the design features that caused losses when moving from the legacy benefit system to UC, particularly for the poorest self-employed claimants. However, longitudinal analysis by the Institute for Fiscal Studies shows that within eight years, many low-earning self-employed workers increase their earnings from self-employment or become dependent employees.
1. There is an unemployment insurance benefit, Jobseeker’s Allowance, that is not means-tested. At around GBP 330 per month it is very low however, and can be topped-up by UC for jobseekers whose households fulfil the UC income and asset test.
2. As well as foster carers or adopters in the first year.
3. Claimants may benefit from a 12‑month start-up period upon becoming self-employed in which this minimum income floor does not apply.
Source: (OECD, forthcoming[36]), Mapping the challenges facing unemployment support in Greece; www.gov.uk [last accessed 15 January 2023]; (Department for Work and Pensions, 2017[37]), Universal Credit employment impact analysis: update; (Woods et al., 2019[38]), Universal credit and its impact on household incomes: the long and the short of it, https://doi.org/10.1920/bn.ifs.2019.bn0248.
Box 3.4. Unemployment Benefit II in Germany
Activating social assistance recipients
In 2005, Germany completed a set of major reforms to the working-age benefit system (the so-called “Hartz” reforms). At the centre of the reform efforts was the merging of unemployment and social assistance benefits into one single benefit, “basic income support for the fit-to-work” or Unemployment Benefit II (UB II). Previously, social assistance catered to those with insufficient employment records to qualify for unemployment benefits, while unemployment assistance was a benefit for the long-term unemployed who had exhausted their UI entitlement.1 The reform brought social assistance recipients into the purview of the PES and made them subject to activation requirements. In 2023, the benefit was rebranded “citizens’ payment” and underwent considerable reforms, including the relaxation of the income‑ and asset tests as well as activation requirements and sanctions. It. The following information pertains to the old unemployment benefit II.
The benefit’s maxim “support and demand” means that jobseekers are expected to intensely search for work, but with the help of the PES toolbox – expenditure for active labour market policies more than doubled in the three years after the reform. Because jobseekers with a recent labour market history and lower unemployment durations are entitled to UI, recipients of UB II are often long-term unemployed facing significant barriers to employment.
All recipients sign an “integration agreement” that sets out a plan to integrate the recipient into the labour market. The integration agreement is a legal document and provides the basis for sanctions (suspensions of benefits) in case of non-compliance. PES caseworkers have substantial leeway in designing this plan, which may include the number of job applications submitted each week, accepting any job-offers or participating in ALMP measures. The first priority was to bring jobseekers into work (instead of education or training measures) – one of the areas changed by the 2023 reform because of the perception that it lead to low quality and unstable jobs. In 2013, about one in six recipients of UB II started a job, but only about half of these jobs were paid well enough to discontinue the benefit claims, leading to concerns about “measure careers” – recipients circling in and out of low-quality jobs, disrupted by periods of benefit receipt (Bruckmeier, 2018[39]).
1. The unemployment insurance benefit, Unemployment Benefit I, is significantly more generous and not means-tested. Receipt durations are one year for jobseekers under the age of 50, and two years for older jobseekers.
Source: (Dengler and Hohmeyer, 2010[40]), Massnahmensequenzen im SGB II [Sequences of programme participation for recipients of Unemployment Benefit II], https://iab.de/publikationen/publikation/?id=254713
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Notes
← 1. Countries without accessible out-of-work support sometimes had to develop new programmes quickly without being able to carefully consider their design and implementation, leading to both gaps in emergency protection and overpayments (OECD, 2022[41]). Unlike insurance‑based unemployment benefits, emergency support measures are not balanced by contributions, perpetuating the existing differences in labour costs between employment forms (OECD, 2019[6]).
← 2. There is an exception for cases of bankruptcy.