How Should We Support the Unemployed?

I think it is quite clear that the concept of a living wage extends to periods of unemployment, something the Church refers to as a “real social disaster”. Indeed, one of the basic rights of workers is to “subsidies for unemployed workers and their families.” How do we implement these policies? I will discuss three different options.

First, passive unemployment benefits. Here, the worker receives from the state (either from general tax revenues or dedicated social insurance contributions) unemployment benefits that should last the duration of the unemployment spell. To guarantee a living wage, these benefits should be relatively large and not expire after any fixed period. There is a downside, however, as this approach tends to isolate the worker from the dignity of work, leading to the problems of a social assistance state noted by Pope John Paul in Centesimus Annus.

Second, employment protection legislation. In many European countries (Italy is a prime example), unemployment benefits are low, but legislation makes it extremely difficult to fire workers. Perhaps surprisingly, it is rather difficult to show any major damaging labor market effects from this approach. For sure, it creates a dual labor market of protected insiders and vulnerable outsiders, but prime-age men (the key wage earners) usually do pretty well. It hurts younger workers, immigrants, and women. It encourages part-time work (which is not necessarily a bad thing from a family perspective). Still, I think solidarity considerations would argue against such an insider-outsider approach, especially given the social problems among some minority communities. The inherent inflexibility also works against the need to adapt to new developments, making it less appropriate during dynamic periods (such as associated with globalization).

Third, active labor market policies. This is how Scandinavian countries, such as Denmark, approach the issue. High unemployment benefits are guaranteed (sometimes as much as the last earned wage) but the money does not come without strings: instead, the unemployed worker needs to enroll in education or training. As well as supporting the unemployed, such an approach allows for the flexibility to adapt to a changing, more globalized world. In fact, Danish workers move around all the time, with very little job protection, as the underlying philosophy is one geared toward protecting workers, not jobs. The downside is that it does not come cheap, but Scandinavians are more than happy to pay for social solidarity with taxes.

I favor the third approach. One option that I do not think is valid is minimizing unemployment benefits based on some hopeful belief that unregulated labor markets will automatically clear, leaving no involuntary unemployment, or will do so after an arbitrary predetermined period of time. Nor is it an option to use the problems with a social assistance state to justify doing nothing.