Firms Can Beat the Government and Lower the Unemployment Rate

Sometimes the most obvious solutions are right in front of us. Cutting firms’ costs and decreasing the unemployment rate in the economy are two crucial goals of a well-functioning society. This can be easily done through the removal of the government’s role in its involvement in the distribution of unemployment benefits. Firms pay unemployment fees to the government, for the government to pay the unemployed their benefits. Take out the middle part, and you are simply left with firms paying the unemployed their benefits. Sounds more effective, right? If the government is removed from the equation, firms can create and utilize more effective, work-incentivizing payment plans for the unemployed and cut costs while doing so.

What I propose is one solution consisting of severance type contracts that can allow firms to directly handle unemployment benefits, although there may be additional practical solutions. However the solution is created, the first step is to extract the governmental role in this situation. Simply, the firms should take control of providing the unemployed with their benefits rather than the government acting as an unnecessary middleman.

If firms pay the unemployed directly, they can “beat” the government by saving money, and in effect possibly lower the unemployment rate. However, the government should be available to oversee the system and distribute benefits for certain circumstances that will not benefit the firm.

If the firms take the task of distributing unemployment benefits into their own control, they would be able to set up a severance type contract with the employee on how to handle unemployment benefits when the time comes. Suppose instead of an unemployed person receiving $10,000 spread out equally over 26 weeks, they were rather offered $7,500 in the form of a lump-sum payment when they become unemployed. With this payment, the firm can also negotiate the contract so that the unemployed cannot seek to receive unemployment from the government as well.

The lump sum payment incentivizes the unemployed to find work quickly because they can keep their unemployment benefit no matter how quickly they find work. Their increased motivation to find a new job quickly has the possibility to actually decrease the unemployment rate. This can be achieved by transforming those who sit on unemployment checks for 26 weeks to those who sit on a lump sum of cash plus a new job immediately. The $7500 paid out by the firm and the incentive to find work quickly is much more effective than the $10,000 paid out by the firm and incentive to not find work quickly.

But wouldn’t it be pointless for firms to pay someone a large amount of money as an unemployment benefit if they actually end up getting a job immediately? Not quite. With advanced modeling and data, firms and economists are now able to predict who would try to collect unemployment benefits and for how long they would do so based on social status, family status, age, and many other factors.

Firms can benefit just as much due to the costs that are reduced by taking control into their own hands. By doing so, the firms offer different, less expensive, and more incentivizing unemployment payments that are better for the jobless and allows the firm to spend less money on these benefits. Decreasing unemployment costs, say by 25%, allow the firm to increase productivity and can even transfer the “saved” costs into other benefits for workers.

However the situation is handled, the primary task should be for firms to take the distribution of unemployment benefits into their own authority. The government is hurting the process since they continue to fail to allow change in this policy, and once this is realized, there will be costs that are cut and unemployment rates that are reduced.