“The welfare state is not a mechanism which provides something for nothing; every piece of social insurance must be paid for.” Evaluate and explain. Can you think of any circumstances in which unemployment compensation might provide “something

Question

for nothing?”

What will be an ideal response?

Answer 1

In a full-employment or near full-employment economy, social insurance programs transfer spending power from one group to another, and in that sense are “paid for” by someone. However, in recession with large-scale unemployment, unemployment compensation could be said to provide “something for nothing” in the sense that the insurance funds have accumulated from past contributions, the insured unemployed are eligible to collect benefits which have already been “paid for,” and as a result have a source of income which they will spend on something. This ability to spend and add to aggregate demand is subject to the multiplier effect which should further increase aggregate spending, thus helping to stem the recessionary decline in output and employment. In this sense, unemployment compensation can be said to be providing “something for nothing.”