Why Unemployment Benefits Exist

Having a job is the quickest route to self-sufficiency. Unemployment insurance is designed to bridge the gap in income created when you lose your job and help you remain financially independent. You are free to spend the money as you choose and only have to meet a few requirements to be eligible, none of which are based on financial need. That means, unlike most government assistance, receiving unemployment benefits is not based on your total household income or how much money you have in the bank.

Unemployment Insurance Definition

The “insurance” in unemployment insurance is key in explaining its importance. Benefits are paid through taxes collected from employers, not employees (as some believe). Just as your insurance payments are part of the same pot that funds you when you crash your vehicle, everyone pays into the pot that funds unemployment benefits.

In theory, the system provides a means of tiding people over while they secure their next source of income. In the interim, unemployment benefits keep mortgages paid and food on the table—preventing you from losing everything. The benefits are intended to allow you to spend ample time regaining the financial position you had before you lost their job. This, in turn, is good for the economy.

Unemployment benefits can also have a positive impact on keeping workers from becoming underemployed. For example, with unemployment benefits, an engineer may be able to look for new work in his or her skilled field full time. This prevents prolonging being reemployed in his/her field because he/she needs to take a lower-paying and/or lower-skilled job in the meantime to make ends meet.

In a way, unemployment benefits are a pre-emptive measure. Though the help is reactive, these benefits are designed to prevent other, bigger problems from forming. Oftentimes, unemployment benefits allow an individual or family to stay off of other government programs and services and get back on their feet more quickly.

Further, unemployment benefits offer stability. Removing income has a ripple effect on the well-being of individuals, families and the economy. Many of the problems caused by losing an income can lead to more issues in getting another job, creating a cycle of problems and often reliance on other social services without offering a solution. Unemployment benefits help close the gap between one job and the next without leaving room for the many problems associated with a lack of income.

Learn more about how Unemployment Insurance came to be here.