The Distributional Effects of Unemployment Insurance.

Unemployment insurance (UI) could affect the distribution of income by providing direct payments to the unemployed and by lessening the severity of recessions. At best, it appears that UI has only a modest potential for increasing the equality of income. The small equalizing effect of benefit payments to the unemployed is offset by lower wages for workers who are most likely to receive UI, and the counter-cyclical potential of UI is offset by adjustments in savings patterns. Although at first glance it would seem that UI tends to equalize incomes in the short run, long run adjustments in wages and savings patterns offset its apparent effects on income and expenditures. This does not mean, however, that we can decrease UI without fear of adverse effects on the distribution of income or the level of national income. Many workers, who now expect to receive UI benefits when they are unemployed have dercreased their savings accordingly. Since UI was set up to be an enduring program, not subject to legislative whims, it is by nature a program that will produce the changes in expectations that mitigate the potential of UI to equalize income. The main purpose of UI is not, however, to equalize the distribution of income, but to provide payments, as a matter of right, not as a matter of need, to covered workers who are unemployed through no fault of their own. To the extent that UI accomplishes this main objective, it may be a desirable program even if it has no effect on the distribution of income.