Heated Discussion Over Possibly Raising Unemployment Insurance Benefits

As Parliament convenes again briefly in the hopes of passing time-sensitive legislation, amongst the subjects of most heated discussion is the possibility of raising minimum unemployment insurance payments.

Unemployment in Iceland is currently at 7.9% for July, and is predicted to raise to 8.7% next month. As such, there are many people in Iceland who depend on unemployment insurance payments to live. While it is predicted that Parliament will easily pass legislation which extends income-calculated unemployment insurance from three months to six and that the so-called “percentage way”—wherein partial unemployment insurance is paid to people whose work percentages have been reduced during the coronavirus pandemic—will be extended another two months, raising the amount of money paid out to people on unemployment remains controversial.

Both Minister of Finance Bjarni Benediktsson and Central Bank chair Ásgeir Jónsson are of the position that raising unemployment insurance payments reduces the incentive to find work. In both cases, they refer to a “general rule” that contends that the more money people who are out of work are paid, the less incentive they have to look for a job.

Whether this contention holds up to scrutiny is less clear. By the Directorate of Labour’s own guidelines, anyone receiving unemployment payments must demonstrate that they are actively looking for work while payments are being received. Research on the subject in the broader world also paints a different picture than that being put forward by the Finance Minister and the Central Bank chair.

Dana Scott, a doctoral candidate in economics at Yale University, released a study earlier this year which shows that increasing unemployment benefits does not increase unemployment. In fact, the supposed disincentivising effect of increased benefits is either negligible or non-existent, according to another study released in 2012.

Within the context of the pandemic, after the US Congress passed the CARES Act, which also increased benefits to those out of work during the pandemic, studies actually found that job applications increased dramatically.

Nonetheless, business interests in Iceland have fought hard against raising unemployment insurance payments, labour unions have supported raising these payments, and the matter remains a hotly contentious issue within Parliament.

As ever, those looking for more information or advice should go to the Icelandic Government’s excellent COVID-19 help page.

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