Thursday, 12 August 2010

A Swiss Welfare lesson

Support for those between jobs

It is right that we, through our taxes, support each other at times of personal crisis. This is one of the defining justifications for a collective authority to tax individuals. During our working lives, any one of us could find ourselves between jobs, temporarily bereft of income, at times when we still have a home and family to support. Relying on individuals to insure themselves against this eventuality simply won't give universal and fair cover, or the degree of social equity about which we as a society are in consensus.

A universal, compulsory State insurance scheme paid for by contributions from those in work needs rules and limits. Entitlement should be conditional on the recipient having worked and paid into the fund for a minimum period - so it wouldn't cover school leavers, for instance. The level of benefits should also be related to earnings prior to claim. Most importantly, it should be a short-term benefit, strictly limited to three or six months, as a genuine 'between jobs' cushion.

Such a scheme involves no element of judgement, no means testing, no local knowledge, no geographic weighting and can pay for itself. It can be easily integrated with the tax system, whether at local, regional or national level.

One of Labour's most grievous errors was to lump those temporarily between jobs, people with a lifetime history of work, in with a feckless feral underclass and to manipulate the benefits system to boost the income of the latter cohort at the expense of the former. It simply isn't fair.

Welfare benefits

These are a long-term cost for which the monetary flow is strictly one-way - we always pay out, but the recipients don't pay in. It's vital that we separate welfare benefits from unemployment insurance.

The level and scope of welfare benefits must therefore be dependent on actual cost of living (regional and local weighting), means testing and an element of judgement as to the 'deservingness' of the individual claimant; it must be closely linked to elements of coercion to discourage indolence, idleness and dependence and encourage those of working age and fit for work of some kind to take it. It must never again be a lifestyle choice as it has become under Labour. It must never be an 'entitlement' as unemployment insurance should be, but always a 'grant'. For all these reasons, the best level at which to award and monitor welfare benefits is at the lowest possible local level.

The Swiss system

I am grateful to Edward Spalton for the following comment to a previous post, well worth quoting;
Switzerland operates a system of national insurance which gives quite generous unemployment benefit under strict conditions for a limited period. When that runs out, people are "on the parish" (local commune) and know that the money comes out of their neighbours' pockets. Also the local officials are better able to distinguish between deserving and undeserving cases. Switzerland's unemployment and "economically inactive" rate is vastly better than Britain's.
James Bartholomew in the Speccie also recently commented on the Swiss system;
While Tony Blair was claiming that half of young people must go on to university for economic success, Switzerland was and remains content to have a mere 24 per cent doing so. It has, at the same time, achieved much greater economic prosperity. Education is only compulsory until the age of 15, yet the vast majority keep going voluntarily because the schools, colleges and universities are good.Most of the other three quarters of students progress from school to vocational training. They don’t do airy-fairy theory. The training typically consists of one and a half days a week at college and the other three and a half at a commercial company. This truly prepares people with the skills and attitudes desirable for a successful career. The result? Switzerland has only 4.5 per cent youth unemployment compared to 18 per cent in France where they have the supposedly economy-boosting 50 per cent of students at university. It seems that writing essays on Racine does not make you a shoo-in at a pharmaceutical company. Funny that.
It seems that the Swiss have more than one lesson that we could learn from.


BrianSJ said...

The Swiss have a long tradition of exporting their unemployment to Italy. Lots of people cross the border daily/weekly to work (or not). This means that the unemployment for the Swiss is much more manageable (and much less manageable for the Italians of course).

SimonF said...

The Cato Institute has been looking at the effect of increasing the period of unemployment insurance payments and found that, unsurprisingly, when the period was increased people stayed unemployed longer.

"But perhaps most important, extending unemployment benefits may be bad for workers in the here and now.

A large body of economic evidence suggests that extending unemployment benefits increases unemployment and keeps people out of work longer.

This is because workers are less likely to look for work, or accept less-than-ideal jobs, as long as they are protected from the full consequences of being unemployed.

That is not to say that anyone is getting rich off unemployment, or that unemployed people are lazy. But it is simple human nature that people are a little less motivated as long as a check is coming in.

Who says so? Well, among others, no less than Nobel Prize-winning economist and liberal icon Paul Krugman. He wrote in Microeconomics:

"Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. ... In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of 'Eurosclerosis,' the persistent high unemployment that affects a number of European countries."

English Pensioner said...

And we should introduce the rule from the days of parish relief "No family in this parish shall get more money when on relief than that earned by the lowest paid working man in the parish". And if a poor family claimed it wasn't enough to live on, they could appeal to the magistrates who would question them closely as to where it had gone.
These days you would need to take tax, travel costs, etc into account, but the same basic rules should still apply.

BashTheMsm said...

BrianSJ, where did you get that "info"? i am italian and live in switzerland. there are many "frontaliers" who work in switzerland and live in italy, france or germany (where cost of life can be substantially lower) but as for swiss unemployed going to italy? what for? there is no welfare or unemployment benefits to speak of in italy, and as a swiss national (non EU citizen) you dont quailfy for anything.
besides, look at the map. most of Switzerland is north of the Alps, and crossing them mountains is long and expensive. only 8% of swiss population lives south of the alps.
the unemployment and welfare insurance system in CH is quite strict, to qualify for unemployment insurance you need to have worked at least 6 months, and every week you must go to the unemployment agency and discuss your job searching activity. after 2 years without job you go on welfare and you basically cannot choose what job to take any more. a refused job offer means no welfare payments.
unemployment is very low in CH for a sum of reasons (not much union activity, clear and simple laws, no crazy socialist worker protection, low taxes, efficient bureaucracy etc) and not because of some magical migration of unemployment to other countries. The swiss consider a 3% unemployment rate very worrying. a quite different approach from the socialist EU neighbours, where unemployment is not a problem but a resource for most of the political class.

BashTheMsm said...

all occidental countries should take a close look at how the swiss run the business here. is not perfect, but welfare, healthcare, pensions and such are top notch and work fine at acceptable costs. most of it is private including pensions, healthcare and most government services, taxes are low, VAT is low. they adopt pragmatic solutions. one ecample: the garbage. you must use special bags that you can buy in the supermarket, cost varies with size. for 35lt bag is around 1 euro. so is simple and straighforward: the more garbage you produce the more you pay. bags which are not the right ones are not collected and then someone will investigate the content to locate the "owner", which will receive a big fine. simple, effective, and fair.

H said...

Absolutely. Insurance based benefits - what used to be unemployment benefit, now bastardised as "job seekers allowance" - should be generous, income related, non-means tested and time limited. It is effectively a return of contributions previously made and cushions the temporarily out of work from economic changes.

Benefits to the permanently indigent, on the other hand, should be minimal and painful to claim.

The great problem is how to protect the interests of the children of the latter group. Any thoughts?

BashTheMsm said...

children dont fall on you while walking in the street. and considering that childred are being used to justify every sort of government interference,intervention and socialist laws, and by families as lever to obtain more welfare/money/benefits, i dont feel inclined to accept this as argument towards welfare policies.
i lived in ROI and seen people making kids just to get welfare money.
a welfare providing the bare minimum will be enough.
to be honest, i cant see why jack should support john kids.

talwin said...

In the ROI people making kids for the welfare money? May well be true but I don't imagine ROI has a monopoly on that caper.

Surely in dear old Blighty, too: and a roof over your head as well.

Edward Spalton said...

Back in the Sixties, when I was young and foolish, I persuaded my father and uncles (who were kindly men) to introduce a scheme of additional sickness insurance for people who worked for our business.

The result was a considerable increase in sickness and the length of recovery. It did not much affect the employees of long standing but the "floating" population of short-term employees appeared to become considerably less healthy.

One learns from experience.