The Unemployment Program of the Government of Guava Land has several offices thr

Question

The Unemployment Program of the Government of Guava Land has several offices throughout the country, ten (10) to be specific. At these offices, all the administrative matters of the Program are administered, inclusive of payments to suppliers, payroll and Information technology services. There are several assets and confidential data on each compound such as, computer equipment, filing cabinets, personal data and several pieces of furniture.

Within recent times, there were numerous burglaries at a number of locations, which resulted in the loss of million dollars’ worth in assets. The Police are currently investigating this matter with a view to catch the culprits.

The Minister, who is responsible for the Program, has mandated the Program to procure security services for one year at each location. After a highly competitive procurement process, Big Trouble Security Services secured the contract to provide security services at all the locations.

The Unemployment Program and Big Trouble Security Services met on several occasions to finalise the written contractual obligations. Finally, on March 31st 2018, they agreed on all the terms of the contract and both parties duly signed. One of the agreed terms is that "Big Trouble Security Services, under no circumstances, will be held liable for any unforeseen acts committed by its officers during the provision of services to the Unemployment Program”

Raymond Tin foot, a security officer from Big Trouble Security Services, was assigned to the Harlem District Office for the last six months for the 6 pm to 6 am shift. Raymond, who is also a resident of the Harlem District, invited several of his friends during his watch to lime and have a cook-out as a means of passing the time. This involves the lighting of a fire as well as, occasional drinking of alcohol on the premises.

Big Trouble Security Services - Manager and Owner - Mr. Lazy, on one of his occasional rare visits to the Harlem District Office, saw what Raymond and his friends was pursuing at this office. He quietly told Raymond "to please keep everything under control so that no one will know”. Mr. Lazy, as per contractual obligations, must visit each site every night to ensure that the guards are performing their functions efficiently and effectively. However, this has never been done, because Mr. Lazy treasures his sleep very much. Additionally, Mr. Lazy did not want to take any affirmative action, because he feared that Raymond might leave the job. Indeed, Big Trouble Security Services is having problems recruiting security guards in this district and as such, if Raymond left the job, there will be no available guards for this location.

Raymond, one night, while cooking and consuming alcohol with his friends, forgot to extinguish the fire. They all fell asleep and subsequently, the Harlem Compound of the Unemployment Program was destroyed by fire.

The Unemployment Program intends to sue Big Trouble Security Services for breach of contract due to the negligence of their employee Mr. Raymond Tin foot. However, Big Trouble Security Services is seeking to rely on the following agreed term of contract, which excludes them from liability, that is - "Big Trouble Security Services, under no circumstances, will be held liable for any unforeseen acts committed by its officers during the provision of services to the Unemployment Program”

Advise the Unemployment Program on this matter and whether or not Big Trouble Security Services can rely on the above-mentioned exclusion clause, with respect to their employee's negligence, in the destruction by fire of the Harlem Office.

Word Limit 3000.

Explanation / Answer

Unemployment benefits (depending on the jurisdiction also called unemployment insurance or unemployment compensation) are payments made by the state or other authorized bodies to unemployed people. In the United States, benefits are funded by a compulsory governmental insurance system, not taxes on individual citizens. Depending on the jurisdiction and the status of the person, those sums may be small, covering only basic needs, or may compensate the lost time proportionally to the previous earned salary.

Unemployment benefits are generally given only to those registering as unemployed, and often on conditions ensuring that they seek work and do not currently have a job, and are validated as being laid off and not fired for cause in most states.

In some countries, a significant proportion of unemployment benefits are distributed by trade/labour unions, an arrangement known as the Ghent system.

In the United States, there are 50 state unemployment insurance programs plus one each in the District of Columbia, Puerto Rico and United States Virgin Islands. Though policies vary by state, unemployment benefits generally pay eligible workers as high as $783.00 per week in the Massachusetts to a low as $235 per week maximum in Mississippi.[49] Benefits are generally paid by state governments, funded in large part by state and federal payroll taxes levied against employers, to workers who have become unemployed through no fault of their own. Eligibility requirements for unemployment insurance vary by state, but generally speaking, employees not fired for misconduct ("terminated for cause") are eligible for unemployment benefits, while those fired for misconduct (this sometimes can include misconduct committed outside the workplace, such as a problematic social media post or committing a crime) are not.[50]

In every state, employees who quit their job without "good cause" are not eligible for unemployment benefits, but the definition of good cause varies by state. In some states, being fired for misconduct permanently bars the employee from receiving unemployment benefits, while in others it only disqualifies the employee for a short period. This compensation is classified as a type of social welfare benefit. According to the Internal Revenue Code, these types of benefits are to be included in a taxpayer's gross income.[51]

The standard time-length of unemployment compensation is six months, although extensions are possible during economic downturns. During the Great Recession, unemployment benefits were extended to 73 weeks.[52]

The Supreme Court held that federal unemployment law is constitutional and does not violate the Tenth Amendment in Steward Machine Company v. Davis, 301 U.S. 548 (1937).

Federal-state joint programs[edit]

Unemployment insurance is a federal-state program financed through federal and state payroll taxes (federal and state UI taxes).[53] In most states employers pay state and federal unemployment taxes if:

(1) they pay wages to employees totaling $1,500 or more in any quarter of a calendar year; or,[53]

(2) they had at least one employee during any day of a week during 20 weeks in a calendar year, regardless of whether the weeks were consecutive. Some state laws differ from the federal law.[53]

To facilitate this program, the U.S. Congress passed the Federal Unemployment Tax Act (FUTA), which authorizes the Internal Revenue Service (IRS) to collect an annual federal employer tax used to fund state workforce agencies. FUTA covers the costs of administering the Unemployment Insurance and Job Service programs in all states. In addition, FUTA pays one-half of the cost of extended unemployment benefits which are triggered in periods of high state unemployment. FUTA also provides a fund from which states UI funds may borrow to pay benefits. As originally established, the states paid the federal government.[53]

The FUTA tax rate was originally three percent of taxable wages collected from employers who employed at least four employees,[54] and employers could deduct up to 90 percent of the amount due if they paid taxes to a state to support a system of unemployment insurance which met Federal standards,[4] but the rules have recently changed. The FUTA tax rate is now, as of 30 June 2011, 6.0 percent of taxable wages of employees who meet both the above and following criteria,[53] and the taxable wage base is the first $7,000 paid in wages to each employee during a calendar year.[53] Employers who pay the state unemployment tax on time receive an offset credit of up to 5.4 percent regardless of the rate of tax they pay their state. Therefore, the net FUTA tax rate is generally 0.6 percent (6.0 percent - 5.4 percent), for a maximum FUTA tax of $42.00 per employee, per year (.006 X $7,000 = $42.00). State law determines individual state unemployment insurance tax rates.[53] In the United States, unemployment insurance tax rates use experience rating.[55]

Although the taxable wage base for each state/territory is at least $7,000 as mandated by FUTA, only four states or territories still remain at this minimum.[56] These states/territories include Arizona, California, Florida, and Puerto Rico. Florida and Puerto Rico maintain tax rates similar to those of other states, but Arizona and California both have a higher maximum tax rate. Florida's minimum tax rate is 0.1% and the state maximum is 5.4%[57] and in Puerto Rico, employers are taxed between 2.4% and 5.4% depending on their experience rating.[58] As of 2015, Arizona's minimum was 0.03%, but its maximum was 7.79%.[59] California's tax rate on the taxable wage base is currently higher than the federal minimum of 6.0%. Employers are currently on a tax schedule that requires them to pay a minimum of 1.5% and a maximum 6.2% of the taxable wage base.[60] Even with the federal tax credit of 5.4%, Arizona employers could end up paying $175 per employee ((.0779-.054) x $7,000) and California employers could pay $56 per employee ((.062-.054) x $7,000) versus the FUTA maximum of $42.

Within the above constraints, the individual states and territories raise their own contributions and run their own programs. The federal government sets broad guidelines for coverage and eligibility, but states vary in how they determine benefits and eligibility.

Federal rules are drawn by the United States Department of Labor, Employment and Training Administration. For most states, the maximum period for receiving benefits is 26 weeks. There is an extended benefit program (authorized through the Social Security Acts) that may be triggered by the state unemployment rate. Congress has often passed temporary programs to extend benefits during recessions. This was done with the Temporary Extended Unemployment Compensation (TEUC) program in 2002-2003, which has since expired,[61] and remained in force through 2 June 2010, with the Extended Unemployment Compensation 2008 legislation.[62] In July 2010, legislation that provides an extension of federal extended unemployment benefits through November 2010 was signed by the president. The legislation extended benefits for 2.3 million unemployed workers who had exhausted their unemployment benefits.

The federal government lends money to the states for unemployment insurance when states run short of funds which happens when the state's UI fund cannot cover the cost of current benefits. A high unemployment rate shrinks UI tax revenues and increases expenditures on benefits. State UI finances and the need for loans are exacerbated when a state cuts taxes and increases benefits. FUTA loans to state funds are repaid with interest.

Congressional actions to increase penalties for states incurring large debts for unemployment benefits led to state fiscal crises in the 1980s.[citation needed]

One interesting feature of the UI tax is that it targets firms that have recently had layoffs, potentially hitting distressed firms. Recent work shows that UI tax increases significantly reduce hiring and employment in affected firms, potentially eroding the macroeconomics stabilizing influence of the UI program. [63]

Macroeconomic function[edit]

To Keynesians, unemployment insurance acts as an automatic stabilizer.[64] Benefits automatically increase when unemployment is high and fall when unemployment is low, smoothing the business cycle; however, others claim that the taxation necessary to support this system serves to decrease employment.[citation needed]

Eligibility and amount[edit]

In order to receive benefits, a person must have worked for at least one quarter in the previous year and have been laid-off by an employer. Workers who were temporary or were paid under the table are not eligible for unemployment insurance. If a worker quits without good cause or is fired for misconduct, then they are normally not eligible for UI benefits. There are five common reasons a claim for unemployment benefits are denied: the worker is unavailable for work, the worker quit his or her job without good cause, the worker was fired for misconduct, refusing suitable work, and unemployment resulting from a labor dispute.[65][66] In practice, it is only practical to verify whether the worker quit or was fired. If the worker's claim is denied, then they have the right to appeal. If the worker was fired for misconduct, then the employer has the burden to prove that the termination of employment is a misconduct defined by individual states laws.[67] However, if the employee quit their job, then they must prove that their voluntary separation must be good cause.

Generally, the worker must be unemployed through no fault of his/her own although workers often file for benefits they are not entitled to; when the employer demonstrates that the unemployed person quit or was fired for cause the worker is required to pay back the benefits they received. The unemployed person must also meet state requirements for wages earned or time worked during an established period of time (referred to as a “base period”) to be eligible for benefits. In most states, the base period is usually the first four out of the last five completed calendar quarters prior to the time that the claim is filed.[68] Unemployment benefits are based on reported covered quarterly earnings. The amount of earnings and the number of quarters worked are used to determine the length and value of the unemployment benefit. The average weekly in 2010 payment was $293.[69]

As a result of the American Recovery and Reinvestment Act passed in February 2009, many unemployed people receive up to 99 weeks of unemployment benefits; this may depend on State legislation. Before the passage of the American Recovery and Reinvestment Act, the maximum number of weeks allowed was 26.

Application process[edit]

It generally takes two weeks for benefit payments to begin, the first being a "waiting week", which is not reimbursed, and the second being the time lag between eligibility for the program and the first benefit actually being paid.

To begin a claim, the unemployed worker must apply for benefits through a state unemployment agency.[68] In certain instances, the employer initiates the process. Generally, the certification includes the affected person affirming that they are "able and available for work", the amount of any part-time earnings they may have had, and whether they are actively seeking work. These certifications are usually accomplished either over the Internet or via an interactive voice response telephone call, but in a few states may be by mail. After receiving an application, the state will notify the individual if they qualify and the rate they will receive every week. The state will also review the reason for separation from employment. Many states require the individual to periodically certify that the conditions of the benefits are still met.

Disqualification/Appeals[edit]

If a worker's reason for separation from their last job is due to some reason other than a "lack of work," a determination will be made about whether they are eligible for benefits. Generally, all determinations of eligibility for benefits are made by the appropriate State under its law or applicable federal laws. If a worker is disqualified or denied benefits, they have the right to file an appeal within an established time-frame. The State will advise a worker of his or her appeal rights. An employer may also appeal a determination if they do not agree with the State's determination regarding the employee's eligibility.[68] If the worker's claim is denied, then they have the right to appeal. If the worker was fired for misconduct, then the employer has the burden to prove substantially that the termination of employment is a misconduct defined by individual states laws.[67] However, if the employee quit their job, then they must prove that their voluntary separation must be good cause. Success rate of unemployment appeals is two-thirds, or 67% of the time for the most claimants.[70][71] In the State of Oklahoma, claimants generally win 51.5% of the time in misconduct cases.[72]

Measurement[edit]

Current data[edit]

Each Thursday, the Department of Labor issues the Unemployment Insurance Weekly Claims Report.[73] Its headline number is the seasonally adjusted estimate for the initial claims for unemployment for the previous week in the United States. This statistic, because it is published weekly, is depended on as a current indicator of the labor market and the economy generally.

In 2016, the number of people on unemployment benefits fell to around 1.74 the lowest in the last 4 decades. [74]

Unemployment insurance outlook[edit]

Twice a year, the Office of Management and Budget delivers an economic assessment of the unemployment insurance program as it relates to budgetary issues.[75] As it relates to the FY 2012 budget, the OMB reports that the insured unemployment rate (IUR) is projected to average 3.6% in both FY 2011 and in FY 2012. State unemployment regular benefit outlays are estimated at $61 billion in FY 2011 and $64.3 billion in FY 2012, down somewhat from Midsession estimates.[75] Outlays from state trust fund accounts are projected to exceed revenues and interest income by $16.0 billion in FY 2011 and $15.1 billion in FY 2012.[75] State trust fund account balances, net of loans, are projected to continue to fall, from -$27.4 billion at the end of FY 2010 to -$62.7 billion at the end of FY 2013, before starting to grow again.[75]

Net balances are not projected to become positive again until well beyond FY 2016. Up to 40 states are projected to continue borrowing heavily from the Federal Unemployment Account (FUA) over the next few years.[75] The aggregate loan balance is projected to increase from $40.2 billion at the end of FY 2010 to a peak end-of-year balance of $68.3 billion in FY 2013. Due to the high volume of state loans and increased EB payments, FUA and EUCA are projected to borrow $26.7 billion from the general fund in FY 2011 and an additional $19.4 billion in FY 2012, with neither account projected to return to a net positive balance before 2016.[75] The general fund advances must be repaid with interest.[75]

Economic rationale and issues[edit]

The economic argument for unemployment insurance comes from the principle of adverse selection. One common criticism of unemployment insurance is that it induces moral hazard, the fact that unemployment insurance lowers on-the-job effort and reduces job-search effort.

Adverse selection[edit]

Adverse selection refers to the fact that “workers who have the highest probability of becoming unemployed have the highest demand for unemployment insurance.”[76] Adverse selection causes profit maximizing private insurance agencies to set high premiums for the insurance because there is a high likelihood they will have to make payments to the policyholder. High premiums work to exclude many individuals who otherwise might purchase the insurance. “A compulsory government program avoids the adverse selection problem. Hence, government provision of UI has the potential to increase efficiency. However, government provision does not eliminate moral hazard.”[76]

Moral hazard[edit]

“At the same time, those workers who managed to obtain insurance might experience more unemployment otherwise would have been the case.”[76] The private insurance company would have to determine whether the employee is unemployed through no fault of their own, which is difficult to determine. Incorrect determinations could result in the payout of significant amounts for fraudulent claims or alternately failure to pay legitimate claims. This leads to the rationale that if government could solve either problem that government intervention would increase efficiency.

Unemployment insurance effect on unemployment[edit]

In the Great Recession, the “moral hazard” issue of whether unemployment insurance—and specifically extending benefits past the maximum 99 weeks—significantly encourages unemployment by discouraging workers from finding and taking jobs was expressed by Republican legislators. Conservative economist Robert Barro found that benefits raised the unemployment rate 2%.[77][78] Disagreeing with Barro's study were Berkeley economist Jesse Rothstein, who found the “vast majority” of unemployment was due to “demand shocks” not “[unemployment insurance]-induced supply reductions.”[78][79] A study by Rothstein of extensions of unemployment insurance to 99 weeks during the Great Recession to test the hypothesis that unemployment insurance discourages people from seeking jobs found the overall effect of UI on unemployment was to raise it by no more than one-tenth of one percent.[80][81]

A November 2011 report by the Congressional Budget Office found that even if unemployment benefits convince some unemployed to ignore job openings, these openings were quickly filled by new entrants into the labor market.[78][82] A survey of studies on unemployment insurance's effect on employment by the Political Economy Research Institute found that unemployed who collected benefits did not find themselves out of work longer than those who didn’t have unemployment benefits; and that unemployed workers did not search for work more or reduce their wage expectations once their benefits ran out.[78][83]

One concern over unemployment insurance increasing unemployment is based on experience rating benefit uses which can sometimes be imperfect. That is, the cost to the employer in increased taxes is less than the benefits that would be paid to the employee upon layoff. The firm in this instance believes that it is more cost effective to lay off the employee, causing more unemployment than under perfect experience rating.

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