Kathmandu. The global economy is currently facing uncertainty. Wars, high prices, rising fuel prices, debt crises and rapid technological changes are putting significant pressure on the global economy.
Developed countries have long tried to control inflation by maintaining high interest rates. Developing countries, especially those with limited budgets and debt risks, are vulnerable to policy implementation. Recent research by the International Monetary Fund (IMF) on these real conditions suggests that unemployment insurance can be considered the most effective automatic stabilization policy within income protection policies.
According to the study, recent global economic shocks have become more frequent and varied than ever before. As a result, current income support policies are not working equally well in all situations. The economic crisis does not affect all households equally. Some lose their jobs outright, some lose a small amount of income, and some keep a job but cut back on expenses due to uncertainty about the future.
Because of these different behaviors, the same policy cannot produce the same results for everyone. The IMF’s analysis uses an evolving economic structure. This divides households into two groups: one group is the household that makes ends meet. Those who spend a large part of their income immediately and save very little.
Another group is “buffer-stock savers” households. Those who manage risk through savings. These two types of behavior affect policy effectiveness differently and explain why the same policy may not provide the same results in all situations.
Unemployment insurance has been found to be most effective when comparing three policies within the same budget range – unemployment insurance, targeted cash assistance, and global cash transfers. This not only replaces the incomes of those who have lost their jobs, but also stabilizes consumption spending by reducing future risk for working people. This has kept up market demand and put the economy on a fast track to recovery.
There was also a significant difference in comparative costs. Expanding unemployment insurance requires at least some financial pressure. While targeted aid is needed the most, global cash transfers cost the most. This difference clearly shows that unemployment insurance is the most effective and cost-saving policy, even within the same budget.
The reality of Asia makes this study all the more important. According to the International Labour Organization, about 14 percent of the unemployed people in Asia and the Pacific are covered by formal cash assistance. That is, most people are still outside the formal unemployment protection system.
In most Asian countries, unemployment insurance is limited or incomplete. While some East Asian countries, such as Japan and South Korea, have strong systems, many countries in South Asia and Southeast Asia are yet to develop full infrastructure. As a result, in times of crisis, the labor market has a direct impact on people’s incomes and government support is limited.
There are also significant differences in the cost of Social Security. The average social security spending in Asia is about 7 percent of GDP. Whereas in developed economies, this rate is much higher. In many countries in South and Southeast Asia, the rate is less than 3 percent. This further weakens the unemployment and income security system.
According to the study, unemployment insurance acts as a “trust protection system”. This reduces people’s fear of future uncertainty. As a result, people do not reduce spending unnecessarily, and consumption expenditure remains constant. As a result, market demand stays, businesses remain stable and pressure is reduced. This process establishes unemployment insurance as a powerful automatic economic stability policy.
These findings show that unemployment insurance is an important policy to stabilize the economy during the crisis. This not only provides income security but also serves as an effective way to stabilize demand and reduce labour market losses. –Agency
