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One of the arguments for Universal Basic Income (UBI) is that it would be more efficient; targeted benefits require a gatekeeper bureaucracy to decide eligibility, detect cheats, start and stop payments, track claimants etc.

I'm wondering how big these savings might be. The obvious upper limit is the amount currently spent on this bureaucracy, so my question is: in different countries, how much of the money spent on unemployment benefit actually gets into the hands of the unemployed, and how much is taken by the overhead of administering the benefit?

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    In what way is this "lacking focus"? I'm asking about the balance of expenditure between unemployment benefits and the administration of those benefits. What other questions do you think I am asking? Commented May 23, 2020 at 15:14
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    I think the problem is in different countries.
    – Rick Smith
    Commented May 23, 2020 at 15:59
  • It's worth noting that in many places welfare benefits are wrapped up to include both the unemployed and those working, but not earning enough to a pay the bills for them and their dependents.
    – origimbo
    Commented May 23, 2020 at 16:03
  • @RickSmith I understand that, but on the other hand I don't want to pick one country and then find out it is unrepresentative. Commented May 23, 2020 at 17:00

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The answer by RickSmith correctly points out that the federal appropriations that cover most of the administrative costs of unemployment insurance have been around $2.5-2.6 billion in recent years. This is a little over the average monthly payout of benefits for 2019 according to Statista. So to answer the headline question (or rather the logical inverse of it), that's a Federal administrative cost of at least 8%. Some states do contribute something to administrative costs, and that share can be significant (over 17% in California for FY2003-2004 according to this report, Figure 9). So we can safely say that the total administrative costs for unemployment insurance is easily over 8%, or that probably less than 92% of unemployment benefit spending actually goes to the unemployed.

I might also suggest a different approach, comparing the administrative costs of the two main Social Security Programs, Old Age and Survivors Insurance (OASI) versus Disability Insurance (DI). According to the Social Security Administration, the administrative costs for OASI have been around 0.5% in recent years, while those for DI are nearly 2%. The costs to administer UBI would presumably be close to those of OASI, but even if we take the overall average of the two programs of about .7 % (as this study does), then UBI might be over ten times as efficient as the current unemploment insurance system.

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    It's also worth noting that bureaucratic systems consume a considerable amount of administrative labour from the claimant and also from various organisations that exist to support claimants. They also have an effect on industrial relations in general - and this is the real battleground over the design of social security systems, since a poor social security system imposes costs on the employed via lower wages and reduced ability to change jobs or withdraw from unreasonable conditions.
    – Steve
    Commented May 23, 2020 at 18:38
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GDP (2016): 18.71 trillion USD

Public unemployment spending as a percent of GDP (2016): 0.19%

Total unemployment spending (2016): 18710 billion * 0.0019 = 35.549 billion

Percent administrative expenses (approx., CRS, see below): 2.6 / 35.549 = 7.31%

What proportion of unemployment benefit spending actually goes to the unemployed?

For the United States, in 2016, approximately 92.69%


The Center on Budget and Policy Priorities reports, for the United States:

States provide most of the funding and pay for the actual benefits provided to workers; the federal government pays only the administrative costs.

The ratio of benefits to overhead for any year will vary based on the unemployment rate and average duration of unemployment.

The Congressional Research Service, in Funding the State Administration of Unemployment Compensation (UC) Benefits, Updated June 10, 2019, shows that current administrative costs are around 2.6 billion USD (see Table 1).

The Federal Reserve Bank of St. Louis, in a working paper, Universal Basic Income versus Unemployment Insurance, November 2014, concluded:

In this paper, we provide a quantitative comparison of an optimal universal basic income policy and an optimal unemployment insurance program in an economy with idiosyncratic shocks. While an unemployment insurance program is better equipped to respond to employment shocks, it suffers from moral hazard and is costly to manage. Monitoring costs are not trivial and add to the social cost of administering the policy. So does moral hazard, by allowing a fraction of agents to abuse the unemployment insurance program. A universal basic income policy, however, has no such social costs and is very simple to manage.

We test the conjecture that a universal basic income may, under moral hazard and in the presence of monitoring costs, perform better. We conduct a wide variety of experiments and compare the social desirability of these policies.

Our results show that an optimal UBI is feasible. Nevertheless, the UI policy is socially robust to the introduction of UBI in the presence of idiosyncratic shocks. It takes empirically implausible monitoring costs and shirking success probabilities for the optimal basic income policy to dominate in terms of welfare the unemployment insurance policy in the economy calibrated to the 2011 United States labor market. With idiosyncratic shocks of smaller amplitude (such as those characterizing the 1990 US labor market dynamics), UBI may represent a more reasonable alternative, even if the UI policy remains socially preferred.

The superiority of UI is anchored in its ability to help those who are most in need. Even a very crude UI system with no asset tests and indefinite eligibility is able to easily beat UBI, which distributes funds blindly and must be financed through distortionary taxation.

Of course, this paper limits the study of universal basic income to its comparison with a UI policy in a particular model. It does not claim to have the last word on UBI systems. Other paths could be explored. We could consider different skills among the population; in this case we have argued that UBI is likely to reinforce the dominance of UI. One could study the impact of transitions. Indeed, we have only compared steady states so far. Transitions can induce large costs in the short-term that can outweigh long-term advantages. Given that the status quo in industrialized countries is typically a UI policy, it is very unlikely that a transition to UBI would prove to be beneficial overall.

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