Unless you live on a beach, or are independently wealthy, there's no ideal place to be unemployed. Compounding wounded egos and self-confidence, unemployment benefits represent a fraction of a worker's previous salary and leave those without jobs short on bills, mortgage payments and living expenses.
But in some countries that fraction is bigger than others.
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Laid-off Danes who have worked 52 weeks over the previous three years are eligible to receive 90 per cent of their average earnings for up to four years.
Unemployed job seekers in Norway and Finland are almost as well off. In Norway the unemployed receive 87.6 per cent of their previous salaries for 500 days and in Finland they receive 85.1 per cent of their previous salaries for one year.
And in Sweden, Israel, Japan and Germany, the unemployed can claim benefits worth between 66 per cent and 90 per cent of their last salaries. In the US, benefits in some states are as low 27 per cent of income for average earners.
The Methodology
To find them and others, we examined the unemployment systems of the world's 30 largest economies. We looked at purchasing power parity at the per capita level to determine which nations paid unemployed workers the highest shares of benefits to incomes.
PPP takes into account the relative value of currencies based on price for a basket of commodities as a way to measure how much a unit of currency actually buys in each country. It factors in consumer prices and inflation to give a sense of how valuable local money is based on what it buys, not merely the exchange rate.
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After converting per capita World Bank-established PPP levels into local currencies, we measured each country's rate of benefits against the average income level. Benefits were taken from state agencies like UK's Department for Work and Pensions or the US's Social Security Administration, as well as data put forth by the Organisation for Economic Co-operation and Development.
We considered benefits that came as the result of being unemployed: housing allowances and job seeking stipends in countries like Australia or the total value of unemployment insurance in a country like Luxembourg, where payments are given as a percentage of previous income. Medical insurance and health care were not considered because state or private medical services operate independently of unemployment in most countries.
For consistency, we assumed that the worker in question was a 30-year-old who had been employed for the past five years, had no children, earned the average income and was actively looking for a highly skilled job.
Utopia for the unemployed
Though Japan and Israel cracked the list, the remaining eight spots went to countries in Europe.
Ego aside, in these countries, looking for a job isn't a terribly desperate affair. In Luxembourg, for example, if you're a single, unemployed person who has worked six months out of the last year, you're eligible for payments at the rate of 80 per cent of your previous income, unless those payments come out to more than 2.5 times the monthly minimum wage. Benefits are reduced at the half-year and full-year marks, and payment is distributed between central, local and community governments in annual budget outlays.
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Many Americans are suspicious of the European safety net, partly because unemployed Americans generally receive less than half of their previous salaries, making 90 per cent of previous salary arrangements like that of Denmark appear cushy.
But many European countries, the Scandinavian ones in particular, have voluntary unemployment insurance--albeit government-subsidised--and low unemployment rates.
Denmark's unemployment stands at 3.1 per cent, according to the International Monetary Fund, and Norway has 2.5 per cent unemployment by the IMF's count. Of course, neither of these countries is rapidly growing. Denmark is chugging along at 1.1 per cent, according to the IMF, and even with its booming oil wealth, Norway is growing at 3.1 per cent, making unemployment and payments a secondary concern to the European economy.
"It's not an issue right now," says Tito Boeri, a professor at Universita Bocconi, in Milan, Italy, who studies labor market performance. He notes that the payment structure of unemployment systems isn't as important with regard to economic change as how long people remain unemployed. "The policies that put pressure on people early in unemployment," he says, "are the ones that are most effective."
Most countries phase out benefits at six months, though some, like Switzerland, provide full benefits for up to 260 days, provided those collecting benefits are registered with job search offices and actively pursuing work. While many of the European systems appear market driven because they involve voluntary enrollment, government taxes subsidize the plans and pick up shortfalls; in countries like Denmark, for example, the fees paid by workers to unemployment funds are about $700 per year, though all workers pay an 8% tax to the government to cover social programs, one of which is unemployment payments.
"The unemployment insurance fund fee covers unemployment benefits at about 3% unemployment, which is rare in Denmark," says Donald O. Parsons, a professor of economics at George Washington University. "The compulsory labor contribution provides the government with funds to cover unemployment benefits in excess of three percent and also various 'leave programs.'"
In the States, unemployment insurance is paid for through federal taxes of 0.8% and state taxes of 5.4% on employer's taxable payroll; some states' tax is levied as high as 10%, though, and Alaska, New Jersey and Pennsylvania require workers to pay tax also.
The successes or failures of an unemployment system matter greatly in an economic downturn--especially one closely tied to housing since unemployment is the No. 1 reason for home price dips and mortgage defaults, according to Harvard's Joint Center for Housing Studies. The repercussions for consumer spending are equally problematic in developed economies.
The U.S. Congress is debating extending unemployment benefits, but the question those on the Hill and Eurozone lawmakers might do better to ask themselves is who should qualify. Most unemployment insurance programs are at least 30 years old, and the workforce profile has changed dramatically worldwide, but most of all in the U.S., where labor protection laws aren't as stringent.
"Job tenures have shrunk dramatically, and a larger and larger portion of the workforce is working part time or are contract workers or are free agents," says Robert Reich, secretary of labor under President Clinton. "Up until the 1970s most people stayed in the same job for most of their adult working lives, and they held a full-time job."
Of course, job creation is the best cure. Based on Boeri's research and reports from the OECD, countries with low employee turnover rates, as the result of heavy labor market regulation, often with high benefits, are the most difficult workforces for reentry.
But in the end, the best markets for the unemployed are those with available jobs.
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