Economy after the pandemic Helping the unemployed
America implemented a $2 trillion stimulus package to help the businesses and people tide over the corona virus pandemic. The money will run out in a few months, and the problem is still unresolved.

They are now discussing the need to pass another stimulus package to help the unemployed people tide over for the next few months.

This kind of financial help is very costly and could result in "moral hazard". Some of the unemployed people find the fiscal help to be so attractive that they do not have any incentive to find work.

Other people are not eligible for the financial assistance. 

What is a better arrangement?

I suggest that the unemployed people should be given a monthly loan. This is similar in amount to what is paid as an unemployment benefit, but has an obligation to pay back the loan in the future. Interest can be charged at a modest rate, similar to bank deposit.

This loan can be given to every person or family who is financially affected by an economic downturn, and can be capped at a certain limit per person. This limit can be one year of median income.

This limit can help to tide an unemployed person for a year, maybe slightly longer. Most of them should be able to find alternative employment within this period. They can also adjust their living standard to reduce the cost.

This loan is provided by a government funded agency. 

It is likely that a significant portion of the loan will remain unpaid. It can be written off as an expense of the state. But it will be smaller than the amount that the state pays out in unemployment benefit anyway, and do not carry the moral hazard to the same extent.

I hope that governments of other countries, including Singapore, should consider this approach to provide financial assistance to the unemployed.

Tan Kin Lian

 

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