8 Aug 2018

Unemployment Trap

Finance feed by:

CA Mukund Garodia
B.com (Hons),CA,CAIIB
CA in Job
Warning: Division by zero in /var/www/vhosts/finaco.in/httpdocs/view_finance_feed.php on line 230
   •    15 Year 2 Month  experience

Unemployment trap is a situation when unemployment benefits discourage the unemployed to go to work. People find the opportunity cost of going to work too high when one can simply enjoy the benefits by doing nothing.

While the purpose of social security and welfare systems is to provide relief to the unemployed, they end up providing them with an incentive not to return to work. An unemployment trap arises when opportunity cost of going to work is higher than the income received, discouraging people from returning to work and being productive.

---