Discuss the following statements from the standpoints of equity and efficiency.?

Question

""When workers are laid off, they would be able to collect unemployment benefits until they find a new job."
(Principles of Economics - N.Gregory Mankiw)

Answer 1

"b. When workers are laid off, equity considerations argue for the unemployment benefits system to provide them with some income until they can find new jobs. After all, no one plans to be laid off, so unemployment benefits are a form of insurance. But there is an efficiency problem¾ why work if you can get income for doing nothing? The economy is not operating efficiently if people remain unemployed for a long time, and unemployment benefits encourage unemployment. Thus, there is a tradeoff between equity and efficiency. The more generous are unemployment benefits, the less income is lost by an unemployed person, but the more that person is encouraged to remain unemployed. So greater equity reduces efficiency."

Answer 2

This would be a prime example of equity because all employees recieve the same substantive benefit. That is, every employee is taken care of until they can take care of themselves. However, this plan is extremely inefficient. While it is very equitable that younger workers with less experience who may take longer to find jobs have that time, this extended period of unemployment is very costly. Also, it is possible under this plan that the more senior workers (or any ofg the workers for that matter) decide that thier unemployment is enough to live off of and may choose to never get another job, thereby using this plan as retirement.