Research On Optimization Of Unemployment Insurance Program From The Perspective Of Fund Management

Unemployment insurance fund is the financial basis of the unemployment insurance program and is an essential element to keep the program in a functional order. As the unemployment insurance program develops in China, the amount of insured citizens and the fund of this program grow enormously every year. It becomes crucial to optimize fund management and to increase the operation efficiency. High level of cumulative fund balance indicates growth of the unemployment insurance program in China, from the point of the number of participants and the unemployment insurance contribution. Nevertheless, it also demonstrates low efficiency of fund usage. This paper analyzes the unemployment insurance program from the perspective of fund management, which focuses on factors influencing the fund revenue and the fund expenditure. First, current situation and problems of fund management of the unemployment insurance program in China are introduced. Potential reasons for these problems are then investigated. In the final part, policy implications to improve the function of unemployment insurance program and to increase the efficiency of the unemployment insurance fund are given. The main contents of this paper are as follows.The paper first applies a series of standards and indexes to evaluate the current situation of unemployment insurance fund management in China, such as the participation ratio, the benefit recipiency, the cumulative fund balance ratio, et.al. The participation ratio indicates that more than half of the urban workers are not covered by this program. When rural workers and emigrant workers are considered, the participation ratio is lower. The benefit recipiency demonstrates that more than half of the registered unemployed workers are not receiving benefits. The unemployment insurance benefit level of most provinces/cities in China is determined according to the lowest standard of living or the lowest average wage, both of which are quite low. The benefit is not high enough to sustain basic needs of the unemployed workers. The cumulative fund balance ratio is large and the ratios of different provinces/cities in China vary outstandingly. Currently, the fund balance is deposited in the bank account or is used to buy national debts. As the rates of return of both methods are usually lower than the Consumer Price Index (CPI), it is hard to increase the value of the cumulative fund balance.The problems of unemployment insurance fund management in China are given as follows. First, the participation ratio is low and the participants are highly assembled in certain industries or positions. For instance, most workers in public organizations and large national companies participate in this program, while immigrant workers and rural workers with high level of unemployment risk are not covered by this program. Workers in public organizations and large national companies pay large amount of contributions, while they rarely apply for unemployment insurance benefits. Consequently, contributions are accumulated annually, while those who are in need of benefits are not covered and are not qualified to apply. More contributions and less expenditure make the balance grow. Second, the flat contribution rating system brings a negative participating incentive for organizations/companies with few unemployed workers. Some cities reduce the contribution rate as the cumulative fund balance is large. This paper points out that reducing the contribution rate without comprehensive considerations and reliable support may influence the sustainability of the fund in the future. Third, data in this paper show the average monthly benefit is less than half of the monthly disposable income of urban residents, which is too low to sustain basic life of the unemployed. Forth, the total amount of fund expenditure is too low when the ratio of fund expenditure and gross domestic product is calculated. These problems are caused by the development process of the program in China, reasons of low participation ratio, imperfect mechanism to determine benefit standard and benefit duration.When problems and potential causes are investigated, this paper analyzes possible policy implications to improve the unemployment insurance program and to increase fund usage efficiency in China, from the perspectives of participation ratio, contribution rating system, benefit standard and benefit duration.First, participation ratio influences the fund revenue and fund expenditure. In the process of urbanization, more rural workers loss their land and become displaced rural workers. They face high level of unemployment risk, as they can not work on the land and face difficulties to find a new job in cities. Providing unemployment insurance program for displaced rural workers brings two sides of influences on the unemployment insurance fund. On the one hand, displaced farmers contribute for this program, which increases fund revenue. On the other hand, as displaced farmers face higher level of unemployment risk, they may increase the fund expenditure. This paper empirically analyzes the need and influencing factors of displaced rural workers to participate the unemployment insurance program.Second, the contribution rating system affects fund revenue. The experience rating system can reduce the negative incentive of flat rating system and can adjust the rate automatically, which provides enlightenments for China. The experience rating system in the United States is analyzed comprehensively. To conclude, a series of supporting measures are needed before China implementing the experience rating system.Third, the unemployment insurance benefit standard and benefit duration determine the benefit amount and the fund expenditure. This paper applies the Extended Linear Expenditure System (ELES) model to calculate the replacement rate of unemployment insurance benefit. As income and expenditure data of the unemployed are not available, income and expenditure data of urban residents in China are used. The basic living expenditure of urban residents is calculated first. Then the replacement rate of unemployment benefit is given by the basic living expenditure dividing the average wage of urban workers. The replacement rate is about 40%.When the average dependent population of each worker is considered, the replace ratio is about 55.3%. These replacement rates are referable when unemployment insurance benefit is decided. It is suggested to determine the benefit duration according to the average unemployment duration and to adjust the benefit duration when the unemployment rate changes, as the unemployment insurance program is a key mechanism to address unemployment risk.