Unemployment income is the money which is given by the government to all those people who are unemployed. The income is given so that the individual can live a respectable life as long as he/she is unable to find a job. The beneficiary must meet certain eligibility criteria.
These benefits a given with the only objective that the person survives this period of unemployment and can afford basic things like food, water, clothing, medical care etc. Unemployment income, like ordinary income, is taxable.
The economic rationale offered by the Keynesian school is that such an insurance is an automatic stabilizer that acts to smoothen business cycles. It is claimed that it avoids insurance companies acting on adverse selection – the phenomenon whereby workers with the highest probability of unemployment also having the highest demand for such insurance are rejected by insurance companies to maximize profits.
Critics point out that moral hazards are not eliminated – that is, workers who obtain insurance having a greater probability of remaining unemployed than otherwise.