Unemployment Compensation

Unemployment Compensation Definition

Unemployment Compensation can be defined as a benefit that is paid by the developed countries and few developing countries to its unemployed citizens who lost their source of employment as a result of retrenchment or layoffs and this mechanism is offered for the purpose of offering a defined source of income to unemployed workers up till the time they do not find a job.


Unemployment compensation is the monetary benefits paid by the developed and developing economies to jobless workers who happen to lose their employment out of reasons like retrenchment or layoffs. It is paid either through a direct bank deposit or an unemployment cheque. The aim is to provide financial assistance to unemployed workers who lost their jobs without any fault of their own and they are entitled to receive this assistance until and unless they don’t secure a job.


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Source: Unemployment Compensation (wallstreetmojo.com)

How does it Work?

It is really difficult to say that how unemployment compensation actually works since the rules, regulations, and policies vary from country to country. Some countries may even require the unemployed person to remain jobless for a designated period of time in order to become eligible for applying and availing its benefits. The formula for the calculation of an individual’s unemployment compensation might also differ from country to country. The benefit that an unemployed individual is supposed to receive shall also vary country wise.

The individuals who have recently lost their jobs out of retrenchment or lay-offs must immediately apply. Waiting for the time until getting qualified could take a lot of time farther and even more harassment on an individual’s part and therefore, the sooner the compensation is applied for, the sooner shall the benefits be derived. An unemployed individual can apply for the unemployment compensation by reaching out to the unemployment insurance agency of his or her country of past employment or residence. If an unemployed individual has lived and worked in multiple countries then it is completely his decision of selecting the country he or she wants to draw benefits.

Unemployment Compensation Eligibility

  • The job is lost out of retrenchment or lay-off- The most important requisite for a jobless individual to avail the benefits of unemployment compensation is that he must not have lost the job as a result of his own fault. Only unemployed workers who have lost the job out of retrenchment or lay-offs or in other words on account of unpredictable circumstances where it was not their fault can avail of its benefits. Individuals who have lost their employment as a result of their own actions or decisions then they are not eligible to receive such compensation. So, if an individual has left the job or got fired due to misconduct will not qualify to receive unemployment compensation benefits.
  • Compulsorily meeting the country’s requirements with respect to salary earned or time devoted- The rules and regulations with respect to it may vary from country to country. Individuals must necessarily evaluate the policies prevailing in the country they are residing and accordingly decide if they meet the criteria with respect to the fulfillment of minimum time or salary earned and then based on the results ascertained apply for the unemployment compensation.



The first and foremost disadvantage of unemployment compensation is the fact that it has a lot of restrictions upon the eligibility criteria. A jobless individual is always in a financial constraint. If he has dependents upon himself to look after it would become really difficult for him to take care of their financial requirements.

It only happens to offer benefits to those jobless workers who have lost the job out of lay-offs or retrenchment or in other words they have lost the jobs out of not their faults or unavoidable circumstances. If they have left the job themselves or are thrown out of the job out of their misconduct then they cannot seek the compensation. Also, the rules and requisites differ from country to country. There is hardly any consistency in policies with respect to unemployment compensation and individuals who have lived and worked in multiple nations might find it really complicated to decide the country where they can apply for the compensation.


The unemployed individuals must self-evaluate that whether they lost the job out of lay-offs or retrenchment or such other issues that indicate that it was not their fault and not have quit or being thrown out of the job due to behavioral issues or any sort of misconduct. They must also evaluate whether they are meeting the country’s requirements with respect to salary earned or time devoted. Based on the evaluation only, the decisions must be made by the unemployed individuals that whether they are eligible for claiming the compensation benefits or not. The applicants must necessarily offer all the accurate details about themselves and their former job and if in any case, the claim gets denied, and then they even have the right to reapply.

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This has been a guide to Unemployment Compensation and its definition. Here we discuss how does unemployment compensation work along with its eligibility, benefits and drawbacks. You may also have a look at the following articles –

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