We explore the implications of replacing current unemployment benefit (UB) systems byunemployment accounts (UA). Under the UA system, employed people would be required tomake ongoing contributions to their unemployment accounts, and the balances in theseaccounts would then be available to them during periods of unemployment. The governmentwould be able to undertake balanced-budget redistributions among the UAs, taxing thecontributions of the rich and subsidizing those of the poor. When people retire, they could usetheir remaining UA balances to top up their pensions. Under the unemployment benefitsystem, people are in effect rewarded for being unemployed (through the unemploymentbenefits) and penalized for being employed (through the taxes that finance theunemployment benefits). The UA system alleviates these externality problems. For when anunemployed person makes withdrawals from his UA, he is thereby diminishing the amount offunds that are available to him later on.