In the current set-up, UI fund member fees are linked to the unemployment rate in the sector and are partly state-financed. In theory, this should encourage UI funds to monitor their members' eligibility' for UI benefits, and employer and employee confederations to internalise the impact of their wage negotiations on unemployment as they have close links with these funds. This is mainly because unions are in fact in charge of paying UI benefits for only a limited number of unemployed who are likely to be relatively close to the labour market. The fact that UI funds stop to pay benefits after 300 days of unemployment (at which point the state takes over) entails perverse incentives for wage formation.