Abstract
We analyze different options for the design of a common unemployment insurance system for the euro area (EA). We assess their effectiveness to act as an insurance device in the presence of asymmetric macroeconomic shocks. Running counterfactual simulations based on micro data for the period 2000-13, we quantify the trade-off between automatic stabilization effects and the degree of cross-country transfers. In the baseline, we focus on a non-contingent scheme covering short-term unemployment and find that it would have absorbed a significant fraction of the unemployment shock in the recent crisis. However, four member states of the EA18 would have been either a permanent net contributor or net recipient. Our results suggest that contingent benefits could limit the degree of cross-country redistribution, but might reduce desired insur-ance effects. We also study heterogeneous effects within countries and discuss moral hazard issues at the level of individuals, the administration and economic policy.
Highlights
The Great Recession and the resulting European debt crisis have revived the debate about deeper ...scal integration in the European Economic and Monetary Union (EMU)
The payout rules of this scheme could be trigger-based as well. Such a system would be comparable to the US unemployment insurance system where regular state bene...ts can be complemented by two types of bene...ts extension programs which are at least partly provided by the federal government, the Extended Bene...t program (EB) and emergency bene...ts
The economic crisis in the Eurozone has revived the debate about deeper ...scal integration and has brought this topic to the top of the European policy agenda
Summary
The Great Recession and the resulting European debt crisis have revived the debate about deeper ...scal integration in the European Economic and Monetary Union (EMU). Some observers argue that national automatic stabilizers provided insu¢ cient income insurance during the crisis as some EMU member states lost access to private capital markets and conclude that common ...scal stabilization mechanisms are necessary to make EMU more sustainable and more resilient against asymmetric macroeconomic shocks (Bertola 2013, IMF 2013). In the so-called Four Presidents’Report published in 2012, the former President of the European Council, Herman van Rompuy, has suggested the following: “An EMU ...scal capacity with a limited asymmetric shock absorption function could take the form of an insurance-type system between euro area countries. The second could be based on a microeconomic approach, and be more directly linked to a speci...c public function sensitive to the economic cycle, such as unemployment insurance.” (Van Rompuy 2012). The European Commission and more recently Jean-Claude Juncker in the Five Presidents’ report built upon this initiative with own blueprints for the EMU (European Commission 2012, Juncker 2015)
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