The Design of a European Unemployment (Re)Insurance Scheme: Lessons from US Experience

Chris Luigjes,Frank Vandenbroucke,Georg Fischer

doi:10.2139/ssrn.3417180

Abstract

The Design of a European Unemployment (Re)Insurance Scheme: Lessons from US Experience

Highlights

In 2012, the report on the future of the Economic and Monetary Union (EMU), presented by the presidents of the European Council, the European Commission, the Eurogroup and the European Central Bank, suggested to create a macroeconomic shock absorption mechanism: “an insurance-type system between Euro Area countries”
The SPD EU-election program explicitly calls for a European fund to reinsure national unemployment systems (SPD, 2019) and senior SPD politicians3 including Vice-Chancellor Scholz refer to the US unemployment insurance (UI) system as a model
Opinion research shows public support for cross-border risk sharing when unemployment hits Member States, but this support crucially depends on the design features of such schemes in particular adequate benefits, incentives to take up employment and active support for the unemployed

Summary

EMU-level unemployment re-insurance and caveats

The reference to UI in debates about the need for a Eurozone-level macroeconomic shock absorption mechanism is not happenstance. The effectiveness of the stabilization capacity of EMU member states depends on a whole cluster of policy principles: adequate unemployment benefits; sufficient coverage rates of the unemployed with benefits; no labor market segmentation and no proliferation of employment relations that leave part of the labor force poorly insured against unemployment; and effective activation of unemployed individuals The implementation of such a cluster of principles in each EMU Member State is a matter of common concern. The supranational (or federal) commitment enhances macroeconomic stabilization on the aggregate level, the states’ own effort diminishes The extent of this ‘retrenchment risk’ and its exact shape depend on the design of the supranational or federal commitment and on the preferences and attitudes state leaders might have concerning the protection of the unemployed as shown in the Appendix. These risks have to be examined when we consider the design of a European scheme

The history and outline of Unemployment Insurance in the United States

The functioning of the American UI system

Findings

Lessons from the American Experience: inspiration and cautionary examples