European Unemployment Insurance Research Articles

The impact of a European unemployment benefit scheme on labour supply and income distribution

The impact of a European unemployment benefit scheme on labour supply and income distribution

Cross-country unemployment insurance, transfers, and trade-offs in international risk sharing

A prerequisite for an optimum currency area are limited divergent developments. In this paper, we assess analytically whether an international transfer mechanism can enhance consumption risk sharing and efficiency of the international division of production in a monetary union. We also derive quantitative results for a potential European unemployment benefit scheme (EUBS). A EUBS can provide risk sharing by stabilizing relative consumption and unemployment differentials. Following supply and government-spending shocks, however, a EUBS would additionally reduce allocative efficiency. The welfare effects of a EUBS hence depend on the underlying cause for cross-country differentials. A EUBS that is only active after specific shocks would maximize overall welfare. Even without such a selective activation, a EUBS would raise welfare in European Core countries in the quantitative model, leaving welfare in the Periphery almost unchanged. During the euro crisis, the Periphery would have benefited from substantial transfers from the Core.

Unemployment Insurance – Comparative, Cross-Border and EU Perspectives

The article is centred upon the research question whether unemployed persons enjoy proper protection in national, international (cross-border) and EU law. In an attempt to reply to such question, the authors firstly compare national unemployment insurance schemes and secondly, research on how unemployment benefits are coordinated in cross-border cases. Moreover, non-coordination of social assistance schemes is addressed. With respect to coordination of unemployment benefits and social assistance schemes, the authors advocate for ways of improving the legal position of mobile unemployed persons. Lastly, some EU-wide unemployment related initiatives are highlighted, namely the European unemployment benefit scheme (EUBS) and the European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the Covid-19 outbreak.

On the design of a European Unemployment Insurance System

We study the welfare effects of both existing and counter-factual European unemployment insurance (UI) policies using a rich multi-country dynamic general equilibrium model with labour market frictions. The model successfully replicates several salient features of European labour markets, in particular the cross-country differences in the flows between employment, unemployment and inactivity, as a result of labour market and UI policy differences across euro area countries. We find that mechanisms like the recently introduced instrument for temporary support to mitigate unemployment risks in an emergency (SURE), which allows national governments to borrow at low interest rates to cover expenditures on unemployment risk, yield sizeable welfare gains. Furthermore, we find that, in spite of the calibrated heterogeneity across euro area countries, there is a common direction in which they can improve their UI policies; in particular, a harmonized benefit system that features a one-time payment of around three quarters of income upon separation is welfare improving in all euro area countries relative to the status quo.

Regional inequalities and transnational solidarity in the European Union

Amid the eurocrisis, scholars and policy makers sought to establish an EU-wide layer of social policy, aiming to ensure common standards through the EU and to provide a degree of common social protection. While public support for European social policy has been extensively studied, we don't know how regional (i.e., subnational) inequalities relate to preferences for European social policy. We analyse the effect of regional differences in socio-economic and institutional contexts on public preferences for European social policy in general and support for European unemployment insurance in particular. Combining original survey data collected in 2018 in 12 European countries with regional-level economic and political indicators, we find that regional-level self-interest impacts individual preferences but that the effect is not always clear-cut. Contrary to expectations, people in richer regions are more supportive of EU social policy than people in poorer regions, while citizens of politically more autonomous regions tend to have a generally more positive view of EU social policy. A conjoint experiment on support for different policy variants of European unemployment insurance sheds light on these counterintuitive findings: Citizens in richer regions are indeed more supportive of EU-level social policy, but only when it has limited redistributive implications and instead affects standards; conversely citizens in poorer regions are willing to forego their opposition to EU social policy for redistributive programs.

European unemployment insurance. From undercurrent to paradigm shift

The need for the European Union to get involved in unemployment insurance has frequently been debated in the past decade, starting from exploratory discussions and eventually becoming a political commitment by the European Commission President. This article looks back at the origins of the idea of an EU-level unemployment benefit scheme and explains the political dynamics of the concept’s evolution. Following the 2009 Great Recession and the subsequent eurozone debt crisis, a new movement for a reinforced social dimension has been pushing the EU beyond its previous red lines. The case for counter-cyclical social stabilisation at EU level is now a touchstone for a materially meaningful EU social dimension. The COVID-19 crisis triggered a giant leap to a greater EU budgetary capacity, including financial support for job-saving schemes. This article argues that these new instruments will not suffice without also creating an EU safety net for those whose jobs cannot be saved in a period of economic downturn.

On the Design of a European Unemployment Insurance System

On the Design of a European Unemployment Insurance System

Conditional Generosity and Deservingness in Public Support for European Unemployment Risk Sharing*

AbstractPrevious research into public support for welfare solidarity often refers to the importance of ‘reciprocity’, which means that generous social benefits are supported if they are matched by credible commitments to contribute by those who can. The current article adds to this body of literature by providing novel empirical evidence on the roles of generosity and conditionality in support for European unemployment insurance programmes. Drawing on a conjoint survey experiment in 13 European countries, we show that Europeans may be motivated by an ethos of reciprocity, since policy proposals that are both generous and conditional are the most popular among the general population. However, conditional generosity seems to have much more traction among those who consider the unemployed as undeserving, suggesting that EU‐level policies may succeed in overcoming the diffidence of welfare sceptics if reciprocity is ensured in the architecture of the policy design.

Cross-Country Unemployment Insurance, Transfers, and Trade-Offs in International Risk Sharing

We assess to which degree an international transfer mechanism can enhance consumption risk sharing as well as allocative efficiency and apply our results to the implicit transfers generated by a potential European unemployment benefit scheme (EUBS). Specifically, we first develop a simple model with nominal rigidities to build intuition by deriving analytical results. We then use a rich DSGE model, calibrated to the Core and the Periphery of the euro area, to quantitatively analyze the changing dynamics that a EUBS brings about. We find that a EUBS can provide risk sharing by stabilizing relative consumption as well as unemployment differentials. Following supply shocks, however, the cross-country transfer embodied in the unemployment benefits is spent to a large degree on relatively inefficiently produced goods in the receiving countries. This renders the allocation even more inefficient by opening country-specific labor wedges further, also after government-spending shocks. Yet, since this trade-off between allocative efficiency and consumption risk sharing does not exist after certain demand shocks, the welfare effects of a EUBS depend on the cause for international unemployment differentials. A EUBS that is only active after specific shocks would therefore maximize overall welfare. Even without this feature, a EUBS would raise Core’s welfare in the quantitative model, leaving Periphery’s welfare almost unchanged.

Attitudes towards euro area reforms: Evidence from a randomized survey experiment

This paper provides insights into the determinants of euro area reform preferences by means of a randomized survey experiment in Germany. Respondents are confronted with a pro and a contra argument to reform proposals on a European Unemployment Benefit Scheme and a Sovereign Insolvency Procedure, respectively, with the contra argument being varied across respondents. Our results for the control group suggest that there is a low willingness to accept fiscal risk-sharing through common unemployment insurance, while a sovereign insolvency procedure aimed at strengthening market discipline is supported by a majority of the survey participants. Our randomized treatments highlighting specific potential adverse effects of the reforms lead to significant downward shifts in approval rates. Altruism, EU support, nationalism, political preferences and income are important predictors of support for the reform proposals. We also show that there is a striking contrast between the low level of support for transfers to other euro area member states and a broad acceptance of inner German transfers.

Beyond European unemployment insurance. Less moral hazard, more moral assurance?

The compromise that emerged from the lengthy debate on European unemployment insurance (EUI) involved the establishment of a ‘European Unemployment Reinsurance Scheme’. However, it was not until the shock waves of the COVID-19 pandemic were felt that any specific measures were actually taken to establish such a scheme. The reasons for such prevarication were, first, doubts as to whether moral hazard can be kept under control and, second, the huge diversity of EU Member States’ coverage and level of social protection. This article offers a third reason for this protracted stalemate: the neglect of moral assurance as a countervailing force of moral hazard. It argues that the concept of unemployment insurance itself needs to be fundamentally revised. Modern labour market policy must cover not only income risks related to unemployment, but also other serious income risks related to critical transitions over the life course. Finally, this article proposes the extension of the European Social Fund to create a European Employment and Social Fund with elements of work-life insurance and a reinsurance mechanism for shock absorption.Le compromis qui a émergé du long débat sur l’assurance-chômage européenne (EUI) impliquait la création d’un “régime européen de réassurance-chômage”. Il a néanmoins fallu attendre les ondes de choc de la pandémie du COVID-19 pour voir apparaître des mesures spécifiques visant à mettre en place un tel système. Ces hésitations étaient liées, d’une part, aux doutes quant à la possibilité de maîtriser l’aléa moral et, d’autre part, à la grande diversité de la couverture et du niveau de protection sociale dans les États membres de l’UE. Cet article propose une troisième raison à cet enlisement prolongé : le fait de négliger l’assurance morale comme contrepoids à l’aléa moral. L’auteur soutient que le concept d’assurance-chômage lui-même doit être fondamentalement révisé. La politique moderne du marché du travail doit couvrir non seulement les risques de revenus liés au chômage, mais aussi d’autres risques de revenus, importants et liés à des transitions critiques au cours de la vie. Enfin, l’article plaide en faveur d’un élargissement du Fonds social européen, avec la création d’un Fonds social et de l’emploi européen qui comporterait des éléments d’assurance vie-travail et un mécanisme de réassurance destiné à absorber les chocs.Nach einer langen Debatte über eine europäische Arbeitslosenversicherung tauchte eine europäische Arbeitslosenrückversicherung als Kompromiss auf. Konkrete Schritte in diese Richtung wurden jedoch erst unter dem pandemischen Schock von COVID-19 als Katalysator unternommen. Zweifel, ob “moral hazard” unter Kontrolle gehalten werden kann, sind ein Grund für dieses Zögern, die enorme Diversität von Deckungsgrad und Niveau des Sozialschutzes in EU-Mitgliedstaaten ein anderer. Dieser Essay hebt einen dritten Grund für das lange Patt hervor: die Vernachlässigung von “moral assurance” als Gegengewicht von “moral hazard”. Er argumentiert, dass das Konzept der Arbeitslosenversicherung selbst einer fundamentalen Revision bedarf. Moderne Arbeitsmarktpolitik sollte nicht nur Einkommensrisiken bei Arbeitslosigkeit decken, sondern auch andere ernsthafte Einkommensrisiken bei kritischen Übergängen im Lebensverlauf. Er schlägt vor, den Europäischen Sozialfonds zu einem Europäischen Beschäftigungs- und Sozialfonds mit Elementen einer Arbeitslebensversicherung und einer Rückversicherung für Schock-Absorption zu erweitern.

Preferences for European unemployment insurance: a question of economic ideology or EU support?

ABSTRACTAgainst the backdrop of proposals to introduce a European unemployment insurance scheme, we study public support for such schemes by conducting a conjoint experiment on support for European unemployment insurance in 13 EU member states. We argue that European-level social policy initiatives and the underlying notions of solidarity cannot be reduced to a one-dimensional concept, but rather include various dimensions. Unemployment schemes vary in their generosity, the conditions for support, their impact on taxation, the extent to which they preclude permanent redistribution between countries, and the EU’s role in their administration. Generosity, conditions and taxation are ‘domestic’ dimensions, since they mainly resonate with domestic policy debates; between-country redistribution and administration are ‘cross-border’ dimensions, referring to relationships between countries. We expect economic ideology to interact predominantly with domestic dimensions and EU support to interact predominantly with cross-border dimensions. Findings confirm these expectations, with the exception of between-country redistribution and country-level conditionality.

European Monetary Union reform preferences of French and German parliamentarians

This study analyzes results from an original survey of members of the French and German parliaments (Assemblee Nationale, Senat and Bundestag) on economic policies and institutions of the Eurozone. We find that French politicians are significantly more supportive of Eurobonds, a European unemployment insurance scheme, and an active monetary policy by the ECB than German politicians. At the same time, there are significant differences along party lines, which are often quantitatively more important than differences in nationality. Left-leaning members of parliaments are in favor of new policy instruments at the European or Eurozone level, but are skeptical about the fiscal constraints of the Fiscal Compact. There is widespread consensus across parties and countries that more investment at national levels is warranted.

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

The American system of unemployment insurance (UI) is often cited as a model for potential European unemployment re-insurance schemes. While oversimplified comparisons are to be avoided, there are lessons Europe can learn from US federal-state relations regarding UI. We distinguish three aspects of the US system: first, in the 1930s the federal government was able to solve a collective action problem that impeded the development of state-level UI programs; second, during the 1950s Congress enacted a federal backstop for depleted state UI trust funds that are used to finance regular UI benefits; third, in the 1970s the federal government added an extra layer of UI to the state system, based on an intergovernmental co-financing of benefits which intensifies during crises and thus reinforces protection and stabilization where and when it is most needed. The second and third aspects now exercise European interest, which is about buttressing national systems with a supranational layer of insurance. The American experience shows that federal-state cooperation has overcome problems of collective action and enhanced stabilization. It proved to be of great importance in the Great Recession to effectively expand the protection of unemployed workers and to backstop state UI programs in a period of high and rising unemployment and thereby to contribute in a relevant way to the stabilization efforts of the Obama Administration. However, there are also some structural weaknesses in the American system. With a view to what might be developed in the EU, we identify two risks when an extra layer of unemployment protection is added at the supranational level. First, depending on the set-up of the system, federal-level financing of UI can lead to retrenchment of state-level efforts in terms of UI schemes and macroeconomic stabilization. Second, state-level retrenchment can lead to divergence between state UI programs. The US UI model is vulnerable to these two risks, although this may not be its main current challenge. Simultaneously, these risks – and the other problems besetting the American model – are not insurmountable. We draw both positive and cautionary lessons from the American experience. A lesson is that minimum requirements regarding generosity and coverage levels of UI programs are fundamental prerequisites for any supranational re-insurance.

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

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

Drowned by numbers? Stabilization properties of an EU-wide unemployment insurance system

ABSTRACTThe recent crisis has given rise to proposals for the creation of a European unemployment insurance system. We simulate an EU-wide mechanism under various scenarios, varying methods of financing (common or country-specific contribution rates) and triggers for pay-outs (all time or contingent clauses). We analyse the impact of the system using different measures of stabilization under different fiscal multipliers. A system operating during bad times (periods where the increase in unemployment is large) would reduce GDP growth variability but also growth correlation among member countries. Hence, there is a trade-off between stabilization and synchronization of national business cycles.

A Euro Area Macroeconomic Stabilisation Function: Assessing Options in View of Their Redistribution and Stabilisation Properties

A macroeconomic stabilisation function for the euro area - as envisaged in the Five Presidents’ Report - plays a central role in the debate on deepening Economic and Monetary Union (EMU). We evaluate a broad range of options, their impact on economic growth, macroeconomic stabilisation and synchronisation of the euro area business cycle, and review how they could be designed so they do not undermine incentives for welfare-enhancing national economic policies. A common macroeconomic stabilisation function, e.g. in the form of a European Unemployment Insurance (EUI), could in theory help stabilise the business cycle in the euro area, especially in some participating Member States. Yet, simulating the effects of such a function for 2002-2014 suggests that its stabilisation properties would have been relatively limited. At the same time, design options with meaningful safeguards and relatively low financing requirements would have been most efficient when comparing the degree of stabilisation with the size of the funds distributed among countries. Finally, we discuss some design elements of a scheme whose aim is to support the transition process towards more resilient economic structures in the euro area as envisaged in the Five Presidents’ Report. JEL Classification: J65, H53, F55

Designing a fiscal union for the euro area

Motivation: Fiscal integration constitutes an important adjustment mechanism to cope with asymmetric shocks within a monetary union which does not fulfil many criteria of an optimal currency area. As is currently the case in the euro area, national governments implement discretionary fiscal policy to try to cope with the adverse economic shocks themselves and to try to stabilise income which leads to high budget deficits and public indebtedness in many euro area countries. While conducting fiscal policy at supranational level and fiscal transfers within EMU would allow for sufficient cross-country risk sharing and contribute to macroeconomic stability of the whole euro area. Aim: The aim of the paper is to give economic rationale and explain the significance of fiscal union for the effective functioning of a common currency area, and especially its macroeconomic stability as well as to present various forms of fiscal integration and to assess the possibility of their introduction within the euro area taking into account the current degree of economic integration, principles of conducting macroeconomic policy and its outcomes, the actual situation in the field of public finances and political circumstances in EMU and its member countries. Results: The greatest potential for macroeconomic stability — both in terms of asymmetric shocks, as well as these affecting the entire euro area — ensures the establishment of a large federal Eurozone budget. However, in a situation of a lack of political will to move forward into a political union, the approach to ensure fiscal stabilisation should include: creating even a small euro area-wide budget and the common Ministry of Finance, introducing a European unemployment (re-)insurance scheme with further harmonization of labour markets, equipping the banking union with a fiscal backstop as well as making national fiscal policies more stabilising and avoiding to impose self-defeating fiscal adjustments on crisis countries.

Ten Lessons from a Decade of Debating an EUBS: Robust Findings, Popular Myths and Remaining Dilemmas

The modern debate on a potential EUBS began in earnest around a decade ago, just prior to the onset of the global financial crisis. In the mid-2000s, current account imbalances and diverging unit labour costs triggered a new debate about transfer systems between euro area countries and, particularly, a European unemployment insurance.

Worlds of welfare collide

The post-2007 financial crisis has brought renewed interest in a European Unemployment Benefit Scheme (EUBS) as a manifestation of solidarity between citizens of different Member States and an economic stabiliser in the event of future asymmetric shocks. The EU-wide benefit would operate in tandem with existing national unemployment benefits. This creates challenges of compatibility given the diversity of approaches to social security within the Union, based on at least four philosophies of welfare: liberal, conservative, social democratic and southern European. This article examines potential legal, operational and political difficulties associated with marrying a EUBS that is at heart a conservative system of social insurance to the UK’s liberal welfare state. Few legal obstacles exist and although the addition of a new, earnings-related benefit to an already complex mix of social protection would raise significant operational issues, these need not be insurmountable. However, fundamental ideological differences would have rendered the EUBS as proposed politically ill-matched with the UK even absent the June 2016 vote to leave the EU. A contributory income maintenance benefit is a poor fit with a residual, largely means-tested national system whose role is limited to offering protection against severe poverty while maintaining work incentives and minimising costs.