With disparities in national unemployment rates reaching record levels, the debate on fiscal stabilisers in Europe has gained new momentum. Can a European unemployment insurance scheme help to absorb asymmetric shocks and bring about the desired level of macroeconomic stabilisation? What should such an unemployment benefit system look like? The contributions to this Forum explore the benefits expected from a European unemployment insurance scheme and discuss the difficulties in establishing such a policy.
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.
We assess the benefits of a potential European Unemployment Insurance System (EUIS) using a multi-country dynamic general equilibrium model with labour market frictions. Our calibration provides a novel diagnosis of the European labour markets, revealing the key parameters - in particular, job-separation and job-finding rates - that explain their different performance in terms of unemployment (or employment) and its persistence. We show that there are only small welfare gains from insuring against country-specific cyclical fluctuations in unemployment expenditures. However, we find that there are substantial gains from reforming currently suboptimal unemployment benefit systems. In spite of country differences, it is possible to unanimously agree on an EUIS with unlimited duration of eligibility, which eliminates the risk of not finding a job before the receipt of benefits ends, and a low replacement rate of 15%, which stabilizes incentives to work and save. We argue that such reforms are more effectively designed at the European level than at the national level because national governments do not take into account general equilibrium effects of their reforms on citizens in other countries. Concerns regarding the political feasibility of such a system are addressed through country-specific contribution payments that eliminate cross-country transfers. The resulting tax differences across countries may be the best statistic of their structural labour market differences, in terms of job creation and destruction, providing clear incentives for reform. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
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.
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.
In: CESifo economic studies: a joint initiative of the University of Munich's Center for Economic Studies and the Ifo Institute, Volume 62, Issue 2, p. 376-395
A European unemployment insurance scheme has gained increased attention as a new and ambitious common fiscal instrument which could be used for temporary cross-country transfers. Part of the national stabilizers composing unemployment insurance schemes would be transferred to the central level. Unemployed are then insured by both layers. When a country is hit by an asymmetric shock, it would receive positive net transfers from the central fund in the form of reduced taxes and increased benefits, providing risk-sharing for the whole union. We build a two-country DSGE model with supply, demand and labor market shocks in order to capture the recent national insurance system and the unemployment insurance union (UIU) design. The model is calibrated to the euro area core and periphery data and matches the empirically observed cyclicality of the net replacement rate, the wage and unemployment dynamics. This baseline scenario is then compared to an optimal unemployment insurance union with passive and active benefit policies. For all underlying shocks, we find that the UIU reduces the fluctuation of consumption and unemployment while it increases the fluctuations of the trade balance. In case of a positive domestic government spending shock the UIU reduces the negative crowding out effect on private consumption and investment. The model will be used to analyze the effects of national and supranational benefit policies on labour market patterns and welfare.
A European transfer system could contribute to stabilization of the euro area by synchronizing business cycles in the monetary union, thus simplifying the common monetary policy. Such a system is proposed here in the form of a European unemployment insurance scheme. Compared to other forms of fiscal transfer systems, this has some advantages: by putting the focus on short-term unemployment, an automatic link between payments and the cyclical situation of a member state is ensured, making the system relatively robust against political manipulation. Furthermore, this set-up will most likely prevent a case in which countries systematically become net recipients or net contributors. Therefore, the risk of permanently creating transfers to single countries is low. While a European unemployment insurance system would not be suitable for removing or eliminating structural discrepancies between countries (such as those that caused the euro crisis), cyclical imbalances within a monetary union would be effectively dampened, at not much additional administrative cost. Such a system could thus become an important stabilizing element for the member states of the European Monetary Union.
