On the design of a European unemployment insurance system
Ábrahám, Árpád
Brogueira de Sousa, João
Marimon, Ramon
Mayr, Lukas

Date: 2018
Abstract: 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.
Abstract: The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
Note: Número d'acord de subvenció EC/H2020/649396
Rights: Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original. Creative Commons
Language: Anglès.
Series: Barcelona Graduate School of Economics: ADEMU working paper series
Series: ADEMU Working Paper Series ; 106
Document: workingPaper
Subject: Labour markets ; Unemployment insurance ; Job creation ; Job destruction ; Risk-sharing ; Economic Monetary Union

Adreça alternativa: https://hdl.handle.net/10230/35490

61 p, 788.1 KB

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Research literature > Working papers

 Record created 2018-10-23, last modified 2018-11-10

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