On the design of a European Unemployment Insurance System

Arpad J Abraham, Joao Brogueira de Sousa, Lukas Mayr, Ramon Marimon*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

2 Citations (Scopus)
33 Downloads (Pure)

Abstract

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.
Original languageEnglish
Article number104469
Pages (from-to)1-29
JournalEuropean Economic Review
Volume156
Early online date16 May 2023
DOIs
Publication statusPublished - 1 Jul 2023

Bibliographical note

Funding Information:
We would like to thank for their comments: Two anonymous referees, the editor, Juan Dolado, Mike Elsby, Juan F. Jimeno, Etienne Lalé, Rody Manuelli, Richard Rogerson and Pedro Teles, and the participants in conferences and workshops where versions of this paper have been presented. Most of the research leading to this paper has been conducted within the Horizon 2020 ADEMU project, “A Dynamic Economic and Monetary Union”, funded by the European Union's Horizon 2020 Program under grant agreement No 649396. BSE is supported by the Severo Ochoa Programme for Centres of Excellence in R&D (CEX2019-000915-S). João Brogueira de Sousa gratefully acknowledges funding from Fundação para a Ciência e a Tecnologia, Portugal (UIDB/00124/2020, UIDP/00124/2020 and Social Sciences DataLab - PINFRA/22209/2016), POR Lisboa and POR Norte (Social Sciences DataLab, PINFRA/22209/2016).

Funding Information:
We would like to thank for their comments: Two anonymous referees, the editor, Juan Dolado, Mike Elsby, Juan F. Jimeno, Etienne Lalé, Rody Manuelli, Richard Rogerson and Pedro Teles, and the participants in conferences and workshops where versions of this paper have been presented. Most of the research leading to this paper has been conducted within the Horizon 2020 ADEMU project, “A Dynamic Economic and Monetary Union”, funded by the European Union’s Horizon 2020 Program under grant agreement No 649396 . BSE is supported by the Severo Ochoa Programme for Centres of Excellence in R&D ( CEX2019-000915-S ). João Brogueira de Sousa gratefully acknowledges funding from Fundação para a Ciência e a Tecnologia, Portugal ( UIDB/00124/2020 , UIDP/00124/2020 and Social Sciences DataLab - PINFRA/22209/2016 ), POR Lisboa and POR Norte (Social Sciences DataLab, PINFRA/22209/2016 ).

Publisher Copyright:
© 2023 The Author(s)

Keywords

  • Labour markets; Unemployment insurance; Job creation; Job destruction; Risk-sharing

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