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On the design of a European Unemployment Insurance System

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  • Ábrahám, Árpád
  • Brogueira de Sousa, João
  • Marimon, Ramon
  • Mayr, Lukas

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.

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  • Ábrahám, Árpád & Brogueira de Sousa, João & Marimon, Ramon & Mayr, Lukas, 2023. "On the design of a European Unemployment Insurance System," European Economic Review, Elsevier, vol. 156(C).
  • Handle: RePEc:eee:eecrev:v:156:y:2023:i:c:s0014292123000983
    DOI: 10.1016/j.euroecorev.2023.104469
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    2. Julián Díaz-Saavedra & Ramon Marimon & João Brogueira de, 2023. "A Worker’s Backpack as an Alternative to PAYG Pension Systems," Journal of the European Economic Association, European Economic Association, vol. 21(5), pages 1944-1993.
    3. RADU Maria-Tatiana & RĂDULESCU Magdalena & PENTESCU Alma & MARINOV Georgi & KHARLAMOVA Ganna, 2023. "The Effects of Immigration and Unemployment on European Countries: A Comparative Social and Fiscal Perspective," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 02, June.
    4. João Brogueira de Sousa & Julián Díaz-Saavedra & Ramon Marimon, 2022. "Introducing an Austrian backpack in Spain," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(3), pages 513-556, September.
    5. Beetsma, Roel & Cimadomo, Jacopo & van Spronsen, Josha, 2024. "One scheme fits all: A central fiscal capacity for the EMU targeting eurozone, national and regional shocks," European Economic Review, Elsevier, vol. 165(C).
    6. Alexander Karaivanov & Benoit Mojon & Luiz Pereira da Silva & Albert Pierres Tejada & Robert Townsend, 2024. "Incentive-Compatible Unemployment Reinsurance for the Euro Area," NBER Working Papers 32396, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Labour markets; Unemployment insurance; Job creation; Job destruction; Risk-sharing;
    All these keywords.

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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