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Stabilisation properties of a sure-like European unemployment insurance

Author

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  • Daniel Alonso

    (Banco de España)

Abstract

To moderate the falls in production and income that affect certain states or regions, countries and monetary unions have risk-sharing mechanisms. These mechanisms work by stabilising household incomes such that fluctuations in production do not filter through to consumption. Almost all existing monetary unions are true insurance unions, except for the euro area. This entails lower resilience to economic shocks and, as demonstrated during the COVID-19 crisis, implies that the ability to respond to different shocks may differ between countries and, therefore, hinder economic convergence and homogeneous operation of the euro area. In this regard, the creation of a European Unemployment Insurance (EUI) scheme is often cited as an important step towards macroeconomic smoothing within the euro area that could help mitigate the economic and social impact of large economic shocks. In this paper, I propose an EUI scheme, with partial coverage, calibrated to the characteristics of the Temporary Support to Mitigate Unemployment Risks in an Emergency (SURE scheme) introduced during the COVID-19 crisis, and test its cyclical properties through simulation exercises, based on the payment and contribution flows in each country. This paper shows that such a transfer system with a relatively limited size could make a significant contribution to stabilising economic developments, cushioning part of the disruptions in times of crisis.

Suggested Citation

  • Daniel Alonso, 2024. "Stabilisation properties of a sure-like European unemployment insurance," Working Papers 2419, Banco de España.
  • Handle: RePEc:bde:wpaper:2419
    DOI: https://doi.org/10.53479/36654
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    More about this item

    Keywords

    macroeconomic stabilisation; monetary union; unemployment insurance; risk-sharing;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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