On the design of a European unemployment insurance system

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

Research output: Contribution to journalArticlepeer-review

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
JournalEuropean Economic Review
Volume156
DOIs
Publication statusPublished - Jul 2023

Keywords

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

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