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On the design of a european unemployment insurance system

Author

Listed:
  • Árpád Ábrahám
  • João Brogueira de Sousa
  • Ramon Marimon
  • Lukas Mayr

Abstract

We study the welfare effects of both existing and counter-factual European unemployment insurance policies using a rich multi-country dynamic general equilibrium model with labour market frictions. The model successfully replicates several salient features of European labor markets, in particular the cross-country differences in the flows between employment, unemployment and inactivity. We find that mechanisms like the recently introduced European 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 benefits, yield sizable welfare gains, contradicting the conventional classical view that costs of business cycles are small. Furthermore, we find that a harmonized benefit system that features a one-time payment of around three quarters of income upon separation is welfare improving in all Eurozone countries relative to the status quo.

Suggested Citation

  • Árpád Ábrahám & João Brogueira de Sousa & Ramon Marimon & Lukas Mayr, 2022. "On the design of a european unemployment insurance system," Economics Working Papers 1826, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1826
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    References listed on IDEAS

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    More about this item

    Keywords

    labour markets; Unemployment Insurance; job creation; job destruction; risk-sharing; Economic Monetary Union;
    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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