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Federal unemployment reinsurance and local labor-market policies

Author

Listed:
  • Marek Ignaszak

    (Goethe University Frankfurt, Theodor-W.-Adorno-Platz 3, 60323 Frankfurt, Germany,)

  • Philip Jung

    (TechnicalUniversityofDortmund,FacultyofBusiness,EconomicsandSocialSciences,44221 Dortmund,Germany)

  • Keith Kuester

    (University of Bonn Adenauerallee 24-42,53113 Bonn, Germany, and CEPR)

Abstract

Consider a union of atomistic member states, each faced with idiosyncratic business-cycle shocks. Private cross-border risk-sharing is limited, giving a role to a federal unemployment-based transfer scheme. Member states control local labor-market policies, giving rise to a trade-off between moral hazard and insurance. Calibrating the economy to a stylized European Monetary Union, we find notable welfare gains if the federal scheme's payouts take the member states' past unemployment level as a reference point. Member states' control over policies other than unemployment benefits can limit generosity during the transition phase.

Suggested Citation

  • Marek Ignaszak & Philip Jung & Keith Kuester, 2020. "Federal unemployment reinsurance and local labor-market policies," ECONtribute Discussion Papers Series 040, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:040
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    References listed on IDEAS

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    2. Kohler, Wilhelm & Müller, Gernot J. & Wellmann, Susanne, 2023. "Risk sharing in currency unions: The migration channel," European Economic Review, Elsevier, vol. 158(C).
    3. Vinci, Francesca & Schang, Christopher, 2024. "Marrying fiscal rules & investment: a central fiscal capacity for Europe," Working Paper Series 2962, European Central Bank.

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    More about this item

    Keywords

    Unemployment reinsurance; labor-market policy; fiscal federalism; search and matching;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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