A Feasible Unemployment‐Based Shock Absorber for the Euro Area

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu This paper contributes to the debate on the design of a centralised fiscal tool absorbing country-specific negative shocks in the euro area. Based on theoretical insights, it identifies the broad characteristics that a shock absorber based on unemployment should have in order to be incentive-compatible and politically feasible. It then derives empirically the combination of activation thresholds, experience rating, eligibility criteria, and benefit generosity which define the systems offering the highest stabilisation for given levels of redistribution, accounting for the large variation in benefit take-up rates across European countries. The analysis suggests that the shock absorber should: i) give rise to macro crossnational transfers, mimicking those that would be generated by a notional euro-wide unemployment benefit scheme of minimal coverage and generosity; ii) be activated by a trigger; and iii) feature partial experience rating. The simulation results, confirmed by robustness checks, show that even systems that do not redistribute resources between countries can have a non-negligible stabilisation impact in the medium run. Low benefit takeup rates in Southern Europe substantially reduce the stabilisation properties and the size of the scheme. Terms of use: Documents in P O L I C Y P A P E R S E R I E SJEL Classification: E6, J65, H53

Optimal Unemployment Insurance and International Risk Sharing

“…2 A harmonized unemployment insurance system within the Eurozone as a tool for international risk sharing has also been suggested by the President of the European Council (van Rompuy, 2012), the International Monetary Fund (Blanchard et al, 2014), the German Institute for Economic Research (Bernoth and Engler, 2013), the French Advisory Council (Artus et al, 2013), Dolls et al (2014), the Banca d'Italia (Brandolini et al, 2015) and Bénassy-Quéré et al (2016). Brenke (2013) also discusses some of the drawbacks.…”

Towards shared unemployment insurance in the euro area

“…They suggested that such a scheme would need to be implemented in stages. In November 2014, the Bank of Italy published a paper identifying the broad characteristics that a shock absorber based on unemployment should have in order to be incentive-compatible and politically feasible (Brandolini et al 2014). The study derives empirically the combination of activation thresholds, experience rating, eligibility criteria and benefit generosity to define such a system giving rise to macro-cross-national transfers, activated by a trigger and with partial experience rating.…”

“…Fourth, studies have proved that even systems that do not redistribute resources between countries can have an important stabilisation impact in the medium run (Brandolini et al 2014). …”

“…Dullien (2013) suggested an annual cost of the scheme between 0.3 and 0.6 % of GDP, and the stabilisation effects of the system, calculated as GDP deviation from a potential GDP trend, would increase on average by 11 % for the whole area; however, the net effect in a recession in most countries would be much larger. Brandolini et al (2014) estimate that over the decade 2002-2012, such an instrument would have had a stabilisation effect, calculated as the reduction in the coefficient of variation of GDP within the euro area, by 0.03 %. Beblavý and Maselli (2014) use a different measure of stabilisation, by looking at the ratio between net payments to the fund and total GDP, instead at the deviation of GDP from its trend.…”

An unemployment insurance scheme for the euro area? A comparison of different alternatives using microdata

“…Claeys et al (2014) provide an overview of policy challenges associated with an EMU-UI system. 4 Brandolini et al (2016) and Jara and Sutherland (2014) also use micro data to analyze an EMU-UI system. The focus of their analyses di¤ers from ours as in contrast to this study, the former considers a notional EMU-UI system backing national UI systems and thus disregards EMU-UI transfers at the micro level, while the latter assumes EMU-UI bene…ts to top up national bene…ts if minimum requirements are not met by national UI systems.…”