A proposal for a federalized unemployment insurance mechanism for Europe

Abstract

The ongoing crisis in the eurozone, together with growing evidence of structural imbalances, points to a role for new institutions to support a more stable European Monetary Union (EMU) structure. As is well established in the context of monetary union when business cycles are not synchronized, a system of fiscal transfers can support monetary union. Unemployment insurance (UI) is, in particular, a key component of fiscal crisis management. UI supports household incomes during downturns, and also acts as an automatic stabilizer, thereby helping individual countries respond to asymmetric shocks. This paper proposes a 'federalized' EMU-level UI mechanism as one program that can contribute to a system of fiscal transfers in the EMU, and estimates the cost of the proposed system under different financing and eligibility scenarios. We find that, under a variety of reasonable institutional parameters, such a system is fiscally feasible with limited reason to expect adverse employment effects in member countries. We conclude that fiscal transfers extended via automatic stabilizers are a productive avenue towards a more stable eurozone architecture.

Unequal Social Protection under the Federalist System: Three Unemployment Insurance Approaches in the United States, 2007–2015

“…The global Great Recession in the late 2000s challenged the UI systems in industrialized countries in providing responsive and adequate protection for unemployed workers (Chang, 2015; Shahidi, 2015). In the wake of the Great Recession, a central UI policy debate among the European Union (EU) member states has involved the establishment of a supranational European unemployment benefits scheme (EUBS) as a Europe-wide stabilization and redistribution mechanism (Andor, 2016; Davis et al, 2015; Esser et al, 2013). Policy discussions have centred more on the issues regarding economic stabilization and moral hazard than the issues regarding social protection and solidarity among the varying welfare traditions.…”