Federal unemployment reinsurance and local labor-market policies

Keith Kuester, Philip Jung () and Marek Ignaszak

No 15465, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Unemployment reinsurance; Labor-market policy; Fiscal federalism; Search and matching (search for similar items in EconPapers)
JEL-codes: E24 E32 E62 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mac
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Citations: View citations in EconPapers (6)

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Working Paper: Federal unemployment reinsurance and local labor-market policies (2020)
Working Paper: Federal Unemployment Reinsurance and Local Labor-Market Policies (2020)
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