A proposal for a federalized unemployment insurance mechanism for Europe

Leila Davis, Charalampos Konstantinidis and Yorghos Tripodis

No 2015_02, Working Papers from University of Massachusetts Boston, Economics Department

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 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.

Keywords: Eurozone; unemployment insurance; fiscal transfers (search for similar items in EconPapers)
JEL-codes: E51 E62 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-10
New Economics Papers: this item is included in nep-eec, nep-ias and nep-mac
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Journal Article: A proposal for a federalized unemployment insurance mechanism for Europe (2017)
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