A proposal for a federalized unemployment insurance mechanism for Europe

Leila Davis, Charalampos Konstantinidis and Yorghos Tripodis
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Yorghos Tripodis: Department of Biostatistics, School of Public Health, Boston University, MA, USA

European Journal of Economics and Economic Policies: Intervention, 2017, vol. 14, issue 1, 92-116

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.

Keywords: eurozone; unemployment insurance; fiscal transfers (search for similar items in EconPapers)
JEL-codes: E61 E62 (search for similar items in EconPapers)
Date: 2017
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Working Paper: A proposal for a federalized unemployment insurance mechanism for Europe (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:elg:ejeepi:v:14:y:2017:i:1:p92-116

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