Drowned by numbers? Stabilization properties of an EU-wide unemployment insurance system

Etienne Farvaque and Florence Huart

Applied Economics, 2018, vol. 50, issue 38, 4153-4181

Abstract: The recent crisis has given rise to proposals for the creation of a European unemployment insurance system. We simulate an EU-wide mechanism under various scenarios, varying methods of financing (common or country-specific contribution rates) and triggers for pay-outs (all time or contingent clauses). We analyse the impact of the system using different measures of stabilization under different fiscal multipliers. A system operating during bad times (periods where the increase in unemployment is large) would reduce GDP growth variability but also growth correlation among member countries. Hence, there is a trade-off between stabilization and synchronization of national business cycles.

Date: 2018
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DOI: 10.1080/00036846.2018.1441517

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