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Unemployment Insurance Union

Marius Clemens () and Guillaume Claveres
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Guillaume Claveres: Universite Paris 1 Pantheon-Sorbonne

No 1340, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: A European unemployment insurance scheme has gained increased attention as a new and ambitious common fiscal instrument which could be used for temporary cross-country transfers. Part of the national stabilizers composing unemployment insurance schemes would be transferred to the central level. Unemployed are then insured by both layers. When a country is hit by an asymmetric shock, it would receive positive net transfers from the central fund in the form of reduced taxes and increased benefits, providing risk-sharing for the whole union. We build a two-country DSGE model with supply, demand and labor market shocks in order to capture the recent national insurance system and the unemployment insurance union (UIU) design. The model is calibrated to the euro area core and periphery data and matches the empirically observed cyclicality of the net replacement rate, the wage and unemployment dynamics. This baseline scenario is then compared to a optimal unemployment insurance union with passive and active benefit policies. For all underlying shocks, we find that the UIU reduces the fluctuation of consumption and unemployment while it increases the fluctuation of the trade balance. In case of a positive domestic government spending shock the UIU reduces the negative crowding out effect on private consumption and investment. The model will be used to analyze the effects of national and supranational benefit policies on labour market patterns and welfare.

New Economics Papers: this item is included in nep-dge, nep-eec, nep-ias and nep-mac
Date: 2017
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