European fiscal integration , unemployment insurance , automatic stabilizers
Abstract:
We analyze different alternatives how a common unemployment insurance system for
the euro area (EA) could be designed and assess their effectiveness to act as an insurance
device in the presence of asymmetric macroeconomic shocks. Running counterfactual
simulations based on micro data for the period 2000-13, we highlight and quantify
the trade-off between automatic stabilization e¤ects and the degree of cross-country
transfers. In the baseline, we focus on a non-contingent scheme covering short-term
unemployment and find that it would have absorbed a significant fraction of the un-
employment shock in the recent crisis. However, 5 member states of the EA18 would
have been either a permanent net contributor or net recipient. Our results suggest that
claw-back mechanisms and contingent benefits could limit the degree of cross-country
redistribution, but might reduce desired insurance e¤ects. We also discuss moral haz-
ard issues at the level of individuals, the administration and economic policy.
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