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Peichl, Andreas; Dolls, Mathias; Fuest, Clemens; Neumann, Dirk (December 2016): An Unemployment Insurance Scheme for the Euro Area? A Comparison of Different Alternatives using Micro Data. ADEMU Working Paper Series
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Abstract

This is the first paper that assesses the importance of different stabilization channels of an unemployment insurance system for the euro area (EA). We provide insights on the potential added value of common unemployment insurance (UI) as a fiscal risk sharing device which crucially hinges on its ability to provide interregional smoothing. Running counterfactual simulations based on micro data for the period 2000-13, we found that 10 percent of the income fluctuations due to transitions into and out of un-employment would have been cushioned through inter-regional smoothing at EA-level. Smoothing gains are unevenly distributed across countries, ranging from -5 percent in Malta to 22 percent in Latvia. Our results suggest that the inter-regional smoothing potential is as important as intertemporal smoothing through debt. We found that four member states would have been either a permanent net contributor or net recipient. Contingent benefits could limit the degree of cross-country redistribution, but might reduce desired insurance effects. We also study heterogeneous effects within countries and discuss moral hazard issues at the level of individuals, the administration and economic policy.