Feasibility and added value of a European unemployment benefits scheme

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CEPS_thinktank

Thinking ahead for Europe

What added value of a European unemployment benefit scheme? ETUI Monthly Forum – 27 October 2015

www.ceps.eu

FRANK VANDENBROUCKE KUL

ILARIA MASELLI CEPS

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Outline• Why we need a European unemployment benefit

scheme• How it can be done• What are the challenges for the design• Next steps in this research

3What are we talking about?• An unemployment benefits scheme• An automatic stabilizer• A budget for the eurozone/EU• A European labour market policy • A form of fiscal union• A European welfare scheme

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Why a EUBS?

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The economic rationale• In the EMU: monetary policy is gone and fiscal

policy is limited! • The new fiscal framework• Spillover effects • Labour markets rigidities

6 2The 1970s, 1990s and the 2010s• 1970s > too forward looking• 1990s > good idea…but • Too many issues on the Maastricht table• Technical issues: EMU budget EU budget?• Reluctance to increase EU budget while putting limits on

national expenditures• Shocks triggered by financial sector difficult to imagine• Enlargement ahead

• 2010s > theoretical and empirical evidence come together!

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How? Genuine

vs. Equivalent Schemes

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18 possible schemes• 14 genuine + 4 equivalentMain distinction • Trigger • An indicator above which

funds are transferred• Flexibility

• As harmonization of national schemes

• Intervene on every unemployed worker vs. intervene in certain crisis

flexibility

0 1% 2% 3%

equivalent schemes

triggergenuine schemes

9Trigger simulations – an example

0

2

4

6

8

10

12

14

Num

ber o

f tim

es

Trigger based on percentage points

Number of times trigger based on short-term unemployment is activated during period 2000-2014 for each country

3 2.75 2.5 2.25 2 1.75 1.5 1.25 1 0.5 0.5 0.25 0.1

10Trigger simulations – an example

0 0.1 0.25 0.5 0.75 1 1.25 1.5 1.75 2 2.25 2.5 2.75 30

102030405060708090

100110120130140150160

150

71

61

42

25

159 8 7

3 2 0 0 0

150

6760

45

3431

2621

13 11 10 9 6 6

105

5953

4539

3427 24 21 18 16 16 15 13

Number of times trigger based on short term unemployment is activated during 2000-2014

North East South

Trigger based on percentage points deviation from 10 years moving average

Num

ber o

f tim

es tr

igge

r is a

ctiva

ted

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The challenges ahead

12(1) Institutional Moral Hazard - I• When two levels of government involved in the

governance of a social risk (e.g. income loss due to unemployment)• When one (higher) level insures the social risk

instead of another (lower) level of government• When the lower level implements policies that

affect the insured social risk• When there is an information asymmetry between

the (higher) insuring level and the (lower) implementing level

13(1) Institutional Moral Hazard - II• Trade-off: local flexibility and the existence of

Institutional Moral Hazard• Centralize all policies to prevent it? • Better solution: impose ‘minimum requirements’• Avoiding ‘net beneficiaries’ reduces scope for IMH

Institutional moral hazard is “a price to pay” to obtain better risk pooling and stabilization

14 (2) Stabilisation vs

Redistribution - I• Impossible (and useless) to

design a system that has 0 redistribution on an annual basis. • The fund should be able to

transfer temporarily (across time or geographically) keeping a long-term zero balance = long-term fiscal neutrality

stabilisation

redistribution

+

+

-

-

EU unempl benefits

Structural funds

15(2) Stabilisation vs Redistribution - II

ADJUSTMENT MECHANISMS • Focus on short-term unempl. rate, not total• Experience rating and claw back mechanisms • Countries that use the system more often pay more

into it

16 (3) Harmonisation of

national systems

Large cross-country differences• Generosity (= duration + replacement rate)• Eligibility rules > coverage ratios

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In the next episodes…

• More information on the degree of differentiation of the national systems• More on the stabilization

impact as estimated by the micro+macro models

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@IlariaInBxl @CEPS_thinktank

[email protected]

www.ceps.eu

Thank you for the attention

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Marjolin Report, 1975

“Further progress requires the manifestation of a political will. This will is today uncertain and needs

to show itself and to fortify itself by action. At a time when Europe finds itself confronted with

redoubtable dangers, under the name of “inflation”, “massive balance of payments deficits” and “unemployment”, the only reasonable way for

the member countries is to face together (…) these perils”

de