The present Economic Bulletin article analyzes the macroeconomic
stabilization and microeconomic distributional
effects of introducing a European unemployment
insurance scheme. The analysis demonstrates that the
introduction of such a transfer system in the euro area—
depending on its structure—can make a significant contribution
to stabilizing economic developments. Particularly
the generous European unemployment insurance
model examined in this analysis with a net replacement
rate of 70 percent and maximum eligibility period of
12 months would have an appreciable impact: in Spain,
for example, the 2009 decline in real GDP stemming
from the crisis which was 3.8 percent in reality would
have been reduced to 3.1 percent with a European unemployment
insurance. The distributive impact of a common
unemployment insurance would be progressive in
Spain because low-income households tend to benefit
more from the introduction of this type of scheme than
those with higher incomes. Similar distributive effects
are observed for German households: While German
households would be worse off on average if a European
unemployment insurance model were to be introduced,
households in the lower deciles are either completely
unaffected or only negligibly worse off.
However, this very generous European unemployment
insurance model might be accompanied by an increase
in unemployment benefit levels for virtually all European
economies—with potential undesirable knock-on
effects on incentives to work and labor market developments.
On the other hand, if the amount of unemployment
benefit received under the European scheme were
to be restricted to a minimum with a maximum sixmonth
eligibility period and net replacement rate of 30
percent, the stabilization impact would decrease sharply.
Yet this model also has a marked impact; if this form
of unemployment insurance had been introduced, the
decline in Spanish GDP in 2009 would still have been
reduced to 3.6 percent versus the actual drop of 3.8 percent.
The distributive effect would also have been correspondingly
lower. It is evident from the examples of
Spain and Germany that the restrictive model would
barely have any distributive impact; all Spanish households
would have been equally better off but only by less
than 0.2 percent of their net income