Designing an EU-wide Unemployment Benefits System
Could an EU-wide Unemployment Benefits System (UBS) act as an effective fiscal stabilizer to mitigate future economic shocks? Cambridge Econometrics helped the European Commission address this question by leading the macroeconomic stabilisation assessment element of a recent study.
Countries in the eurozone cannot adapt monetary policy to their particular needs, which puts the onus on automatic fiscal stabilizers. But the experience of the last recession showed that some countries could be caught in a debt spiral: pressure to curb their rising budget deficit forced them to tighten, not loosen, fiscal policy, with spending cuts that exacerbated the downturn. An EU-wide Unemployment Benefits System would gather contributions during good times and spend to augment incomes when unemployment is rising, removing the pressure on national government budgets when they can least bear it.
The main tasks were: an examination of the compatibility with national laws and practices of various ways of introducing such a scheme; consideration of what difference would be made to macroeconomic stabilisation by the proposals for the European Banking Union and governance arrangements that would constrain fiscal policy; estimates of the Member State transfers to and from a UBS fund that would have arisen in the past and could arise in the future; the impact on macroeconomic stabilisation and on the microeconomic distribution of benefits across different types of individual and household. The report made recommendations for the design of a scheme to make it most effective in promoting stabilization and least cost in terms of contributions required.
The consortium which produced this piece was work was led by the Centre for European Policy Studies and included Cambridge Econometrics, the Centre for European Economic Research (ZEW), the Institute for Social and Economic Research at the University of Essex (ISER), Eftheia and the University of Leuven.