A Feasible Unemployment‐Based Shock Absorber for the Euro Area

19 Pages Posted: 17 Aug 2016

See all articles by Andrea Brandolini

Andrea Brandolini

Bank of Italy

Francesca Carta

Bank of Italy

Francesco D’Amuri

Bank of Italy; University of Essex - Institute for Social and Economic Research (ISER)

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Date Written: September 2016

Abstract

Based on theoretical insights, this article identifies the broad characteristics that a shock absorber based on unemployment should have in order to be incentive‐compatible and politically feasible. It then empirically derives the combination of activation thresholds, experience rating, eligibility criteria and benefit generosity which define the systems offering the highest stabilization for given levels of redistribution. The analysis suggests that the shock absorber should: (1) give rise to macro cross‐national transfers, mimicking those that would be generated by a notional euro‐wide unemployment benefit scheme of minimal coverage and generosity, (2) be activated by a trigger and (3) feature partial experience rating. The simulation results, confirmed by robustness checks, show that even systems that do not redistribute resources between countries can have a non‐negligible stabilization impact in the medium run. Low benefit take‐up rates in southern Europe reduce the stabilization properties and the size of the scheme.

Keywords: unemployment benefits, absorption of macroeconomic shocks, fiscal union

Suggested Citation

Brandolini, Andrea and Carta, Francesca and D’Amuri, Francesco, A Feasible Unemployment‐Based Shock Absorber for the Euro Area (September 2016). JCMS: Journal of Common Market Studies, Vol. 54, Issue 5, pp. 1123-1141, 2016. Available at SSRN: https://ssrn.com/abstract=2824802 or http://dx.doi.org/10.1111/jcms.12398

Andrea Brandolini (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Roma, Rome 00184
Italy
+390647923568 (Phone)
+390647923720 (Fax)

Francesca Carta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco D’Amuri

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

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