Federal Unemployment Reinsurance and Local Labor-Market Policies

64 Pages Posted: 23 Nov 2020

See all articles by Marek Ignaszak

Marek Ignaszak

Goethe University Frankfurt

Philip Jung

Technical University of Dortmund

Keith Keuster

University of Bonn

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Abstract

Consider a union of atomistic member states, each faced with idiosyncratic business-cycle shocks. Private cross-border risk-sharing is limited, giving a role to a federal unemployment-based transfer scheme. Member states control local labor-market policies, giving rise to a trade-off between moral hazard and insurance. Calibrating the economy to a stylized European Monetary Union, we find notable welfare gains if the federal scheme's payouts take the member states' past unemployment level as a reference point. Member states' control over policies other than unemployment benefits can limit generosity during the transition phase.

Keywords: unemployment reinsurance, labor-market policy, fiscal federalism, search and matching

JEL Classification: E32, E24, E62

Suggested Citation

Ignaszak, Marek and Jung, Philip and Kuester, Keith, Federal Unemployment Reinsurance and Local Labor-Market Policies. IZA Discussion Paper No. 13886, Available at SSRN: https://ssrn.com/abstract=3734754

Marek Ignaszak (Contact Author)

Goethe University Frankfurt

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Philip Jung

Technical University of Dortmund ( email )

Emil-Figge-Stra├če 50
Dortmund, 44227
Germany

Keith Kuester

University of Bonn ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

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