An unemployment re-insurance scheme for the eurozone? Stabilizing and redistributive effects

This paper develops a decomposition framework to study the importance of different stabilization channels of an unemployment re-insurance scheme for the euro area. Running counterfactual simulations based on household micro data for the period 2000-21 and studying the effect of different trigger variables and activation rules, the paper finds that the re-insurance would have cushioned on average 7%-14% (3%-6%) of employment income losses through interregional (intertemporal) smoothing. The simulated re-insurance scheme would have been revenue-neutral at EA-19, but not at the member-state level. Average annual inpayments and payouts would have been below 0.1 per cent of GDP. A back-of-the-envelope calculation shows that the re-insurance could offset up to 18% of future output shocks. These results suggest that a re-insurance would significantly strengthen public risk sharing in the euro area.