14 Sep 2016

The Stabilisation Properties of a European Unemployment Benefit Scheme

Daniel Gros

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Author: Daniel Gros

Series: CEPS Commentary    No of pp: 7

In this contribution, Daniel Gros focuses on the (macro-economic) stabilisation properties of a potential European unemployment benefits scheme (EUBS). He notes that any such scheme would involve many other aspects, both political and economic, but it could be argued that an EUBS, especially one that pays benefits directly to individuals, would constitute a powerful illustration of the benefits of ‘Europe’. It might also be argued that the creation of an EUBS could foster the upward convergence of unemployment systems (although this is not the subject of the paper).

Gros finds that it is very difficult to assess only the stabilisation to be achieved through the creation of a European unemployment benefits scheme. There are many potential ways in which an EUBS could be implemented, with profound implications for the potential stabilisation impact, ranging from the negligible to the significant.  

A cursory analysis of actual expenditure on unemployment benefits reveals that member states with higher unemployment rates do not necessarily always spend more on benefits.  Moreover, actual expenditure on unemployment benefits seems to react only minimally to actual increases in unemployment, at least for small cyclical variations. This suggests that, outside deep recessions, the fiscal importance of the variations of unemployment over the business cycle might have been overrated.

Daniel Gros is Director of CEPS.