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EUBS - Italy clarifies the European Unemployment Benefit Scheme

The European Unemployment Benefit Scheme aims at mitigating severe shocks in the Eurozone.

Curriculum Vitae - Photo credit: the Italian voice via Foter.com / CC BY

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In October 2015 the Italian government launched the idea of the European Unemployment Benefit Scheme (EUBS). The purpose is to give the Eurozone a tool that:

  • mitigates particularly strong shocks, that would be reflected directly on the labour market in the absence of flexible exchange rate
  • avoids cyclical unemployment to turn into structural unemployment.

In the past months, the proposal was debated in various occasions and it will be discussed during the Slovakian Presidency of the Council of the European Union. 

In This context, the Italian government is committed to continue the process of further definition of the current proposal by clarifying nine aspects that were not explicitly addressed in the text prepared in October 2015. A few simulations also illustrate how the EUBS would have worked had it been in place during the 1999-2015 period.

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European Unemployment Benefit Scheme: why and how?

The design of the scheme should be as simple as possible and involve gradualism of implementation. The scheme is meant to address future shocks, once a buffer of resources has built up. If properly designed, it could trigger gradual approximation of national institutions in Eurozone, smoothing the main differences and causes of segmentation. The scheme should include an appropriate incentive structure in order to limit moral hazard and avoid permanent transfers from some countries to others.

To follow all those objectives possible features of the mechanism include:

  • scope: the mechanism should be aimed at euro area member states and address only short term cyclical developments, notably cyclical unemployment, while beneficiary countries still bear the responsibility of addressing structural unemployment. A timely intervention on after severe unemployment shocks, possibly complemented by effective active labor market policies, would help reducing the likelihood of an increase in structural unemployment.
  • activation: the benefit would be triggered only in cases of sufficiently large negative shocks.
  • duration and size: the benefit would be limited in time and in size, thus possibly being topped up by national benefits where appropriate. Length, coverage and eligibility should also be set in a way respectful of current national arrangements. It would therefore act as a basic insurance that could progressively evolve in time as the scheme triggers elements of convergence, for example it could last 6-8 months, with a replacement rate of around 40-50%.
  • eligibility: eligibility could be linked to harmonized conditions of job search activities. This would also trigger further steps towards harmonization of Public Employment Services and the establishment of truly European coordination on the matter.
  • earmarking of resources: while there should be no flexibility in the destination of resources, more resources would be available at national level for other anti-cyclical purposes, thus limiting pro-cyclical cuts.
  • administration: it should be implemented by a common administration, e.g. the Commission, in coordination with national authorities. Social partners at EU and national level should play a role in its definition and monitoring. This would improve awareness, ownership, and institutional convergence.
  • financing options: the mechanism could be financed with resources currently spent on a variety of national benefits, to be partly pooled in a common Fund as the adjustments in labor markets kick in and unemployment is reduced. According to national systems and institutions this may involve state contributions as well as contributions of employers and employees. A similar option would involve earmarking a fraction of current domestic contributions to the European insurance. Corrective measures could be included after a certain threshold to prevent excessively lasting transfers. Possible developments include the financing through fresh own resources at EU /euro level. In the future it could also develop in a borrowing facility.

European Unemployment Benefit Scheme

Photo credit: the Italian voice via Foter.com / CC BY