TheIntroductionofan eu Unemployment ReinsuranceSystem:IncomeProtection and Maintenance ofConsumption AlešTrunk International SchoolforSocial andBusinessStudies,Slovenia ales.trunk@mfdps.si IgorStubelj University of Primorska,Slovenia igor.stubelj@fm-kp.si Thepaperdealswiththesuitability oftheintroductionofunemployment reinsuranceinthecountriesoftheEuropeanUnion(urs eu)intermsof maintaining the level of consumption of the unemployed and promoting economicefficiency.Basedontheliteraturereview,theanalysisofthe us reinsurancesystemandtheanalysisofexistingunemploymentinsurance inthe eu,amodelofthereinsurancesystemforunemploymentinthe eu is developed.The model simulation, based on the data of existing eu-20 unemploymentinsurancesystemsintheperiod2003–2019,isusedtode- termine the amount of reinsurance payments to countries and the level of contributions needed, while employing various ways of defining pay- ment triggers. We have demonstrated that the urs eu would contribute tobetterincomeprotectionbyhavingadirectimpactontheincomeofthe unemployedandatthesametimeactingasanautomaticstabilizerofthe economy. Key Words:recession,unemployment,insurance,reinsurance,European Union,modelsimulation,consumption,automaticstabilizer jel Classification: j64, e24, e63 Received:7October2021·Accepted:19November2021 Publishedonline:30April2022 © Authors https://doi.org/10.26493/1854-6935.20.109-138 Introduction Inthispaper,weexaminethepotentialsuitabilityofunemploymentrein- surancein eu countriesintermsofincomeprotectionandmaintenance of consumption. We address the research problem in view of the needs and capabilities of establishing a reinsurance system, as well as explore possibleadvantagesanddisadvantagesofintroducingtheunemployment reinsurancesysteminthe eu. Wehaveexploredthepossibilitiesforestablishing urs eu.Suchasys- tem would complement public unemployment insurance schemes and Managing Global Transitions20(2): 109–138 110 AlešTrunkandIgorStubelj helpincreasetheirefficiency.Publicsystemscontributetotheprotection ofincomeandthustothemaintenanceofthelevelofconsumptionofthe unemployed, and they also act as automatic stabilizers at the aggregate level.Intimesofrecession,areinsurancesystemwouldcontributeaddi- tional financial means to the state systems and consequently strengthen theireffectsandeliminatetheirshortcomings,sincethisisthetimewhen theymostoftenfacedeficitsandthustheinabilitytoincreaseunemploy- mentbenefits(Dullien2013). Intheresearch,wedesignedandpresentedthebasicprinciplesofsuch a urs eu modeland,basedonahistoricaldatamodelsimulation(2003– 2019), tried to identify the benefits that the introductionof the urs eu would bring. In the section Results and Discussion, we present the two above-mentioned aspects: (1) urs eu and protection of the income of theunemployed,and(2) urs eu asanautomaticstabilizer.Thefinalsec- tionistheconclusion,withpolicyimplications. The designed model is set in such a way that, at the European level, countriespaycontributionsduringtheboomperiod.Thecollectedcon- tributions are intended for countries in recession and are paid in the form ofadditionalaid to extend the period of receivingunemployment benefits. The methodology for calculating the expenditure and benefits of the eu reinsurance system in the case of unemployment in the eu is presented in section Structure and operation of the urs eu model – methodology. LiteratureReview The eu istheculminationofalongprocessofeconomicandpoliticalin- tegrationbetweenEuropeancountries.Itstartedasafreetradeandcus- toms union area. Over time, it has become a supranational entity that resemblesafederalstate(Tupy2016).The us representsasuccessfulex- ampleofafederationofstates,fromwhichthe eu isstillverydifferent. The main weaknessesofthe latter are the following(Dicksonand Eleft- heriadis2012): 1. Not all policies are effective – a good example being the common agricultural policy, which has led to oversupply and higher com- modityprices. 2. The ‘single currency’ poses a major problem – not all member states use the euro, although the eu emphasizes its use. In addi- tion,Kovač(2017)believesthatthe eu isnotanoptimalmonetary Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 111 area, as labour mobility is insufficient, interest rates have national mark-ups,andstructuralreformsandpoliciesaredivergent.Hefur- ther concludes that we have European money and national politi- calsovereignty,monetarycentralizationandfiscaldecentralization. Therefore, the euro brings benefits but does not address political risks. 3. Difficulties in regulating immigration – citizens of member states arefreetomovefromonecountrytoanother,leadingtoovercrowd- inginlargercountries,and thishas led tocongestionontheroads and rising real estate prices, both commercial and residential. Im- migration problems have been further exacerbated by the refugee crisis. 4. Unclearexternalrepresentationandvisibility–whentherestofthe worldwantstoknowwhatthe eu’sviewsare,itisstillnotclearwho toaskandwhethertheindividualisactuallyrepresentingthe eu,or theirowncountry. Oneofthebiggestchallengesforthe eu andtheeuroareaistofurther promotestructuralreformsforeconomicconvergence.Atthesametime, the eu shouldseriouslyconsiderintroducingafiscalunion.Thisshould mean that the eu budget has to be larger than it is today. After all, the mainfeatureofanyfiscalunionistheabilitytospendandconsequently influenceeconomicperformance.Giventhatbusinesscyclesarenotuni- forminthe caseofthe euroarea,suchamovewillbeanimportantstep in the right direction. It is important to note that the eu budget today is around one percent of gross domestic product (gdp) – in the us, the federal budget revolves around 37 percent of gdp (Schelkle 2017). The eu is a diverse region in terms of geography, political systems, national supportandeconomicfoundations.NorthernEuropeisricherincapital andtechnologicallyandadministrativelymoreadvancedcomparedtothe peripheral countries in the south. Countries in the north would want a strongercurrency,whilecountriesinthesouthwouldwantaweakercur- rency to be more competitive abroad. This diversity of the eu impedes theeffortsforpoliticalandfiscalunion. An eu reinsurancesysteminthecaseofunemploymentwouldoper- ateoninsuranceprinciples(suchasaccidentandcarinsurance,andreal estate insurance). Everyone involved in the reinsurance system (eu 27) wouldraisefunds,whichwould,shouldneedoccur,bepaidouttocoun- triesindifficulty.Todetermineacountryindifficulty,theso-calledtrig- Volume20·Number2·2022 112 AlešTrunkandIgorStubelj gersshouldbeidentified,namelymeasurablevaluesmakingthecountry eligibleforaid.Itshouldalsobedeterminedhowmuchassistanceacoun- tryisentitledtoandhowthemoneyborrowedshouldbepaidback.These parametersweredeterminedinthesimulationsothattheunemployment reinsurancesystemshouldbesustainableandmaintainthesameshareof coverage (share of the total number of short-term unemployed who ac- tually receive unemployment benefits) during the recession (from 2009 onwards)asbeforetherecession(until2008). The urs eu – as a form of assistance to the state unemployment insurance – would cover expenditure related to rising unemployment. This would leave more money in state budgets for stabilization of state economiesinrecession.Butietal.(2002),Dullien(2012;2017),Epaulard (2014), and the European Commission (Evropska komisija 2014) note thatitwouldbeappropriatetointroduceanunemploymentreinsurance system in the eu as well. During the period of recession, the eu mem- bersdidnotusefiscalpolicytomitigateit(Coenen,Straub,andTrabandt 2012);theunemploymentreinsurancesystemwouldachievejustthat,as itactsasanautomaticstabilizer.Webelievethattheneedforanautomatic stabilizer,suchasunemploymentreinsurance,hasrecentlybecomeeven more apparent because of the recession. Existing unemployment insur- ances fail in bad times becausethey do not have enough stock accumu- lated to pay benefits. The reasons are mainly the following: (i) several recipients; (ii)lowerpercentage ofcovered unemployment period – the lengthofunemploymentincreases,butonlyasmallpartiscovered;and (iii)largelossesaregenerated. An eu unemploymentreinsurancesystemwouldactasanautomatic stabilizer, as it should help to reduce the inflation gap in a time of re- cession.Theinflationgapisthedistancebetweenthecurrentlevelofreal gdp andthelevelof gdp atfullandlong-termequilibriumemployment. The inflationgapis socalled becausean increase in the consumptionof the economy leads to an increase in real gdp, and this has a long-term impactonpriceincrease(Cogley,Primiceri,andSargent2010;Abazi-Alili et al. 2018; Jara Tamayo and Tumino 2021). An unemployment reinsur- ancesystemwouldhelptoprotecttheincomeandthusmaintainthelevel of consumptionof the unemployed, thereby helping countries in reces- sion, as the system wouldcontribute to the financing of unemployment benefitsduringaperiodofsuddenanddeeprecession.Inperiodsofweak economicactivity,thebenefitsoftheunemploymentreinsurancesystem decrease, as the number of employed and thus the amount of contribu- Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 113 tionspaiddecrease.Ontheotherhand,expenditureincreaseswithoutthe needtointroduceanewgovernmentmeasure.Incontrast,inthecaseof increasedeconomicactivity,expendituredecreasesandbenefitsincrease (Dullien 2012; Moyen, Stähler, and Winkler 2019). As economic activ- ity increases, the unemployment reinsurance system expenditure (e.g. the amount and number of recipients of benefits, the period of receiv- ing the benefits) automatically decreases, while benefits increase. Such movement helps to stabilize economic activity in the future. In the us, suchasystemhasbeeninplaceforalongtimeandworkswellintimesof recession,actingasan automaticstabilizer (Chimerine,Black,andCof- fey1999;Asdrubali,Sorensen,andYosha1996; us DepartmentofLabor 2012;O’Leary,Barnow,andLenaerts2020). Theunemploymentreinsurancesysteminthe usa canthereforeserve asamodelforEurope.Inhisstudy,Vroman(2010)examinedtheroleof theunemploymentreinsurancesystemasanautomaticstabilizerduring the us recession between 2008 and 2010 and concluded that the stabi- lizingeffectinaregularunemploymentinsuranceprogrammereduces inflation gaps caused by the recession by about one tenth. Extending the compensation period has contributed to stabilization; unemploy- mentinsurancecontributionsincreasedin2009and2010.Forthethree separatecomponentsoftheunemploymentreinsurancesystem(regular programme,extensionofthebenefitperiodandcontributions)between 2008and2010,Vroman(2010)cametothefollowingconclusions:(i)in- creasedregularbenefitsreducedtheinflationgapby10.5percent;(ii)the extendedcompensationperiodreducedtheinflationgapby8.5percent; and (iii) increased contributions led to an increase in the inflation gap by0.7percent.Onaverage,thereinsuranceprogrammeincaseofun- employment decreased the inflationgapcausedby the recessionby 18.3 percent, which certainly contributes to a more stable and competitive economy. Themaindilemmasoftheurseumodelcanbesummarizedinthree points,namely:(i)whatistherelationtotheexistingunemploymentin- surance schemes in each country; (ii) to what extent, or to no extent, shouldredistributionbeallowedbythe urs eu;and(iii)shouldthe urs eu beledbythealreadyexistingbureaucracyofnationalunemployment insuranceschemes.Inthecontinuationoftheresearch,weexaminedsev- eralpossibilitiesandalsoaddressedtheaforementioneddilemmas. The main original contribution to science in the study of the unem- ployment reinsurance system is the development of a model that simu- Volume20·Number2·2022 114 AlešTrunkandIgorStubelj lated the operation of the unemployment reinsurance system at the eu level in the period 2003–2019. The study is comprehensive: based on study of the literature, analysis of the current reinsurance system in the us, and analysis of existing unemployment insurance in the eu, we de- signedamodelofthe unemploymentreinsurancesysteminthe eu.We researched the unemployment rate, the number of recipients of bene- fits,thecostsofunemploymentbenefitsandthewagebill,andsimulated thedifferencebetweenthecollectedunemploymentinsurancecontribu- tionsandthebenefitspaid.Thesimulationshowsinwhichcountriesthe unemployment insurance is set appropriately, what was the balance be- tweenthecollectedunemploymentinsurancecontributionsandtheben- efits paidinthe eu-20inindividualyearsand whatwasthecumulative differenceintheperiodunderreview(2003–2019).Theimportanceof thesubjectofeuunemploymentreinsuranceisevident,astheEuropean Commission has already published calls for proposals on common eu unemploymentinsuranceinthepast(EuropeanCommission2020;n.d.; EuropeanParliament2020). Based ontheanalysis ofunemploymentinsurancesystems,wedeter- mined,inanoriginalway,thelevelsoftriggersthatdeterminewhenand towhatextentacountrywouldbeentitledtofundsfromtheunemploy- mentreinsurancesystem.Throughmodelsimulation,wefoundthatthe urs eu wouldcontribute to improvingthe availabilityand financing of unemployment reinsurance in the eu (protection of the income of the unemployed) and thus to maintaining the level of consumption of the unemployed,whichwouldhelpreducetheinflationandoutputgap. ConceptualFramework At a time of recession, the labourmarket faces an increased unemploy- ment rate. Typical situations in which the unemployment reinsurance system plays an important role are wars, recessions, political interven- tionssuchastheoilembargo,andthecollapseorclosureoflargeindus- tries(us NationalCommissiononUnemploymentCompensation1979). Unemployment reinsurance is generally considered to be useful in pro- tecting against cyclical unemployment – cyclical unemployment is low intimesofboomandhighintimesofrecession.The us NationalCom- missiononUnemploymentCompensation(1979)explains,takingthe us as an example, that in reinsurance, the average unemployment is deter- minedaccordingtothesituationineachstate,regardlessofothermem- bers. If the ratio between unemployment benefits and expenditure in a Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 115 givenyearrisesabovetheaveragerate,theindividualstatebecomeseli- gibleforcashfromthecommonsystem.Theaverageunemploymentrate of an individualstate can be calculatedin different ways (e.g. as the av- erage of recent years or as the lowest rate in a given period). Financial resourcesfromthecommonfundmaybesufficienttocoverapartorthe entireexcessunemploymentrate. Bysimulatingandevaluatingtheoperationofthemodelthatweused for simulatingthe operation of the urs eu, we confirmed that the het- erogeneity of eu countries, the different dynamics of economic growth and unemployment, make setting of the urs eu possible. By simulat- ing the operation of the urs eu, we demonstrated and determined the extent to which the urs eu would contribute to better income protec- tionand atthesametimeto thestabilizationoftheeconomy.However, basedonareviewoftheliterature,wefoundthatinthe us,thereinsur- ancesysteminthecaseofunemploymentaffectsthedevelopmentofrisky industries. Basedonthecollecteddata,wedesignedamodeltoexamineinwhich countries equilibrium unemployment insurance is set (statutory unem- ployment insurance contribution rate and equilibrium unemployment insurancecontributionrateareequal),whatwasthebalancebetweenthe collectedunemploymentinsurancecontributionsforthebenefitspaidin the eu-20 in individual years, and what was the cumulative difference in the period under review (2003–2019). Due to the specifics of the in- surancesystem,sevencountrieswereexcludedfromthemodel(Greece, Ireland,Lithuania,Luxembourg,Malta,Romania,andtheUnitedKing- dom). The model was simulated for the eu-20. We determined how muchfundseachcountrywouldallocatetothereinsurancesystemfund, and wealsodetermined thelevelsoftriggersand theeligibleamountof aid.Schematicrepresentationofthemodel(figure1)showsthecashflow of the urs eu with basic elements such as triggers, contributions, and coverageperiod. In the following sections, we present the importance of the basic el- ements and the justification for determining individual values and the methodofcalculationingreaterdetail. ResearchMethodology: Model Simulationof Reinsurance inCaseofUnemploymentinthe eu Indesigningthe urs eu model,wereliedonresearchalreadyconducted (BeblavýandMaselli2014;Dollsetal.2014;Dullien2007;2013)and the Volume20·Number2·2022 116 AlešTrunkandIgorStubelj URS EU Unemployed Period of coverage Consumption Contributions The number of additional weeks of receiving the benefit depends on the increase in the unemployment rate. Five aid classes; extending the coverage period for all unemployed by 4, 8, 12, 16 or 20 weeks. The unemployed usually spend financial aid (or aid with extended coverage period) in their home environment, for the most urgent needs. This maintains the level of consumption, which helps to increase aggregate demand. Consequently, the decline in GDP halts or slows down. EU member state AT BE BG CY CZ DK EE FI FR IT LV HU DE NL PL PT SK SI ES SE figure1 urseuCashFlow us Unemploymentreinsurancesystem.Allresearchhasacommonpur- pose,namely,toexaminethepossibilityofoperatingjointreinsurancein thecaseofunemploymentatthe eu levelasanautomaticstabilizer,and toincreaseefficiencyandmaintainthelevelofconsumptionoftheunem- ployed.Theideaofextendingtheperiodofreceivingbenefitsinaperiod ofeconomicrecessionwithautomatictriggersmakesspecialsense,justas the us unemployment reinsurance system is set. Based on the research results, we determined the levels of triggers in an original way – when an individualcountry shouldbeeligible for fundsfromthe reinsurance systeminthecaseofunemploymentandtowhatextent.Theresultsob- tained alsoshowedthatthe urs eu wouldcontributetoimprovingthe availabilityandfinancingofunemploymentreinsuranceinthe eu (pro- tection of the income of the unemployed) and thus to maintaining the level of consumption of the unemployed, which would help reduce the inflationandoutputgap. Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 117 The urs eu modelexploitsthefinancialandeconomicheterogeneity of countries and its implementation, especially in times of crisis, could contributetomaintainingconsumptionlevelsandthustoeconomicsta- bilization both in individual eu countries and in the eu as a whole. At thelevelofindividualcountries,itisverydifficulttoensurebalancebe- tween the payment of unemployment benefits and the collected unem- ployment insurance contributions during the economic crisis. The urs eu couldusetheheterogeneityof eu countries,reflectedindifferentdy- namics of economic growth and the unemployment rate, which would allowmoneytoflowattheEuropeanlevelandthusprovidehelpatthe righttimeandintherightplace.Namely,thestatecangettherighttoaid atatimeofrecessionandrepaythedebtatatimeofboom. Thebasicelementsofthe urs eu mo delaretheexpenditure(amount ofaidtoindividualcountriesandperiodofreceipt)andreceipts(contri- butionsofindividualcountries).Expendituresweredeterminedbasedon the us Unemployment reinsurance system, which has been used in the us since1935and isprovingtobeaneffectivemechanismformaintain- ingstabilityinthe us federalstates.Theamountofaidforeachcountry in our urs eu model was determined to cover the total additional ex- penditureofanindividualcountryintheperiodunderreview,whichis aprerequisiteforthesustainabilityofthesystem.Theindividualcountry begins to receiveaid fromthe urs eu accordingto the level ofthe un- employment rate (trigger). As the unemployment rate of eu countries varies considerably, we determined five grades of the amount of aid to ensurefairnessandpoliticalacceptability. Theamountandtime/periodof urs eu aidtoanindividual eu coun- try is modelled based on the us unemployment reinsurance system, which means that the maximum aid covers the costs of an individual federal state for up to 20 additional weeks of receiving unemployment benefits for all unemployed. Based on historical data for the eu-20 in theperiod2003–2019,wehavecalculatedapotentialtotalurseuex- penditure. We determined, in terms of the urs eu, how much money wouldbeadditionallyearmarkedfortheunemployed(ineachofthe eu- 20 countries and in every year during the period under review) in the eventofanabove-averageunemploymentrateincrease. Countries in which the unemployment rate has risen above average, compared to the average of the last three years, are eligible to draw- ing funds from the urs eu. The model we designed comprises five aid grades.Theamountofaiddependsontheincreaseintheunemployment Volume20·Number2·2022 118 AlešTrunkandIgorStubelj table1 AidGrades Aid grade Increaseintheunemp.ratecompared totheaverageofthelastthreeyears Amountofaid–percentofallexpen- ditureonunemploymentbenefits  fromto   fromto   fromto   fromto   fromandmore  rate. The calculation of the aid amount is based on the expenditure for extending the aid for up to 20 additional weeks, and consequently the amount of the aid affects the number of additional weeks of receiving the benefit. The equilibrium contribution rate for unemployment rein- surance varies from country to country. We calculated it so that in the period underreview,the difference betweenthe paymentofunemploy- mentbenefits andthecollectedunemploymentinsurancecontributions equalszero. Theexpectedlong-termnetreceiptsintheunemploymentreinsurance system equal zero. By using the simulation,we determined the optimal orequilibriumcontributionrateofthe urs eu.Withthe urs eu,coun- tries would be, under certain conditions, eligible for additional aid (ta- ble 1). We examined and determined how to cover these additional ex- penses.Forcountriesthatborrowmoneyfromthe urs eu,wehaveset new(increased)contributionratesforunemploymentinsurance.Inorder toavoidpermanenttransfersfromthesystem,wecalculatedtheamount of contributions (cumulative contributions) and the amount of aid re- ceived(cumulativeaidreceived).Ifthebalanceofthesesumsisnegative, thecontributionrateofacountryshallincreasebytenpercentinthenext year.Thecontributionrateshallannuallyincreasebytenpercentuntilthe countrybalanceiszeroorpositive.Thecurrentreinsurancesysteminthe usworksinasimilarway(usDepartmentofLabor2015). measurementofimpactsofthemodel If redistribution between countries were allowed, the effect of stabiliza- tion could be greater. In the simulations, we focused on the alternative withnoredistribution, asitensuresgreaterpoliticalacceptabilityofthe urs eu model. The calculated equilibrium contribution rates assume that the balance of an individual country is zero during the period un- Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 119 der review. Inone ofthe models, wealso simulatedthe operationofthe urs eu, in which countries have three different contribution rates de- pendingonthefrequencyofuseofthesystem,accordingtotheprinciple thatincountriesthatusethesystemmoreoften,thecontributionrateis higher. If during the period under review they were eligible for aid up to(i)twice,thecontributionrateis0.1008percentofthetotalwagebill; (ii)threetofourtimes,thecontributionrateis0.1512percentofthetotal wage bill; and (iii) five times or more, 0.2016 percent of the total wage bill. In order to avoid a permanently negative monetary position in the post-recessionsystem,asinglecontributionratehasbeensetinorderto balance the fund at the level of the eu-20 (e.g. for the last five years or fortheentireperiodunderreview,thebalanceiszero).Insettingupsuch a system, we would probably encounter resistance from more prosper- ousandstablecountries,whichwouldusethe urs eu lessfrequently,so insimulationswefocusedonthe urs eu modelwherewedonotallow redistribution. Redistributionwouldbe interesting and acceptable ifwe couldproveits positiveeffects fornet contributor countries,but wedid notincludethisissueintheresearch. Wecalculatedthestabilizingpowerforeachcountryseparately,namely howaidreceivedfromtheunemploymentreinsurancesystemaffectsthe gdp.The method ofcalculatingthe stabilizingpowerofthe modelwas summarizedaccordingtotheDullien(2013)method,whichdefinesstabi- lizingpowerastheratiobetweenthechangeinreinsurancecontributions orpaymentsinthe eu incaseofunemployment(asapercentageof gdp) andthechangeintheoutputgap.Inaddition,thestabilizingpowerwas calculated according to the method of Beblavý and Maselli (2014) – see alsoMitmanaandRabinovich(2015),accordingtowhichstabilizationis calculatedasthechangeinthebalanceasapercentageof gdp multiplied byamultiplier.The urs eu assumesthattheadditionalaidreceivedby theunemployedisusedmainlyforthemosturgentneedsandthusimme- diately returns to the economy, thereby increasing consumption, which hastheeffectofincreasing gdp andreducingtheoutputgap. structureandoperationoftheurseumodel: methodology Inthemodeldesigned,wesimulatedtheoperationof urs eu (withre- distributionandwithnoredistribution),bytakingintoaccountthever- sionoftheequilibriumcontributionratesofindividualcountries.Wealso calculated a uniform equilibrium contribution rate at the urs eu level Volume20·Number2·2022 120 AlešTrunkandIgorStubelj and anequilibriumcontributionrateatthelevel ofanindividualcoun- try,butonlyforcomparisonwiththeactual(statutory)contributionrate inindividualcountries.Thus,wedeterminedwhichcountriesshouldin- crease the legally determined rate in the case of a uniform equilibrium rate,andwhichcouldlowerit. Withthedesignedmodel,wesimulatedseveralpossiblevariantswith differentvariables.Inallcases,westudiedtheperiodbetween2003and 2019 in20 European countries (Austria,Belgium,Bulgaria,Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Italy, Latvia, Hun- gary,Germany,TheNetherlands,Poland,Portugal,Slovakia,Slovenia, Spain,andSweden). Prior to the implementation of the simulation, we determined the amountofassistancefromthe urs eu toeachcountry,sothatthemax- imum aid should cover the average state costs of 20 weeks of receiving unemployment benefits for the period 2003–2019. In the following, a comprehensive simulation of the most efficient version of the urs eu, which does not allow for redistribution, is presented, and consequently the urs eu contributionsaresetinawaythatthebalanceofeachcoun- try at the end of the period under review should be zero. Also in the simulationwhich does not allow redistribution, due to the solidarity of countries(inourcaseitisGermany)whichdonotbenefitfromthe urs eu intheperiodunderreview(2003–2019),acontributionrateamounts to 0.002 percent, which is approximately half of the lowest calculated contribution rate; we can say that ‘minimal’ redistribution is enabled. Basedonthecountrydata,wecalculatedtheaverageunemploymentrate ofthelastthreeyears(thusavoidingasuddenincreaseordecrease): aur t = ur t−1 +ur t−2 +ur t−3 3 ,( 1 ) where aur istheaverageunemploymentrateofthelastthreeyears, ur theunemploymentrate,andttheyear. The average unemployment rate thus obtained was compared to the unemployment rate in the current year, as a difference in percentages (trigger).Giventheamountofdifferencebetweentheaverageunemploy- mentrateandtheunemploymentrateinthecurrentyear,wedetermined the amount of benefit that the state receives for the payment of unem- ployment benefits (urs eu expenditure). Thus, we calculated in which year a specific country should receive aid. On the other hand, there are contributions(urs eu funds)wheretheequilibriumcontributionrateis Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 121 setsothatthebalanceiszeroduringtheperiodunderreview.Whenthe differencebetweenthesumofcontributions(cumulativecontributions) and the sum of aid received (cumulativeaid received) in a given year is negative,thestatecontributionrateisincreasedbytenpercentinthefol- lowing year. The contribution rate is increased by ten percent annually untilthecountrybalanceiszeroorpositive.Therefore,thecontribution rateofeachcountryisdeterminedasfollows: 2019 2003 (urs eu funds i −urs eu expenditure i )= 0. (2) Countrybalanceiinyeartisgreaterthanorequaltozero: Contributionrate i,t = urs eu expenditure i,t totalwagebill i,t .( 3 ) Countrybalanceiinyeartisnegative: Contributionrate i,t = urs eu expenditure i,t totalwagebill i,t ×1,1. (4) Thecalculatedcontributionratevariesgreatlyfromcountrytocoun- try,ascertaincountrieswouldbelesslikelytouse urs eu aidduringthe periodunderreviewandhavealowercontributionrateaswell(table2). The lowest calculated contribution rate is in Poland and the highest in Spain. ResultsandDiscussion Accordingtothemodelpresented,wehaveperformedasimulationofthe operationofthereinsurancesysteminthecaseofunemploymentinthe eu-20.Weused ms Excelandsecondarydatafromthedatabasesofthe EuropeanCommission,i.e.MutualInformationSystemonSocialProtec- tion(missocn.d.),andEurostat(n.d.),theInternationalLabourOrga- nization(n.d.)and oecd (2015a;2015b). The modelsimulationis based onthe described urs eu modelwith noredistribution(thebalanceofeachcountryiszeroattheendofthepe- riodunderreview,andthecontributionratesvaryfromcountrytocoun- try).Thesimulationwasperformedforvariousextensionsofthebenefit period:for4,8,12,16or20weeks(themaximumdurationofadditional aid is 20 weeks).In the following,wepresent the resultsof the research andmodelsimulation.Theresultsoftheresearcharepresentedfromtwo aspects:protectionoftheincomeoftheunemployedandautomaticsta- bilizer. Volume20·Number2·2022 122 AlešTrunkandIgorStubelj table2 EquilibriumContributionRatesUsedinthe urs eu Model(inPercent) County Contributionrate County Contributionrate Austria . Latvia . Belgium . Hungary . Bulgaria . Germany . Cyprus . Netherlands . CzechRepublic . Poland . Denmark . Portugal . Estonia . Slovakia . Finland . Slovenia . France . Spain . Italy . Sweden . notes Inpercent.Germanydidnotreceiveany urs eu aidduringtheperiodunder review,sothecalculatedcontributionrateiszero;forthesakeofsolidarity,wehavede- termined that countries that do not use the urs eu have a contribution rate of 0.002 percent,whichisapproximatelyhalfofthelowestcalculatedcontributionrate.Inaddi- tiontosolidarityandstrengtheningofthe eu asafederation,thepotentialeffectsfornet contributor countries(Germany)maybe, for example:maintainingexports in timesof crisisandmaintaininginvestors. urseuandprotectionoftheincome oftheunemployed An eu unemploymentreinsurancesystemwouldcontributetobetterin- comeprotectionbydirectlyaffectingtheincomeoftheunemployed.The aidgrantedasapossibleextensionofthebenefitwascalculatedontheba- sisofthedifferencebetweentheaidreceivedandthecontributionspaid byeachcountry(table3;boldindicatestheyearsandcountrieswhenthe assistance of the urs eu is higher than the contributions). Most coun- tries received the most assistance from the urs eu between 2009 and 2010, withthe exceptionofGermany, whichnever received urs eu as- sistance duringthe period under review, whichcan beattributed to the persistentlylowunemploymentrate. The urs eu model is set up in sucha way that countries use the aid received to extend the period of receiving unemployment benefits. Pro- longingthereceiptofbenefitshasanimpactonbetterincomeprotection, asitdirectlyaffectstheincomeoftheunemployed.Theamountoftheaid mayextendtheperiodforreceivingthebenefitby4,8,12,16or20weeks, depending onthe increase in the unemployment rate. According to the urs eu model,themaximumaidissettocovertheextensionoftheun- Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 123 table3 DifferencebetweenTransfersandContributionsPaidtothe urs eu (in eur million) Country                  Austria –. –. –. –. –. –. . –. –. –. . . –. –. –. –. –. Belgium –. –. –. –. –. –. –. . –. –. –. –. –. –. –. –. –. Bulgaria –. –. –. –. –. –. –. . . . –. –. –. –. –. –. –. Cyprus –. –. –. –. –. –. –. . . . . . –. –. –. –. –. CzechRep. –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Denmark –. –. –. –. –. –. . . . –. –. –. –. –. –. –. –. Estonia –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Finland –. –. –. –. –. –. . . –. –. –. –. . –. –. –. –. France –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Italy –. –. –. –. –. –. . . –. . . . –. –. –. –. –. Latvia –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Hungary –. –. –. . –. –. . . . –. –. –. –. –. –. –. –. Germany –. –. –. –. –. –. –. –. –. –. –. –. –. –. –. –. –. Netherlands –. –. –. –. –. –. –. –. –. –. . –. –. –. –. –. –. Poland –. –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. Portugal –. –. –. –. –. –. –. . . . . –. –. –. –. –. –. Slovakia –. –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. Slovenia –. –. –. –. –. –. . . . . . –. –. –. –. –. –. Spain –. –. –. –. –. –. . . . . –. –. –. –. –. –. –. Sweden –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Volume20·Number2·2022 124 AlešTrunkandIgorStubelj 0 5 10 15 20 25 Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Italy Latvia Hungary Germany Netherlands Poland Portugal Slovakia Slovenia Spain Sweden figure2 AidGrantedasaPossibleExtensionofBenefits(inweeks) employment benefit of allunemployedpersons inthe current year for a maximumof20weeks(table4andfigure2).Duetotheeconomicboom inall eu-20countries,the urs eu wasnotactivatedin2003–2005and 2007,sothevaluesinthetablearezerointhoseyears. Intimesofrecession,unemploymentrisesand gdp falls.Unemploy- ment benefits (or extending coverage/benefit period), which the unem- ployed usually spend in the home environment, for basic needs, main- tains the level of consumption, which contributes to an increase in un- employmentbenefitsandthustoanincreaseinaggregatedemand,which leads toahaltoraslow-downoffurtherredundancies and gdp reduc- tion. Using the urs eu model, we had calculated how extending the compensationperiodwouldaffect gdp,whichispresentedbelow. urseuasanautomaticstabilizer The role of macroeconomic and structural policies is important in the recoveryofthelabourmarket.Theunemploymentrateinthe oecd has approached pre-crisis levels (2008–2009), but the unemployment costs ofthegreatrecessionhaveneverthelessbeenveryhighandlong-lasting in many countries. In addition, as the recovery in production has been weak relative to the recovery in employment, labour productivity and wagegrowthremainlow.Labourmarketresiliencedependsonmacroe- conomic policy and labour market settings. Macroeconomic policy is effective in limiting employment decline in times of slower economic Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 125 table4 AidGranted,ExpressedasanExtensionoftheBenefit(inweeks) Country                  Austria    Belgium  Bulgaria     C y p r u s      CzechRep.   Denmark    Estonia   Finland    France   Italy      Latvia   Hungary     Germany N e t h e r l a n d s  Poland  P o r t u g a l   Slovakia  S l o v e n i a   Spain       Sweden   A v e r a g e  .  .  .  .  .  .  .  .  Volume20·Number2·2022 126 AlešTrunkandIgorStubelj growth and preventing the cyclicalrise in unemployment from becom- ing structural (Senekovič, Kavkler, and Bekő 2019). Spending on active labour market policies needs to respond strongly to the cyclical rise in unemploymenttoencouragearapidreturntoworkintherecovery.Ex- cessivelystrictemploymentprotectionforregularworkersreducesflexi- bilityandencouragestheuseoftemporarycontractsandslowsdownjob creationinrecovery(oecd 2017). Theresearchfocusesonthe urs eu modelsimulationwithnoredis- tribution.Thecontributionrateofeachcountryissetsothatthebalance bycountryattheendofthestudyperiodiszero;weperformed: 1. Calculations according to the Dullien (2013) method for the case of the urs eu with no redistribution and for the case of the urs eu with redistribution, which otherwise means greater stabilizing powerandgreatersolidarity,butatthesametimelesserpoliticalac- ceptability. Stabilizing power is calculated as the ratio between the change in eu unemployment reinsurance contributions/payouts (asapercentageof gdp)andthechangeintheoutputgap.Inaddi- tion,wehaveshownanincreaseinconsumptionasaidreceivedas apercentageofgdp. 2. CalculationsaccordingtothemethodofBeblavýandMaselli(2014) only for the case of the urs eu without redistribution. Stabilizing poweriscalculatedasthechangeinthebalanceasapercentageof gdp multipliedbythemultiplier. The calculated stabilizing power in most eu-20 countries shows a slowdown in economic overheating by 2008 and an impact/assistance togetoutofthecrisisfasterfrom2009onwards. Anunemploymentreinsurancesystemwouldcontributetothestabil- ityandefficiencyofthe eu memberstatesandthusofthe eu asawhole, asitwouldemphasizetheroleofautomaticstabilizerinherentinunem- ploymentinsurance. urs eu wouldcomplementpublicunemployment insuranceschemesandhelpincreasetheirefficiency.Publicsystemscon- tribute to the protection of income and thus to the maintenance of the consumptionleveloftheunemployed,andtheyalsoactasautomaticsta- bilizersattheaggregatelevel.Intimesofrecession,areinsurancesystem wouldcontributeadditionalfinancialmeanstostatesystemsandconse- quently strengthen their effects and eliminate their shortcomings, since thisisthetimewhentheymostoftenfacedeficitsandthustheinability toincreaseunemploymentbenefits. Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 127 Authors of various studies (Beblavý and Maselli 2014; Chimerine, Black, and Coffey 1999; Dolls et al. 2014; Dullien 2007; 2013; Vroman 2010) found that unemployment insurance can be introduced without causing large permanent transfers between countries and in such a way that possible stabilization would be beneficial for all countries. Beblavý andMaselli(2014),Dollsetal.(2014),andDullien(2007;2013)notethat the unemployment insurance system in the euro area could be imple- mented with a relatively small budget and, on the other hand, with a relativelyhighstabilizingpower(2to16percentreductionintheoutput gap). Intheresearch,despitethelowerstabilizingpower,weassumethatthe urseumodel,inwhichwedonotallowredistribution,ismorepoliti- callyacceptable.Thecontributionrateofeachcountryissetsothatthe balance by country at the end of the study period is zero. However, in theversionwhereredistributionisnotallowed,thestabilizingpowerof the urs eu isslightlylessthanintheversionthatallowsredistribution. Germanyisnoteligibleforaidduetolowunemployment.Intheversion where redistribution is enabled, Poland is also included in the system. Thisisacountrythatreceivesaidbutpaysmoreincontributionsthanit receivesinaideachyear(table5).The urs eu wouldnotprovidegreater stabilizationforGermanyinthegreatrecessionof2008and2009,butit has to do with the fact that the German labour market did not deterio- ratetoomuchinthisrecessionandtheinitialreductionintheoutputgap quicklyreturnedtopreviouslevels. Inthepresentedmodel,wemeasurethestabilizingpowerbychanging thebalanceasapercentagechangeintheproductiongap,andtheincrease inconsumptionasthereceivedaidasapercentageof gdp. Withcertainassumptions,the urs eu influencesreducingtheoutput gapandincreasingconsumption.Inthesimulation,weassumedthatthe additional assistance obtained by the unemployed is used for the most urgentneedsandthusimmediatelyreturnstotheeconomy,asconsump- tionincreases,whichinturnhasanimpacton gdp growth(table5and figure3).Wecalculatedthestabilizingpowerforeachcountryseparately. Howtheaidreceivedaffects gdp,isdeterminedasfollows: • Wedeterminetheperiodunderreview:theinitialyeariswhenthe balance is highest, and the period under review lasts as longas the balancedecreases(falls);thelastyeariswhenthebalanceislowest. • Wecalculatethechangeinthebalanceovertheperiodunderreview. Volume20·Number2·2022 128 AlešTrunkandIgorStubelj table5 StabilizingPowerof urs eu Country Withnoredistribution Withredistribution () () () () () () Austria – . . – . . Belgium – –. . – –. . Bulgaria – . . – . . Cyprus – . . – . . CzechRep. – . . – . . Denmark – . . – . . Estonia – . . – . . Finland – . . – . . France – . . – . . Italy – . . – . . Latvia – . . – . . Hungary – . . – . . Germany Netherlands – . . – . . Poland – –. . Portugal – . . – . . Slovakia – –. . – –. . Slovenia – . . – . . Spain – . . – . . Sweden – . . – . . notes Columnheadingsareasfollows:(1)period,(2)balancechangeasapercentage ofoutputgapchange,(3)increaseinconsumptionasapercentageof gdp. • Wecalculatethechangeinthebalanceasapercentageof gdp over theperiodunderreview. • We calculate the change in the output gap as a percentage of gdp overtheperiodunderreview. • Wecalculatethechangeinthebalanceasapercentagechangeinthe output gap; the result obtained indicates by how much the output gapwouldbereducedintheeventoftheoperationofthe urs eu. Withthefinancialaidfortheunemployed,thelevelofconsumptionis maintained.Withtheincreaseinunemploymentbenefitsortheextension of the coverage period, the aggregate demand increases. Using the urs Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 129 -3.6 -2.6 -1.6 -0.6 0.4 1.4 2.4 3.4 4.4 5.4 6.4 7.4 figure3 ChangeinBalanceasaPercentageChangeintheOutputGap(blue–no redistribution,red–distribution) 0 0.04 0.08 0.12 0.16 0.2 0.24 0.28 0.32 0.36 0.4 figure4 IncreaseinConsumptionasaPercentageof gdp (blue–noredistribution, red–distribution) eu model,wecalculatedhowextendingthecompensationperiodwould affect gdp (figure4),namely: increaseinconsumption t,i = 100× changeinbalance t,i gdp t,i .( 5 ) The additional euros spent on unemployment benefits has an impact on gdp. The potential effects of the unemployment insurance system Volume20·Number2·2022 130 AlešTrunkandIgorStubelj -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1 1.2 Austria Belgium Bulgaria Cyprus Cezch Republik Denmark Estonia Finland France Italy Latvia Hungary Germany Netherlands Poland Portugal Slovakia Slovenia Spain Sweden Average figure5 StabilizationasaPercentageof gdp were also calculated according to the method of Beblavý and Maselli (2014)andtheCongressionalBudgetOffice(2012),thustakingonaseries ofestimatesofhowtheadditionaleurosspentonunemploymentbenefits affects gdp.Thisfiscalmultiplierisassumedtobeintherangebetween 0.5 and 1.5, which is also consistent with the evidence from the Ramey (2011)research. ThestabilizingpowerwasalsocalculatedaccordingtotheBeblavýand Maselli (2014) method, according to which stabilizationis calculatedas a change in the balance as a percentage of gdp multiplied by a multi- plier (table 6, the years and countries when the urs eu aid promotes economicgrowthareindicatedinbold): stabilization t = 1,5× j i urs eu balance(in gdp ), (6) wheret isthecountry, itheinitialyearwhenthebalanceishighest,and jthelastyearwhenthebalanceislowest. The calculated stabilization as a percentage of gdp, according to the BeblavýandMaselli(2014)method,showsaslowdownineconomicover- heating by 2008 and an impact/aid for a faster exit from the crisis from 2009onwards(figure5). Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 131 table6 StabilizationAsaPercentageof gdp Country                  Country                  Austria –. –. –. –. –. –. . –. –. –. . . –. –. –. –. –. Belgium –. –. –. –. –. –. –. . –. –. –. –. –. –. –. –. –. Bulgaria –. –. –. –. –. –. –. . . . . –. –. –. –. –. –. Cyprus –. –. –. –. –. –. . . . . . . –. –. –. –. –. CzechRep. –. –. –. –. –. . . . –. –. –. –. –. –. –. –. –. Denmark –. –. –. –. –. –. . . . –. –. –. –. –. –. –. –. Estonia –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Finland –. –. –. –. –. –. . . –. –. –. –. . –. –. –. –. France –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Italy –. –. –. –. –. –. . . –. . . . –. –. –. –. –. Latvia –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Hungary –. –. –. . –. –. . . . –. –. –. –. –. –. –. –. Germany . . . . . . . . . . . . . . . . . Netherlands –. –. –. –. –. –. –. . . . . . –. –. –. –. –. Poland . . . . . . . . . . . . . . . . . Portugal –. –. –. . –. –. . . . . . –. –. –. –. –. –. Slovakia –. . . . . . . . . . . . –. –. –. –. –. Slovenia –. –. –. –. –. –. . . . . . –. –. –. –. –. –. Spain –. –. –. –. –. . . . . . . –. –. –. –. –. –. Sweden –. –. –. –. –. –. . . –. –. –. –. –. –. –. –. –. Volume20·Number2·2022 132 AlešTrunkandIgorStubelj ConclusionandPolicyImplications Unemploymentreinsurancecontributestoprotectionofincomeandthus to maintenance ofthelevelofconsumptionoftheunemployed.Inperi- odsofweakeconomicactivity,thebenefitsoftheunemploymentreinsur- ancesystemdecrease,asthenumberofemployedandthusthecontribu- tions paid decrease. On the other hand, expenditure increases without the need to introduce new government measures. The system, in con- trast,alsoworksinthecaseofincreasedeconomicactivity,whenexpen- dituredecreases,andbenefits increase (Dullien2012;seealsoBoeriand Jimeno2016).Aseconomicactivityincreases,thereinsurancesystemex- penditureinthecaseofunemployment(e.g.theamountandnumberof recipientsofbenefits,theperiodofreceivingthebenefits)automatically decreases,andbenefitsincrease.Financialassistancetotheunemployed (byextending thecoverageoftheperiodofreceivingthebenefit)main- tainsthelevelofconsumption,astheunemployedspendfinancialassis- tanceinthedomesticenvironment,forthemosturgentneeds.Aidtothe unemployed in the long run contributes to an increase in aggregate de- mand, which leads to a halt (slowdown) in further redundancies and a reductionin gdp. Bysimulatingandevaluatingthe urs eu model,weachievedthepur- pose of the research: we were able to confirm the basic thesis that the reinsurance system in the case of unemployment in the eu would im- provethebasicfunctionofinsurance–itwouldcontributetomaintain- ingthelevelofconsumptionandaffecttheeconomicstabilityofthe eu. Weconfirmedthattheheterogeneityof eu countries(differentdynamics ofeconomicgrowthandunemployment)allowsfortheestablishmentof the urs eu.Withamodelsimulation,weprovedthatthe urs eu would contributetobetterincomeprotectionbydirectlyinfluencingtheincome oftheunemployed. The urs eu model exploits the financial and economic heterogene- ity of countries. Its implementation, especially in times of crisis, would contributetomaintainingconsumptionlevelsandthustoeconomicsta- bilization in both individual eu countries and in the eu as a whole. At the level of individual countries, it is very difficult to ensure a balance between the payment of unemployment benefits and the collected un- employmentinsurancecontributionsduring(their)economiccrisis.Un- employmentinsuranceatthe eu levelcanbeintroducedwithoutcausing largeandpermanenttransfersbetweencountriesandinsuchawaythat Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 133 possiblestabilizationwouldbenefitallcountries.Inthreecasesstudiedin moredetail,theauthorsDollsetal.(2014)andDullien(2007;2013)note thatthereinsurancesysteminthecaseofunemploymentintheeuroarea couldbeimplementedwitharelativelysmallbudgetbutarelativelylarge stabilizingpower(from2to16percentreductionoftheoutputgap). Thebasicelementsofthe urs eu modelareexpenditureandreceipts. Expenditurewasdeterminedonthebasisofthe us unemploymentrein- surance system, as it is proving to be an effective mechanism for main- taining stability in the us federal states. Receipts in the presented urs eu model were determined so as to cover the total additional expendi- tureofanindividualcountryintheperiodunderreview,whichisacon- ditionforthesustainabilityofthesystem.Anindividualcountrybegins to receive assistance from the urs eu according to the level of the un- employmentrate(trigger). Theamountof urs eu aidtoanindividual eu countryisdetermined onthemodelofthe us unemploymentreinsurancesystem,whichmeans thatthemaximumaidcoversthecostsofanindividualfederalstateforup to20additionalweeksofreceivingunemploymentbenefitsforallunem- ployed.Onthebasisofhistoricaldatafortheeu-20intheperiod2003– 2019,wehavecalculatedtotalurseuexpenditure.Withthecalculated urs eu expenditure, we determined how much money wouldbe addi- tionallyallocatedtotheunemployed(ineachofthe eu-20countriesand ineveryyearduringtheperiodunderreview). eu-wide unemployment reinsurance would be integrated into exist- ingnationalunemploymentinsuranceschemesandwouldbepolitically acceptable to all countries. Labour market reforms have generally been implemented withoutlearning fromthe heterogeneity of labourmarket responsestoeuroareashocksandwithouttakingintoaccountthefind- ings that fiscal measures and labourmarket reforms that are effective in normal economic conditions can be very ineffective in times of major recessions. The realization from the recession period is that fiscal con- straintscanbeusedasatooltoinduceinstitutionalreforms.Therelease of fiscal constraints during the recession was considered to pose moral hazardproblemsinmonetaryunion(Schmid2020).Atypical(andcur- rent)concern thatarises whendiscussingtheimplementationoflabour market reforms is that countries are lessprepared forlabourmarket re- forms without strong fiscal constraints. Assuming that, given the need forinstitutionalreformsintheeuroarea,asmonetaryunionreducesthe level of macroeconomic stabilization policies in the eu, policy-makers Volume20·Number2·2022 134 AlešTrunkandIgorStubelj should be in favour of establishing a reinsurance system in the case of unemployment. Basedontheresearchandmodelsstudied,wefindthatthe eu coun- tries have not applied fiscal policy effectively in order to stabilize the economic cycle; therefore, unemployment reinsurance would act as an automatic stabilizer and thus contribute to a faster exit from the reces- sion. The fiscal policy of most eu countries was mainly cyclical rather thancounter-cyclical,whichfurtheracceleratedthefallin gdp.Leiner- Killinger and Nerlich (2019) note that the recent shift towards balanced budget rules in the euro area is an important achievement in this direc- tion and has contributed to better average underlying budgetary posi- tions.Still,thefiscalruleframeworkneedstoberenderedmoreeffective in reducing high levels of government debt and their dispersion across theeuroarea.Reducingtheheterogeneityofgovernmentdebtpositions isalsoanimportantprerequisiteforsettingupawell-governedcommon macroeconomic stabilization function at the centre of emu in case of deepeconomiccrises. Itwouldbeusefultointroduceanunemploymentreinsurancesystem intheeu.Theurseuasanaidtothenationalinsuranceinthecase ofunemploymentwouldcoverexpenditurerelatedtoincreaseinunem- ployment, while on the other hand, there would be more money left in statebudgetstostabilizestateeconomiesinrecession.Authorsofalready conductedresearch(Butietal.2002;Dullien2012;Epaulard2014;Evrop- ska komisija 2014; Davoine and Molnar 2020) find that the unemploy- mentreinsurancesystemhasadirectimpactonthelevelofconsumption, as it increases the income of the unemployed and also mitigates the fall in production during the crisis. Institutional reforms are needed in the euro area, as the monetary union reduces macroeconomic stabilization policiesatthe nationallevel. eu members havenot usedfiscalpolicyto alleviate the recession, and the unemployment reinsurance system, act- ingasanautomaticstabilizer,wouldachievejustthat.Webelievethatthe recessionisincreasingtheneedforanautomaticstabilizer. The eu (especially in times of recession) needs mechanisms that act asautomaticstabilizers.Giventhemanyagreementsandtreatieswithin the eu thatemphasizesolidarityandsocialandeconomiccohesion,the urs eu couldbeagoodsolutionforbothreducingasymmetricfinancial and economicshocks, and for economicintegration between members. After 2008,differences intheunemploymentratehavebeen increasing, between eu countries and also by age groups.Boeri and Jimeno (2016) Managing Global Transitions TheIntroductionofan eu UnemploymentReinsuranceSystem 135 arguethatthereasonforthesedifferencesisrelatedtolabourmarketin- stitutions,especiallygiventheirinteractionswiththescaleandnatureof the shocks of the great recession and the euro area debt crisis. The au- thorsalsoarguethattheintroductionofsuchareinsurancesysteminthe case of unemployment would give the eu its first common institution. Theyarguethatthe eu cannotbeafederationofstateswithoutcommon institutions,settingthe usa asanexample. 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