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A conditional Unemployment Insurance Mechanism across the eurozone

A conditional Unemployment Insurance Mechanism across the eurozone. Brussels. 20 February 2012 Presentation before the European Parliament Jacques DELPLA ( Professeur - associé Toulouse School of Economics) With Pierre-Olivier GOURINCHAS, UC Berkeley .

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A conditional Unemployment Insurance Mechanism across the eurozone

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  1. A conditional Unemployment Insurance Mechanism across the eurozone Brussels. 20 February 2012 Presentation before the European Parliament Jacques DELPLA (Professeur-associé Toulouse School of Economics) With Pierre-Olivier GOURINCHAS, UC Berkeley

  2. Need for CONDITIONAL Mundellian Transfers in the Eurozone • € countries with negative shocks cannot bear 100% of the shock, as no option to devalue or inflate away • We call for “Mundellian Transfers” to save the €, analogous to US automatic Stabilizers • With strong & credible conditions: “no money without reforms, no adjustment without money” • Mechanism design. Full of eco & pol incentives: ‘opt-ins’, ‘opt-outs’, finite duration. Inter-Governmental scheme. • Net contributing countries have an incentive to participate and can threaten to leave • Net receiving countries have to reform or leave the Inter-Governmental scheme

  3. A Euro-wide Conditional Unemployment Insurancewith THREE Pillars

  4. 1st) Resources of the u/e insurance • Creation of a Eurozone wide Unemployment Insurance Fund (€ Job Fund -€JF) • ≈ 1% of each country’s GDP for u/e insurance • + €-wide job training fund (0.5% of GDP) • With money coming out of existing national social funds, on an annual basis • With maybe some of the EU budget money (from structural funds) • All that money Managed by a European Labor Agency (probably managed by the EC), supervised by the European Parliament

  5. 2nd) The European Labour Contract • Unique for the whole €-area • Unique for all sectors • Would be the (N+1) contract in each country • Designed with full and genuine Flexisecurity • Designed by the European Commission and the EU Council, • With help of successful countries (Scandinavia, cf. former PM Rasmussen & Persson), • In consultation with EU labour and business unions (but they have no veto) • Voted by the European Parliament • Northern countries will emphasize flexibility, southern, security  Flexisecurity compromise

  6. 3rd) The ConditionalUnemployment Insurance • When hired, each worker has the option to sign in for : • National contract + national insurance (status quo) • OR: • European labor contract (Flexisecurity) • + (national and €) u/e insurance • + (national + €) job training • The company MUST propose both contracts • The worker is completely free to choose any of the two contracts. Respect for her preferences.

  7. Properties of the u/e € insurance • Idea : decentralize flexisecurity decision to the the individual, as it is extremely difficult to pass at national level. This by-passes political difficulties of reforming national labor laws. • Transfers money from booming countries to depressed areas, where it is most needed, and ONLY in case of actual reform • NO MORAL HAZARD: No transfers without reform • Reforms with transfers. • Why would Germany or NL sign in? • Reduce u/e in Spain, PT and GR, which is now systemic for the whole €-area • Avoid massive political & social meltdown in GIIPS

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