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In their Policy Brief prepared for the September 13 informal meeting of EU finance ministers (ECOFIN), Claeys, Darvas and Wolff (2014) discuss the benefits, drawbacks and possible designs for a potential European Unemployment Insurance (EUI) scheme. They end their discussion by formulating 10 key decisions that policy makers would have to take before implementing such a scheme.

To illustrate this Policy Brief, this blog post proposes to give the reader the opportunity to make the main decisions on the design of an EUI scheme. Given that one of the main purposes of an EUI scheme would be to act as a stabilization mechanism by providing resources to the countries with increasing unemployment rates, these simulations allow you to see what would have been the potential outcomes of such a scheme if it had existed since 2000 depending on the various design parameters.

The decisions to take concerning the parameters are the following:

1. At what level should the scheme be implemented: at the European Union (EU) or at Euro Area (EA) level?
2. Should it be an ‘all-time” basic unemployment insurance (that would replace partly or fully national schemes) or a ‘catastrophic’ one (which would only be activated when there is a significant increase in the unemployment rate in a country)? In the case of a catastrophic insurance, what should be the trigger to activate it?
3. Should the scheme try to be neutral over the cycle for each country (thanks to differentiated contribution rates across countries) or should it allow potential persistent transfers (with a single rate across the EU/EA)?
4. What should be the replacement rate (i.e the share of the previous wage received as unemployment benefit)?

In order to simplify the choices for the non-expert reader, another possibility offered by our simulation tool is to run simulations by choosing directly the objectives you want the scheme to achieve rather than the exact parameters:

1. Again, you will have to choose at what level the scheme should be implemented:  European Union or Euro Area?
2. What should be the degree of stabilization achieved by the scheme? Do you want it to deal with all shocks, just large shocks, or only very large shocks?
3. What should be the degree of solidarity achieved by the scheme?  Do you want a scheme that minimizes lasting transfers across countries or not?

For the interested readers, the methodology used for the simulations can be found at the end of this post.