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Employment and Social Developments in Europe 2014
Box 6: The American unemployment benefit system mixes different features
The unemployment system in the United States combines a first layer of common unemployment benefit system type with very loose
harmonisation criteria, a second layer of reinsurance type for big shocks, and a discretionary supplementary scheme. While the com -
mon unemployment benefit system is automatically activated by unemployment, this is not the case for the other two programmes.
1) The regular Unemployment Compensation (UC) programme. It is a partnership between the federal government and the States.
In general, it provides unemployment benefits to workers who are unemployed ‘through No fault of their own’, and meet other
eligibility requirements of State law. In most States, workers are eligible for a maximum of 26 weeks. Each State administers its
own programme within guidelines established by federal law and has, within certain bounds, discretion in terms of eligibility, benefit
amounts and benefit duration.
2) The Emergency Unemployment Compensation (EUC) programme, which is an example of Temporal Federal Benefits (TFB). These
are paid under conditions set by emergency federal legislation in the case of a recession (see also Vroman 2010).
3) The Extended Benefits (EB) scheme, which was put in place in 1970 and extends the duration of benefits in periods of economic
difficulties. This programme is permanent, but benefits can only be paid if a trigger related to the unemployment rate is ‘on’ in a
given State. In these States, only the unemployed who have exhausted their (regular) UC and EUC benefits can receive these EB.
In the regular unemployment compensation, States have an individual State account at the federal unemployment trust fund.
States are supposed to levy taxes on (mainly) employers to build up balances in their account during periods of healthy economic
growth, and then draw down those balances to provide UB during downturns. States can draw on their accounts so much as to go
into deficit. However, States are required to fully repay the loans, with interest, within two years of borrowing the funds. If a state
does not repay the full amount, the federal government will recoup its funds by raising the federal payroll tax rate for the State
each year until the loan is repaid. This increase is automatically triggered. This mechanism helps avoid permanent transfers for
individual States for the regular (UC) benefits.
Pilot Project launched by the European and pay-outs) with the supranational 4. Conclusion
85
Parliament ( ). fund, with a rule for automatic updating
over time. Addressing socioeconomic
Key design issues in such systems divergences in Europe
include the choice of indicator that can Such systems can be conceived to requires …
serve to link to national unemployment stabilise both geographically (e.g.
systems, and the mechanisms to guard across Member States) and over time, The convergence in terms of economic
against moral hazard or lasting trans- thereby allowing for the accumulation and social performance that had been
fers. Such mechanisms to avoid lasting of reserves and temporary deficits, under way across the EU over the past
net transfers can be conceived ex-ante which could substantially increase two decades came to a halt with the cri-
(‘experience rating’) or ex-post (‘claw- their stabilising impact. Furthermore, a sis, and reversed strongly in the case of
back’) and could be applied separately fiscal capacity of either form could be employment and unemployment rates.
or jointly. The ex-ante form is called linked to some minimum requirements This particularly reflected the adverse
‘experience rating’ and consists in using on labour market or social systems by, impact of the crisis on Southern and
contribution rates to the supranational for instance, linking it to a commitment peripheral EU-15 Member States, while
fund which vary by Member State. The to undertake structural reforms and/or convergence did continue for most of
differentiation can be made in function other activation policies. the Member States that joined the EU
of the recent history in terms of pay- in 2004 or later.
ments made by the supranational fund Furthermore, it can be noted that the
to the Member State (or another vari- current United States unemployment These developments reflected both the
able). Rates are automatically updated system actually mixes these different exceptional size of the crisis but also
at a regular interval. The ex-post form features (see Box 6), with estimates of the underlying structural imbalances
is called ‘claw-back’ and the Member the stabilisation provided during a reces - that had become apparent in some
State’s contribution rate to the supra- sion ranging between 15 % and 30 % of Member States in the run-up to the cri-
national fund is adjusted in function of the initial drop in GDP (see Chimerine et sis (such as weak productivity growth
86
the national balance (of contributions al. (1999) as well as Vroman (2010)) ( ). and divergent nominal unit labour cost
( ) See Call for Tenders VT/2014/045,
85
http://ec.europa.eu/social/main.jsp?catId=624
&langId=en&callId=414&furtherCalls=yes) ( ) See for instance European Commission (2013c).
86
232
Box 6: The American unemployment benefit system mixes different features
The unemployment system in the United States combines a first layer of common unemployment benefit system type with very loose
harmonisation criteria, a second layer of reinsurance type for big shocks, and a discretionary supplementary scheme. While the com -
mon unemployment benefit system is automatically activated by unemployment, this is not the case for the other two programmes.
1) The regular Unemployment Compensation (UC) programme. It is a partnership between the federal government and the States.
In general, it provides unemployment benefits to workers who are unemployed ‘through No fault of their own’, and meet other
eligibility requirements of State law. In most States, workers are eligible for a maximum of 26 weeks. Each State administers its
own programme within guidelines established by federal law and has, within certain bounds, discretion in terms of eligibility, benefit
amounts and benefit duration.
2) The Emergency Unemployment Compensation (EUC) programme, which is an example of Temporal Federal Benefits (TFB). These
are paid under conditions set by emergency federal legislation in the case of a recession (see also Vroman 2010).
3) The Extended Benefits (EB) scheme, which was put in place in 1970 and extends the duration of benefits in periods of economic
difficulties. This programme is permanent, but benefits can only be paid if a trigger related to the unemployment rate is ‘on’ in a
given State. In these States, only the unemployed who have exhausted their (regular) UC and EUC benefits can receive these EB.
In the regular unemployment compensation, States have an individual State account at the federal unemployment trust fund.
States are supposed to levy taxes on (mainly) employers to build up balances in their account during periods of healthy economic
growth, and then draw down those balances to provide UB during downturns. States can draw on their accounts so much as to go
into deficit. However, States are required to fully repay the loans, with interest, within two years of borrowing the funds. If a state
does not repay the full amount, the federal government will recoup its funds by raising the federal payroll tax rate for the State
each year until the loan is repaid. This increase is automatically triggered. This mechanism helps avoid permanent transfers for
individual States for the regular (UC) benefits.
Pilot Project launched by the European and pay-outs) with the supranational 4. Conclusion
85
Parliament ( ). fund, with a rule for automatic updating
over time. Addressing socioeconomic
Key design issues in such systems divergences in Europe
include the choice of indicator that can Such systems can be conceived to requires …
serve to link to national unemployment stabilise both geographically (e.g.
systems, and the mechanisms to guard across Member States) and over time, The convergence in terms of economic
against moral hazard or lasting trans- thereby allowing for the accumulation and social performance that had been
fers. Such mechanisms to avoid lasting of reserves and temporary deficits, under way across the EU over the past
net transfers can be conceived ex-ante which could substantially increase two decades came to a halt with the cri-
(‘experience rating’) or ex-post (‘claw- their stabilising impact. Furthermore, a sis, and reversed strongly in the case of
back’) and could be applied separately fiscal capacity of either form could be employment and unemployment rates.
or jointly. The ex-ante form is called linked to some minimum requirements This particularly reflected the adverse
‘experience rating’ and consists in using on labour market or social systems by, impact of the crisis on Southern and
contribution rates to the supranational for instance, linking it to a commitment peripheral EU-15 Member States, while
fund which vary by Member State. The to undertake structural reforms and/or convergence did continue for most of
differentiation can be made in function other activation policies. the Member States that joined the EU
of the recent history in terms of pay- in 2004 or later.
ments made by the supranational fund Furthermore, it can be noted that the
to the Member State (or another vari- current United States unemployment These developments reflected both the
able). Rates are automatically updated system actually mixes these different exceptional size of the crisis but also
at a regular interval. The ex-post form features (see Box 6), with estimates of the underlying structural imbalances
is called ‘claw-back’ and the Member the stabilisation provided during a reces - that had become apparent in some
State’s contribution rate to the supra- sion ranging between 15 % and 30 % of Member States in the run-up to the cri-
national fund is adjusted in function of the initial drop in GDP (see Chimerine et sis (such as weak productivity growth
86
the national balance (of contributions al. (1999) as well as Vroman (2010)) ( ). and divergent nominal unit labour cost
( ) See Call for Tenders VT/2014/045,
85
http://ec.europa.eu/social/main.jsp?catId=624
&langId=en&callId=414&furtherCalls=yes) ( ) See for instance European Commission (2013c).
86
232
