Is American or European Unemployment Insurance More Generous?

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by: Zubin Jelveh

With the economy in tatters and the Democrats in control of the presidency and Congress come January, it would seem like the perfect time for an expansion of various social insurance schemes -- a New Deal II.

But no doubt there are some on the right who think we shouldn't go too far towards becoming a social democracy, so one way to measure our leftward movement is by comparing our programs with those of Western Europe, where social Darwinism holds less appeal.

And a new IZA study provides one such metric. Stéphane Pallage of the University of Quebec at Montreal and Lyle Scruggs and Christian Zimmermann of the University of Connecticut compare the generosity of unemployment insurance in Ohio and France. (The researchers picked those two regions because average wages and the percentage of the labor force in manufacturing were similar.)

Using data from 2005, they find that after controlling for differences like eligibility criteria and duration of benefits, France's unemployment insurance system replaced about 50 percent of an unemployed person's income while Ohio's replaced only 15 percent. The researchers conclude that France's scheme is roughly three times more generous than Ohio's.

But over the last year as job losses have mounted, Congress and the president have responded by extending unemployment by 20 weeks so that the newly jobless can collect for 10 months. While this surely reduces the gap between Europe and the U.S., the narrowing is offset somewhat by the fact that unemployment duration is also on the way up here. (The amount of time a person is unemployed in the U.S. has always peaked after a recession is already over.) So we still have a long way to go on this measure before we resemble Europe.

Over at NYT's Economix, Harvard-bound economist Raj Chetty has a good suggestion for what the next administration should do about unemployment insurance:

Increase federal unemployment insurance benefits (a key feature that should be introduced is allowing unemployed individuals to be eligible for benefits even if they move to a different state -- they now lose eligibility if they do so. This prevents workers laid off in Michigan from moving to find a job.