Is American or European Unemployment Insurance More Generous?

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.

Comments

[otbricki:]

I'm all in favor of removing restrictions that inhibit the unemployment recipient from finding a job.

But I'm not in favor of increasing the costs to the employer of laying off an employee - that causes the employer be slower to hire people, increasing unemployment. As evidenced by the chronically higher unemployment rates in France.

2008 Dec 13 12:59 PM

[dw57:]

not sure it matters much. employers haven't been in the hiring mode even before the recession started last December. from the time of the previous recession it took almost 4 years to actually catch back up to where we were back in 2000, if we even really did. and wages certainly never kept up with even inflation (we are behind where we were in 2000) let along get ahead, which is abnormal for a recovery (if one ever really happened). wages should have gone up if we had a recovery, but that never happened. so now that the fake economy is gone, we will slide backwards till maybe we match Mexico's standard of living

2008 Dec 13 04:05 PM

[carey_jim:]

The biggest difference between Europe (and Japan) and America is that America won World War II and still finances the largest military engine in the world.

The question is, after two World Wars, are we willing to allow Germany and France to rearm (and will be be ABLE to stop them in the future?)

Also, after a thousand years of militaristic history, do we want Japan to rearm?

Of course Europe can afford more social programs than America, because most of our government spending is for "defense."

Unless we find a way to reduce military spending we wont be able to match Europe's social programs.

2008 Dec 14 12:35 PM