EUROPEAN SEMESTER THEMATIC FACTSHEET

UNEMPLOYMENT BENEFITS

1. INTRODUCTION are calculated. For example, the duration

of unemployment benefits can range
Unemployment benefits are a key from 90 days to indefinite duration, while
feature of all European welfare their amount can be calculated as a
systems. By insuring workers against given or varying percentage of the
the risk of job loss, they provide an person's last wage, as a flat rate or as
essential safety net for individuals and the result of a formula comprising both
households, thereby contributing to these elements, with the possible
protecting them against poverty. They application of minimum and maximum
also act as automatic stabilisers in the thresholds. There is also a lot of
business cycle by supporting the incomes variation in job-search and availability-
of those who have lost their job and look to-work requirements, which are another
for another employment. In addition, key feature of unemployment benefit
unemployment benefits make the systems to ensure that recipients remain
reallocation of labour across the engaged and do not become inactive.
economy a smoother process, as job
seekers can devote time to finding jobs The incentive to work is influenced not
that match their skills and expectations, only by these design characteristics of
or to retrain. In these ways, unemployment schemes, but also by the
unemployment benefits support growth. applicable tax and benefit systems,
including (usually) means-tested benefits
At the same time, high unemployment such as social assistance, housing
benefits received over an extended benefits, family benefits and in-work
period of time, with limited job search benefits. Likewise, individual job-search
conditionality, may reduce the incentive efforts are influenced by the provision of
to return to work. This has a negative active labour market policies1, as well as
impact on unemployment duration and by overall economic and labour market
total unemployment, and detrimental conditions.
effects on growth and on the
sustainability of social protection Unemployment benefits can take two
systems. different forms: unemployment insu-

Unemployment benefit systems vary

widely across Member States, and
1
operate in context of the wider Active labour market policies (ALMPs) are not
economic and institutional limited to the beneficiaries of unemployment
benefits, but are generally also open (depending on
framework. There are differences in the characteristics of the ALMP system) to
qualifying periods for eligibility, in the jobseekers who are not eligible for unemployment
duration of time covered by (or other) benefits. They can range from job search
unemployment benefits, in their support provided by public employment services, to
monetary level and related evolution training and life-long learning, wage subsidies or job
creation schemes. A separate thematic factsheet
over time, and in the way in which they
covers this specific policy field.

Page 1 |
rance and unemployment assistance.
Unemployment insurance benefits exist
in all Member States and are based on
contributions. This means that a person
can only claim them after having had a
certain minimum period in employment
with paid contributions (known as
qualifying period). Their level is often
calculated in proportion to the level of
earnings received in the last job and
their duration often depends on the
length of time during which contributions
were paid. Unemployment assistance
primarily aims to prevent
unemployment-related poverty: it is
generally means-tested and made
available to unemployed individuals who
are ineligible or no longer entitled to
unemployment insurance. The level of
unemployment assistance benefits is
generally lower than for unemployment
insurance. Most Member States do not
have a separate unemployment
assistance scheme in place, but mostly
rely on general means-tested social
assistance made available to low-income
households2.
This note is structured as follows:
Section 2 reviews existing challenges in
EU countries with regard to policy
outcomes; Section 3 discusses the
available evidence on appropriate
policies to effectively address the
corresponding challenges; and section 4
provides a cross-country examination of
policy performance in the EU. Section 5
lists additional sources of data and
information.
2. POLICY CHALLENGES; AN
OVERVIEW OF PERFORMANCE IN EU
COUNTRIES
The design of unemployment benefit
systems needs to strike a balance
between the objective of sustaining job-
seekers’ incomes during unemployment
spells and the need to ensure adequate
incentives to work. Benefits vary both in
their level (in particular relative to
2 3
Eleven Member States (Austria, Germany,
Estonia, Finland, France, Ireland, Malta, Portugal,
Spain, Sweden and the United Kingdom) have a
separate means-tested unemployment assistance
benefit.
previous earnings) and in their duration
over time. Low benefit levels translate
into a weakening of the living standards
of unemployed people. The same is true
for benefit duration, as those who are
unemployed need enough time to find a
suitable job that matches their skills and
qualifications. On the other hand, if the
gap between the level of income
provided by unemployment benefits and
the income potentially earned from
employment is too small, it may
jeopardise the incentive to return to
work3.
Other design characteristics of
unemployment benefit systems also
influence unemployed people’s labour
market attachment and employability.
This is the case for job-search and
availability-to-work requirements and
the compulsory participation in active
labour market programmes that can be
set as a condition for the continued
receipt of benefits. The related
imposition of sanctions, notably the
suspension of benefit eligibility in cases
of non-compliance with availability to
work and job search requirements, is
also an influence.
In particular, more stringent job-search
and availability-to-work requirements
are expected to encourage recipients of
unemployment benefits to actively look
for work, and to accept suitable job
offers. This counterbalances the possible
financial disincentives to work generated
by generous unemployment benefit
systems, and reduces benefit
dependency. More intense job-search
efforts and more rapid acceptance of job
offers would decrease discouragement
and possibly reduce unemployment
duration. At the same time, overly
stringent requirements may have
unintended or counterproductive effects.
For instance, very stringent demands on
occupational mobility (such as the
Such financial disincentives to work are well
captured by the so called 'unemployment trap'
indicator produced by the European Commission
based on the OECD tax-benefit models. See
Section 5 below.
Page 2 |
requirement to accept any job offer
regardless of the person’s qualifications)
may lead to a higher number of job
matches in the short term to the
detriment of the quality of such matches,
which may not be long-lasting (with
more people falling back into
unemployment more frequently). Also,
excessively cumbersome requirements
may discourage individuals from trying
to meet them and lead people to
continue to claim the benefits and fall
into inactivity.
The provision of early support to job
seekers in the form of counselling and
appropriate active labour market policies
also plays a key role. This is not
discussed further here as active labour
market policies are the subject of a
separate factsheet4.
To assess the extent to which
unemployment benefit systems reach
the expected labour market matching
and social outcomes, two indicators are
particularly relevant: the at-risk-of-
poverty rate of the unemployed and the
long-term unemployment rate (as a
percentage of the active population).
The proportion of short-term
unemployed covered by unemployment
benefits is positively correlated with
higher transitions from short-term
unemployment to employment (chart
1a) and a lower rate of long-term
unemployment (chart 1b). The coverage
of short-term unemployed by
unemployment benefits is based in
particular on the duration of benefits
and on specific entitlement conditions.

Chart 1. Coverage of short-term unemployment benefits and exits out of short-term

unemployment, or rate of long-term unemployment

60

50
Transitions (2016)

40

30

20

10

0
0 5 10 15 20 25 30 35 40

Coverage of short term unemployed (2016)

STUR Linear (STUR)

4
See: European Semester Thematic Factsheet on Active Labour Market Policies.

Page 3 |
 Rate of long term unemployment (2016) 18

16

14

12

10

0
0 10 20 30 40 50 60 70
Coverage of short term unemployed (2016)
LTUR Linear (LTUR)
Source: Eurostat and the Joint Assessment Framework.

Note: transition from short-term unemployment to employment; LTUR: long-term

unemployment rate; for transition rates, R² = 25 %, for the rate of long-term
unemployment R² = 9%.

The coverage of the short-term The situation of Member States as

unemployed by unemployment regards the three key dimensions of
benefits deserves particular measuring policy performance in
attention, as it concerns both this field is summarised in the
labour market and social following charts (charts 2, 3 and 4).
outcomes. At the same time, poverty Respectively, they show the levels and
is significantly higher among the long- changes in coverage of the short-term
term unemployed, which shows that it unemployed, the rate of long-term
is only partially linked to the coverage unemployment and the poverty rate
of the short-term unemployed by among the unemployed. The vertical
unemployment benefits. There are a bars indicate very low and low and/or
number of other drivers of poverty, very high and high performance5; the
such as the adequacy of social horizontal bars indicate low and/or high
protection benefits, including social change levels.
allowances.

5
As provided by the scoreboard methodology, based on the distance to the average both in terms of levels and
trends. For more details on the methodology, see the Joint Employment Report (2016), Annex 4.

Page 4 |
Chart 2. Coverage of unemployment benefits for short-term unemployed (in 2016, 2013
and 2008)

Source: Eurostat.

Note: data for Ireland, the Netherlands and Austria are not available. Change is
expressed in points.

Chart 3. Long-term unemployment as a percentage of the active population (2008, 2013

and 2016)

Source: Eurostat.

Note: levels and change are expressed in points.

Page 5 |
Chart 4. Poverty rate among the unemployed (2016) and change in this poverty rate
(2015-2016)

15

SI
10
LU
HU
5 BE
PT CZ
Change 2015-2016

ES IE EL BG
IT DE
0
DK FR MT EE
NL PL
RO SK CY

-5 HR AT
LV

-10
LT

-15
0 10 20 30 40 50 60 70 80
At-risk of poverty rate of unemployed persons (2016)
Source: European Union Statistics on Income and Living Conditions (EU-SILC), 2016 (income for 2015) and
2015 (income for 2014).

Note: change is expressed in points.

3. POLICY LEVERS TO ADDRESS THE On the contrary, the impact of the

POLICY CHALLENGES
Several parameters of unemployment
benefit systems appear to impact the
outcomes identified in the preceding
section.
A first policy lever to consider is the
duration of unemployment benefits,
which appears to directly impact the
poverty rate of the unemployed. In
practice, duration depends on a number
of factors, in particular on former work
history, as in many Member States
maximum benefit duration increases with
tenure (longer benefit duration for longer
contribution periods over a given period
of time). However, the extent to which
the tax-benefit system protects the
incomes of the unemployed also depends
on other policy levers, such as benefit
replacement rates, or the entitlement to
receive unemployment benefits (see
below).
duration of benefits on unemployment
duration for the overall unemployed
population is generally relatively weak6,
as maintaining living standards in the
event of unemployment can also mean
better chances of being re-employed and
6
See for instance L.F. Katz and B.D. Meyer
(1990) The impact of the potential duration of
unemployment benefits on the duration of
unemployment. Journal of Public Economics. Vol.
41(1): 45-72. S.P. Jenkins, C. Garcia-Serrano
(2004) The relationship between unemployment
benefits and re-employment probabilities: evidence
from Spain. Oxford Bulletin of Economics and
Statistics. Vol. 66 (2): 239-260. K. Carling, P-A. Edin, A.
Harkman, B. Holmlund (1996) Unemployment duration,
unemployment benefits, and labour market
programmes in Sweden. Journal of Public
Economics. Vol. 59(3): 313-334. M. Hagedorn, I.
Manovskii, K. Mitman (2015) The impact of
unemployment benefit extensions on employment:
the 2014 employment miracle? H. Schmitz, V.,
Steiner (2007) Benefit-entitlement effects and the
duration of unemployment: an ex-ante evaluation of
recent labour market reforms in Germany. IZA
Discussion Paper No 2681.

Page 6 |
better job matching when coming back
to work 7. There is also evidence that
the new unemployed not entitled to
unemployment benefits more often
come from poorer backgrounds with a
weaker attachment to the labour
market 8. Furthermore, countries with
more generous unemployment insu-
rance and higher spending on
activation policies and measures show
a more sustainable record of
reintegrating previously unemployed
workers 9.
A second policy lever, the net
replacement rate of previous
earnings, is also negatively
correlated with the poverty rate of
the unemployed. When calculating
net replacement rates, net income is
defined as income after taxes and
social security contributions, with the
inclusion of possible social benefits
(social assistance, family, housing and
in-work benefits). It should be stressed
that the net replacement rates, and
their evolution over time, can differ
substantially depending on the
contribution history of the unemployed
person, in particular for shorter
contribution records, and on the time
horizon considered, as benefits usually
decrease with time spent in
unemployment 10.
7
See for instance D. Gallie, S. Paugam, S.
Jacobs (2003) Unemployment, poverty and social
isolation: is there a vicious circle of social exclusion?
European Societies. Vol. 5(1): 1-32.
8
See for instance F. Figari, M. Matsaganis, and
H. Sutherland, (2013) Are European Social Safety
Nets Tight Enough? Coverage and Adequacy of
Minimum Income Schemes in 14 EU Countries.
International Journal of Social Welfare. Vol. 22: 3–14.
M. Fernandez Salgado, F. Figari, H. Sutherland, A. Tumino
(2014) Welfare compensation for unemployment in the great
recession. Review of Income and Wealth. Series 60,
supplement issue, May 2014.
9
See for instance Wulframm M. and Fervers L.
(2013), Unemployment and subsequent
employment stability: does labour market policy
matter? IZA Discussion paper No 7193.
10
One possibility is to focus, based on Member
States' practice, on net replacement rates after six
months of unemployment at 80 % of the average
wage, while keeping in mind that there are also
floors and ceilings.
While it is clear that higher net
replacement rates directly
translate into higher household
incomes, their net impact depends
on a number of factors, notably on
their interactions with other benefits
and the tax system, and on aspects
such as the previous level of earnings
and work history 11. In addition, higher
replacement rates can also translate
into growing financial disincentives to
work, which in turn can negatively
impact activity or employment rates,
in particular for some categories of
worker (such as the unemployed with
a partner in employment)12. Unem-
ployment traps 13 are often very high
for low-wage earners and workers
offered jobs with lower re-
employment wages.
A third policy lever related to
entitlement conditions, the length
of the qualifying period, appears
to be positively correlated with
the poverty rate of the
unemployed. Entitlement to unem-
ployment insurance benefits depends
on previous work records and/or
contributions paid. In particular, the
unemployed are generally required to
have a minimum work record, the
exact definition and length of which
varies substantially. Consequently,
individuals with short employment
spells and fewer continuous work
histories are less often covered by
11
See for instance J. Gruber (1994) The
consumption smoothing benefits of unemployment
insurance. NBER working paper, no. 4750, or M.
Dolls, C. Fuest, A. Peich (2012) Automatic
stabilisation and discretionary fiscal policy in the
financial crisis. IZA Journal of Labor Policy. Vol.
1(4).
12 See for instance OECD (2005), Increasing
financial incentives to work: the role of in-work
benefits. Employment outlook, chapter 3.
13 The indicator measures the marginal effective
tax rate on labour, namely the extent to which the
increase in gross earnings when moving from
unemployment to work is reduced as a result of
income taxes, social security contributions and the
withdrawal of benefits.
Page 7 |
unemployment benefits 14. Therefore, A plausible assumption is that the first
strict eligibility conditions lead to round of costs related to greater
fewer unemployed people being coverage or high benefit amounts may
entitled to benefits, which means low be relatively quickly offset by improved
coverage and low stabilisation impact. employment performance and higher
The possibility to cumulate different tax returns from an increased number
contribution periods so that no rights of people in employment, as well as
are lost has a significant impact here. from the economy growing faster
Entitlement conditions for self- thanks to the improved use of human
employed and workers with atypical capital.
contracts are also frequently used as a
lever to improve coverage, for
instance by providing the possibility of 4. CROSS-EXAMINATION OF POLICY
joining a scheme on a voluntary basis. STATE OF PLAY

Reforms aimed at increasing Regarding the different parameters of

replacement rates and duration of
benefits, or at broadening entitlement
conditions, mean additional spending.
Insurance-type schemes see employees
and firms contributing directly to fund
the benefits. Since such contributions
are generally seen as similar to
taxation, wider benefit coverage
requiring higher contributions may
possibly discourage job creation.
Nevertheless, such reforms are also
expected to allow the labour market
and the economy to function better in
the medium term, generating higher
tax revenue from labour income,
though with decreasing returns on the
amount spent on unemployment
benefits and activation measures.
Even in the short-term, reduced
unemployment benefits do not
necessarily save public money: in
most Member States, the unemployed
often get other forms of social support
that tend to be more lasting, ranging
from unemployment assistance to
minimum income (passive measures).
unemployment insurance which have
been described as policy levers in the
preceding section, the state of play in
the individual Member States is shown in
charts 5, 6, 7 and 8, below.
Chart 5 shows the maximum duration of
benefits after one year of contributions.
While in most Member States duration is
lower than the contribution period (with
a half-period, i.e. 26 weeks, being the
most frequent), in four cases it equals
the contribution period (i.e. in Greece,
France, Luxembourg and the
Netherlands) and in three cases it is
higher (71 weeks in Finland, 104 in
Denmark, indefinite in Belgium). At the
opposite side of the scale, benefits last
three months or less in Croatia,
Hungary, Malta and Slovenia.

The costs for public finances over

the short- and long term are not
easy to assess and vary with time.

14
See for instance ILO World Social Protection
report (2014-15), Esser I., T. Ferrarini, K. Nelson, J.
Palme and O. Sjoberg (2013) 'Unemployment
Benefits in EU Member States' or Langenbucher, K.
(2015), 'How demanding are eligibility criteria for
unemployment benefits, quantitative indicators for
OECD and EU countries', OECD Social,
Employment and Migration Working Papers, No
166, OECD Publishing, Paris.

Page 8 |
Chart 5: Maximum duration of benefits for a one-year work record, January 2017

120 weeks

100

80

60

40

20

0
HU MT HR SI NL ES BG SK AT PT CZ EE CY DE IT RO LT PL UK IE LV SE FI FR EL LU DK BE

Maximum duration of benefits for a one-year work record

Source: The Mutual Information System on Social Protection database and national legislation (for Spain, Italy
and France).

Note: In Belgium, there is no limit on the duration of benefits. In many countries (Czech
Republic, Germany, Lithuania, Portugal), the benefit duration also depends on age, with
the duration for the youngest age group being shortest, as shown in the chart. In
Portugal, a contribution period of 15 months instead of one year is used. In Slovakia, the
duration shown is for people with fixed-term contracts, otherwise it is six months. In
Poland, duration also depends on e.g. the regional unemployment rate.

Net replacement rates provide an is not eligible for unemployment

indication of the adequacy of the income insurance (Slovakia, Lithuania) or where
replacement function of unemployment the benefit is already terminated in the
insurance benefits. Their level depends second month of unemployment
on a number of factors, including the (Hungary). These are followed by
previous level of earnings, seniority, Member States that provide a flat-rate
duration of the unemployment spell, age benefit which is unrelated (or only
and household composition (in particular weakly related) to the level of previous
when interaction with the tax system earnings (Bulgaria, Greece, Malta,
and with other benefits is taken into Romania, United Kingdom). A
account). In the case of a low-wage comparison with net replacement rates
worker with a short work history (one in the 12th month of the unemployment
year), after one month of unemployment spell shows either the expiration of
the values of the net replacement rate benefits (with individuals falling into
range from 25 % of previous (net) other schemes, such as unemployment
earnings to 90 % (chart 6). At the lower or social assistance) or a reduction in the
end, there are Member States where the benefit amount.
individual with a work career of one year

Page 9 |
Chart 6. Net replacement rate of unemployment benefits at 67 % of Average Wage,
January 2016

100 %

80

60

40

20

0
HU SK LT RO BG EL UK MT AT PL DE EE FR LV NL FI DK IE HR SE IT PT CZ ES SI LU BE

2nd month 12th month

Source: European Commission based on OECD tax-benefit indicators.

Note: The calculation is for a worker at 80 % of the average wage, with one year of contributions (2nd
and 12th months of receiving benefits). The chart includes all the different income components,
including unemployment benefits and other benefits (such as social assistance and housing benefits).

In all Member States, entitlement to common. For the ratio between the
unemployment insurance benefits depends contribution period and a longer ‘reference’
on previous work records and/or period — which makes it possible to take
contributions paid. Chart 7 shows that the into account periods of non-employment —
number of weeks required to access the most frequent value across Member
unemployment benefits varies between 25 States is 0.5 (that is, beneficiaries should
or less in Greece, France Italy and Malta, to have contributed for at least half of the
more than 80 in Lithuania and Slovakia, reference period).
with one year (52 weeks) being the most
Chart 7. Length of the required qualifying period, situation in 2015

120 120%
Contribution period as % of

100 100%
reference period
Contribution period (weeks)

80 80%

60 60%

40 40%

20 20%

0 0%
IT FR MT EL CY FI LU NL SE BG HR LV SI IE UK ES HU PT AT BE CZ DE DK EE LT PL RO SK
Source: The Mutual Information System on Social Protection database and national sources (for Italy)15.
Note: Red diamonds indicate the ratio between the contribution and reference period. The chart relies on a
simplification of data for some countries where the qualifying periods are calculated in a more complex way.

15
For Italy, the figures relate to the situation after the Job Act was adopted in May 2015.

Page 10 |
Chart 8: Indicator of strictness of job-search and availability-to-work requirements,
2014

0
CY HU CZ ES FI AT BG BE EL IT IE LT PL DE FR SK SE RO DK LV UK NL SI LU PT EE HR MT
Availability requirements Job-search requirements Sanctions
Source: OECD

Finally, the job-search and availability-to
work-conditions and related sanctions
appear to be the strictest in Estonia,
Croatia, Luxembourg, Malta, Portugal,
and Slovenia, while they are least strict
in Cyprus and Hungary. The relative
importance of the sub-components also
varies considerably across countries.
5. USEFUL RESOURCES
More information and data on entitlement
conditions, duration of benefits and eligibility
criteria of unemployment benefits can be
found in the MISSOC database16. The
database is updated every six months
and validated by Member States. The
information can be further complemented by
primary national sources (such as
legislation), and country-specific
information on tax and benefit systems
compiled for instance by the OECD.
Results from the OECD tax-benefit
models can also be used to monitor the
development in the net replacement rate
of benefits and the effects on work
incentives (notably the so-called
unemployment trap, which is defined as
the effective tax rate that applies to the
additional gross income that is earned
when moving from unemployment to
work, accounting both for direct taxation
as well as the withdrawal of benefits)17.
These data are generally published in
November each year, with around 1.5 to
2 years delay. The modelling relies on a
consistent set of assumptions which
ensures cross-country comparability and
uses official information provided
through national delegates. Information
on average wages, which feeds into the
tax-benefit model calculations, is
obtained using a well-defined and agreed
methodology.
Job-search and availability-to-work
requirements for unemployment benefits
have been the object of analysis by the

16
MISSOC, the 'Mutual Information System on
Social Protection', is an information base for social
protection legislation, benefits and conditions in
17
place in all EU Member States, Iceland, For more information, see: http://ec.europa.eu/
Liechtenstein, Norway and Switzerland. For more social/main.jsp?catId=1143&intPageId=3197&langId
information, see: http://www.missoc.org/. =en.

Page 11 |
OECD18. Data have been collected for all (i.e. under what circumstances a job offer
EU Member States, and a composite may be refused without sanctions); monitoring
indicator has been constructed to of job-search activities (frequency of job
measure the strictness of such searches, with documentation to be provided);
requirements. Eleven items have been sanctions (for voluntary unemployment,
identified to characterise different refusal of job offers, failure to participate
aspects of job-search and availability-to- in counselling sessions or active labour-
work requirements. These are grouped market policies).
under three areas: availability to work
also during participation in active labour-
market policies and suitable work criteria Date: 11.11.2017

18
See: Venn (2012), Langenbucher (2015). In its
work, the OECD refers to job-search and availability
requirements as 'eligibility criteria', making a
distinction in terminology between entitlement
conditions (which refer to the requirements for
acquiring the right to benefits) and eligibility criteria
(which encompass the set of conditions that apply
for the continued receipt of benefits).

Page 12 |