Private unemployment insurance - risk premiums instead of compulsory contributions (original publication in German)

The German system of unemployment insurance has failed to prevent the rise of unemployment over the past decades. The authors suggest replacing the existing federal unemployment insurance by a dual-system model of private unemployment insurance that includes incentives on the side of employees as well as of employers to reduce unemployment. They calculate the statistic fundamentals of a dual system of private unemployment insurance, using data of the year 2000. It is shown how much the individual employee would have to invest for a variety of unemployment payments and for a variety of individual “real” risks. In addition, it is demonstrated that each individual can reduce his/her insurance premium by simply declaring a higher degree of regional, professional, or income-related mobility. On the employers’ side it is elaborated that, via autoregressive processes, employment increases, and that at the same time each employer reduces the rate of his firm’s unemployment tax.

Kiel Institute Expert