IPP Policy Brief n°57 - September 2020

Should employer contributions to unemployment insurance be adjusted?

IPP Policy Brief n°57

September 2020

Authors: François Fontaine, Basile Vidalenc

Contact: francois.fontaine@univ-paris1.fr

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logo-pdf-minShould employer contributions to unemployment insurance be adjusted?

 

Summary

A bonus-malus system allows employers’ unemployment insurance contributions to be adjusted according to the balance between their contributions and the compensation expenses they cause when they part ways with an employee. Such a system makes it possible to stabilize the labor market, both by limiting temporary layoffs and by limiting fluctuations in employment in the event of an aggregate shock. We show that this system, which already exists in the United States, is justified in France by the extent of cross-subsidies that consume 20% of the unemployment insurance budget. To be effective, it ought to be extended to all firms and sectors because, while the average gaps are large, there are persistent differences between firms in the same sector. We show that an adjustment by about one percentage point (two for temporary work) would reduce cross-subsidies by 20%.

Key points

  • Transfers between sectors represent 20% of the resources of the unemployment insurance scheme.
  • Transfers for temporary work alone account for 12% of resources.
  • While the gaps between sectors are significant, there are persistent differences between companies in the same sector.
  • Adjustment of employer contributions is an essential tool for limiting cross-subsidies.
  • Contrary to the provisions of the 2019 reform, this adjustment must be applied to all sectors and companies.
  • Adjustment by about one percentage point for most sectors (two for temporary work) would reduce cross-subsidies by 20%.

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