Labor Market Insurance Policies in the Twenty-First Century

Abstract

The COVID-19 crisis was a stress test for unemployment insurance schemes as it involved a sudden and unexpected shutdown of a very large set of activities. This forced countries to introduce, often from scratch, income support schemes for workers under new forms of employment and for the self-employed. There was also a considerable expansion of short-time work schemes. As we move past this crisis, labor markets are likely to be characterized by substantial labor reallocation, and major innovations in labor market policy will be required to smooth consumption of workers involved in this reallocation. We survey the large body of research on schemes complementary to unemployment insurance to reduce the costs of reallocation. We focus on short-time work, partial unemployment insurance, and wage insurance and compare their properties to those of standard unemployment benefits. Next we present the main empirical results on the effects of wage insurance, partial unemployment insurance, and short-time work. In the final section we discuss directions for further research.