Welfare Compensation for Unemployment in the Great Recession


  • Note: We would like to thank A. B. Atkinson, A. Brandolini, A. Clark, A. Decoster, E. Marlier, C. Smith, the Editors, and an anonymous referee for their suggestions and comments. We use EUROMOD (version F4.23) which is financially supported by PROGRESS funding. We make use of microdata from the EU Labour Force Survey and the EU Statistics on Incomes and Living Conditions (EU-SILC) made available by Eurostat, the Italian, Estonian, and Belgian versions of the SILC data made available by the respective statistical offices and the Family Resources Survey (FRS), made available by the U.K. Department of Work and Pensions (DWP) through the U.K. Data Archive. Material from the FRS is Crown Copyright and is used with permission. Data providers bear no responsibility for the analysis or interpretation of the data reported here.


This paper analyzes the extent to which tax-benefit systems provide an automatic stabilization of income for those who became unemployed at the onset of the Great Recession. The focus of the analysis is on the compensation for earnings lost due to unemployment which is channeled through the welfare systems to this group of people who are clearly vulnerable to the recession's adverse effects. In order to assess the impact of unemployment on household income, counterfactual scenarios are simulated by using EUROMOD, the EU-wide microsimulation model, integrated with information from the EU-LFS data. This paper provides evidence on the differing degrees of relative and absolute resilience of the household incomes of the new unemployed. These arise from the variations in the protection offered by the national tax-benefit systems and from the personal and household circumstances of those most recently at risk of unemployment in the countries considered.