An Efficient Unemployment Insurance for Germany (original publication in German)

It is analysed whether a system of private unemployment insurance is feasible, and if so, what specific features it should have. According to the authors the popular arguments against a private unemployment insurance, such as “moral hazard” and “adverse selection” do not hold. They suggest a dual-system model of private unemployment insurance that includes incentives on the side of employees as well as of employers to reduce unemployment. Each employee pays insurance premiums according to his individual risk of getting unemployed and according to his preference with respect to the individual level and duration of unemployment payments. On the employers’ side the US system of experience rating is elaborated in such a way as to increase, via auto-regressive processes, the built- in tendencies of unemployment reduction. In addition, the regulation necessary to operate this dual system is analysed.