A One-Month Experience Rating in Unemployment Insurance: A Reform Proposal

This paper proposes a One-Month Experience Rating as a pragmatic reform of unemployment insurance financing in countries such as Austria and Germany, where contributions are currently uniform across firms. Employers would reimburse unemployment benefits for up to one month after a separation, except in cases of voluntary quits or justified dismissals. This direct, time- and cost-limited liability creates strong incentives to reduce short-term temporary layoffs while preventing excessive burdens on firms. A hiring bonus for formerly unemployed workers mitigates potential hiring disincentives. Illustrative calculations for Austria suggest considerable annual savings for the unemployment insurance system, enabling lower contributions, improved benefits, or fiscal consolidation.