This paper investigates the effect of the introduction of a European unemployment insurance scheme (EMU-UI) on the labour supply and the income distribution in the Eurozone countries. Based on a structural estimation of the labour supply and using the European tax-benefit microsimulation model EUROMOD, we simulate various scenarios of reform. The results show that the labour supply response to the introduction of a EMU-UI differs substantially across countries and depends on the design of the EMU-UI. We find that a flat EMU-UI scheme implies very strong disincentive to work but reduces poverty. On the contrary, a fully contribution-related EMU-UI system limits much more the distortions on the labour market in most countries but has limited effects on poverty and inequality. An EMU-UI with a common replacement rate, articulated with floor and ceiling amounts, would allow for upward convergence as it would reduce strongly poverty and inequality in several countries while not inducing important labour supply reduction.
