Unemployment benefits basically consist of two main instruments: unemployment insurance, which generally benefits people who have made a certain number of contributions to the system, and unemployment assistance, which seeks to fight poverty and is meant for people who don't qualify for unemployment insurance.
EU members have their own system of unemployment benefits. In most cases, workers should claim unemployment benefits in the country where they last worked. Systems differ notably across countries in the European Union in terms of replacement rates (the percentage of the previous salary that is covered by the system), duration and requirements.
The Situation in Greece, Spain and Portugal
Expenditure on unemployment benefits grew in Greece, Spain and Portugal as a consequence of the unemployment crisis in the eurozone. Under pressure from the European Union to reduce their deficits, Athens, Madrid and Lisbon were recently forced to amend their systems by increasing application requirements, reducing the duration of the benefits or modifying the amounts paid every month.
After the latest round of spending cuts, unemployment benefits in Greece fell from 460 euros ($590) per month to around 360 euros per month (the minimum wage in Greece is currently 683 euros per month), with a 10 percent increase for each underage child. Benefits are paid for a maximum of 12 months, and requirements increase for people applying for a second time or more.
In Spain, benefits vary greatly: while a person with no children could receive 497 to 1,087 euros per month, a person with two or more children could receive 664 to 1,397 euros per month. The minimum wage in Spain is currently 752 euros per month. Also, the unemployed generally receive 70 percent of their previous salary (subject to a ceiling) during the initial six months, but benefits fall to 50 percent thereafter. The current system is the result of a reform implemented by the Spanish government in early 2013, since benefits originally fell to 60 percent of the salary after six months.
In Portugal, the government approved a reform in April 2012 that increased the minimum period of coverage to nine months from five, but reduced the maximum period to 26 months from 38 months. Benefits are equivalent to 65 percent of average daily earnings in the previous year, but must fall between 419 and 1,048 euros, based on a state benchmark. This was also changed by the 2012 reform, as the previous system allowed payments of up to 1,257 euros.
In different ways, Greece, Spain and Portugal also offer assistance for people who do not meet the criteria for unemployment insurance. However, payments under these programs are often less than those for traditional unemployment benefits.
Limits to the Unemployment Benefit Safety Net
Unemployment benefits are one of the safety nets available for people affected by the economic crisis in Greece, Spain and Portugal. This system — along with other social benefits such as pensions and increased remittance inflows from family members abroad, as well as aid from family members at home and, to some extent, informal economic activities — is somewhat mitigating the social aspect of the European economic crisis. However, these safety nets are limited.
Because of the pervasiveness of the crisis, long-term unemployment (people who have been out of work for a year or more) is growing in the EU periphery and currently affects almost half of the unemployed population of Greece, Spain and Portugal. This means that many people will likely lose their unemployment benefits before they find a new job.
System coverage is an additional issue, because only half of the unemployed in Portugal and two-thirds of the unemployed in Spain receive benefits. According to Greece's Manpower Employment Organization (the institution that manages unemployment benefits in the country), only three out of every 10 unemployed Greeks receive state subsidies.
Rising unemployment is also leading to a shrinking tax base in these countries, giving central governments fewer economic resources to support a more expensive system of unemployment benefits. According to the European Union's statistics agency, Eurostat, spending on unemployment benefits rose from 2 to 3.5 percent of gross domestic product in Spain between 2007 and 2010. During the same period, spending on unemployment benefits grew from 1 to 1.7 percent of gross domestic product in Greece and from 1.1 to 1.4 percent of gross domestic product in Portugal.
Since 2007, Spain, Greece and Portugal have each almost doubled their unemployment benefit expenditures. Other eurozone countries also increased their expenditure on unemployment benefits — Germany and France added about 100 euros per inhabitant during the same period — but Greece, Spain and Portugal had to do so while their economies were severely contracting. Moreover, Athens and Lisbon are under strict budgetary control as part of the terms of their bailout agreements with the European Union and the International Monetary Fund, while Madrid has also been forced to reduce spending under the terms of the banking bailout that it received in 2012.
This puts Athens, Madrid and Lisbon in the dilemma of applying further cuts in unemployment insurance and potentially generating more social unrest or keeping it at its current levels and failing to meet the European Union's deficit targets. With unemployment projected to remain well above its pre-crisis level in the medium term, the sustainability of unemployment insurance will remain a key issue in the periphery of the eurozone.
