This paper analyses unemployment insurance schemes in the presence of mobile workers and trade unions at industry or country
level that are capable of internalising the effect of wage demands on unemployment insurance contribution rates. We compare
two types of existing unemployment insurance systems. When unemployment insurance is organised at trade union level (decentralized
Ghent unemployment insurance), trade unions strategically lower the benefit levels of their unemployment insurance schemes
to deter welfare recipients from other unions from entering their unemployment insurance scheme, leading to a race to the
bottom in unemployment insurance provision. With centralised provision of unemployment insurance, by contrast, trade unions
do not fully account for the cost of higher wages as mobility allows them to partially shift the burden of unemployment to
other unemployment insurances. A system of coordinated unemployment insurance, combining a centrally set benefit level with
decentralised funding as in Ghent unemployment insurance systems, can circumvent both the strategic benefit setting and the
fiscal externality problems, thus reconciling the equity and efficiency aims in the design of unemployment insurance.
